A political fight is looming over Victoria’s landmark auction laws after the real estate lobby announced its strong opposition to the plan and unveiled alternative reforms.
A demerit point system to punish recidivist agents, free building inspection reports and a ban on withholding sale prices are among the changes proposed in the blueprint by the Real Estate Institute of Victoria (REIV).
While the eight-point plan would significantly water down the Allan government’s bid to force sellers to disclose their exact reserve price before the auction, industry leaders argue their blueprint goes further in reforming the sector.
“We really do believe this is a very fair and equitable and workable solution,” said REIV chief executive Toby Balazs. “What they’re doing at the moment is counterproductive … the question we’re asking is, are they trying to diminish or kill off auctions?”
The case against the government’s plan
Late last year, Consumer Affairs Minister Nick Staikos said his government would introduce Australia-first laws to address rampant underquoting by requiring agents to publish the owner’s reserve price at least seven days before auction day or fixed-date sale.
Staikos has also indicated the government could be open to further reforms.
The “massive” change followed this masthead’s Bidding Blind investigation revealing prospective buyers were more often than not misled by inaccurate price guides. More than half of 26,000 Melbourne properties auctioned sold above the top end of the range, as agents were able to skirt or break existing underquoting rules with impunity.
After initially announcing it could support reserve price disclosure, the REIV’s blueprint confirms the group will now “strongly oppose” the government’s plan, dubbing it impractical.
The group, which represents more than 5000 real estate agents and other property professionals, said the move could artificially inflate prices because vendors would list a cautious reserve, higher than the figure they would actually be willing to sell for, to avoid being trapped at a lower price on auction day.
The REIV’s alternative proposal would not require vendors to disclose their exact reserve, but instead confirm their reserve was within the advertised 10 per cent range at least three days before auction.
Andrew McCann, the chief executive of Jellis Craig, and part of the 13-person working group behind the blueprint, said the change would still address a key frustration of buyers with existing laws. These laws allow agents to promote properties at a price vastly below what a vendor is prepared to sell for.
“When buyers are given a false sense of hope, that’s when they feel misled and emotionally let down,” McCann said.
The blueprint also suggests a shift in practice for private sales. Rather than giving a 10 per cent range to buyers, homes would be advertised at a single figure: the owner’s asking price.
Balazs said the vendor wouldn’t be compelled to sell at this price, but the expectation would be that the offer would be accepted as it would be the vendor’s “desired price” for the property.
“In a private sale, the asking price functions as a clear price signal intended to guide buyer engagement on what the vendor wishes to achieve; in an auction, the reserve price serves a more dynamic purpose, the minimum price a vendor will accept,” the blueprint says. “Effective regulation must acknowledge and incorporate these distinctions.”
A demerit system for dodgy agents and other reforms
As part of its plan, the REIV has also embraced several reforms long flagged as possible solutions to underquoting, an illegal practice whereby agents deliberately provide a low sale estimate for a property to attract a crowd.
Instead of wasting thousands of dollars on building and pest inspections for homes that they are ultimately unable to afford, prospective buyers would be given the reports free through section 32 documents. Echoing the model already in place in the ACT, the cost would eventually be passed on to the successful buyer.
A survey conducted by the Consumer Policy Research Centre in 2022 found that about one in six Victorians had obtained seven or more building and pest reports during their property search, costing an estimated $4200.
“I think this cleans up a lot, and I think it will give buyers a lot more confidence without having to spend a lot of money,” said real estate veteran Barry Plant.
“They could be looking at six houses. They don’t have to get six building inspections. They can just rely upon the one that’s there. It’s certified, it’s guaranteed [and] it’s got a warranty behind it.”
Among the more unexpected proposals in the blueprint is a plan to introduce a licence demerit point system that could result in agents being banned or suspended if they rack up multiple penalties or commit a severe infraction.
McCann said it was incredibly frustrating to have the reputation of most of the real estate industry tarnished by a few doing the wrong thing. He compared the proposal to the AFL’s “three strikes and you’re out” illicit drugs policy.
The REIV is also seeking to disclose the sale price for all residential properties once a contract becomes unconditional.
As it stands, many buyers are hamstrung in their efforts to estimate what a property is worth because so many sale prices are not disclosed but instead marked as “price withheld”.
Staikos, the consumer affairs minister, confirmed the government would push ahead with its plan for reserve prices this year. However, the REIV’s other proposals would be considered by the government as it considers further reforms to the industry.
“We want to get millennials into homes and we want the housing market to be fair. Underquoting isn’t fair and it’s young Victorians and families paying the price,” Staikos said.
‘Small minority’ responsible for underquoting
The working group behind the blueprint was convened off the back of the findings of the Bidding Blind investigation with an acknowledgment that “public perception remains that underquoting is widespread”. However, the final report played down the practice as something practised by a “small minority of practitioners”.
Balazs argued this claim was supported by the number of complaints received by Consumer Affairs Victoria about underquoting (1647 in the past financial year), which represented only a “very small percentage” of the many tens of thousands of property transactions every year.
“I don’t see that it is as widespread an issue as perhaps some people would tend to believe. [Nevertheless] this is a suite of recommendations that will address those instances where it perhaps does occur.”
Barry Plant, co-founder of the Barry Plant Group, questioned the practicality of any proposal to force sellers to disclose their reserve price before auction, given many vendors had unrealistic expectations of what their home was worth.
“Many people have to be put almost in a vice, for want of a better expression … to make them realise that if you don’t make a decision, you’re going to lose the buyer,” Plant said.
“A week out from an auction, the vice is loose because there’s no urgency.”
Plant said this could result in a situation where a buyer willing to spend $1.8 million didn’t attend an auction because the vendor had set the reserve at $1.98 million.
“Don’t kill the spirit of a system that has provided some wonderful outcomes for both buyers and sellers for many decades,” he said. “Just tidy it up, so everyone can benefit going forward.”
