Real estate lobby opposes reserve price disclosure, proposes alternative reforms
A political fight is brewing over Victoria’s landmark auction laws after the property lobby announced strong opposition to the plan and outlined alternative reforms.
A penalty point system to penalize repeat agents, free building inspection reports and a ban on withholding on sales prices are among the changes proposed to the plan by the Real Estate Institute of Victoria (REIV).
While the eight-point plan would significantly weaken the Allan government’s bid to force sellers to disclose exact reserve prices before auction, industry leaders argue their plans go further in reforming the sector.
“We truly believe this is a very fair, equitable and workable solution,” REIV CEO Toby Balazs said. “What they’re doing now is counterproductive… The question we’re asking is: Are they trying to reduce auctions or eliminate them altogether?”
Lawsuit against government plan
Late last year, Consumer Affairs Minister Nick Staikos said his government would legislate for the first time in Australia to tackle widespread underpricing by requiring agents to publish the owner’s reserve price at least seven days before the auction day or fixed-date sale.
Staikos also said the government may be open to further reforms.
This “major” change follows this imprint’s Bidding Blind investigation, which found that potential buyers were often misled by inaccurate price guides. More than half of 26,000 Melbourne properties auctioned have been sold above the upper end of the rangeBecause agents can circumvent or break existing underquoting rules with impunity.
After the first announcement may support the disclosure of the reserve priceREIV’s plan confirms the group will now “strongly oppose” the government’s plan and confirms it is impractical.
The group, which represents more than 5,000 real estate agents and other real estate professionals, said the move could artificially inflate prices because sellers will cautiously list a reserve above what they actually want to sell for to avoid being stuck with a lower price on auction day.
REIV’s alternative offer would not require sellers to disclose their full reserves, but would instead confirm that their reserves are within the 10 percent range announced at least three days before the auction.
Andrew McCann, chief executive of Jellis Craig and part of the 13-strong working group behind the plan, said the change would still address buyers’ key frustrations with current laws. These laws allow agents to sell property for well below what a seller is willing to sell it for.
“When buyers are given a false sense of hope, they feel misled and emotionally disappointed,” McCann said.
The plan also proposes a change in the practice of private sales. Instead of giving buyers a 10 percent range, homes will be listed with a single number: the owner’s asking price.
Balazs said the seller would not have to sell at that price, but the expectation would be that the offer would be accepted because it would be the seller’s “desired price” for the property.
“In a private sale, the asking price serves as a clear price signal intended to guide buyer participation in what the seller wishes to achieve; in an auction, the reserve price serves the more dynamic purpose of being the minimum price a seller will accept,” the plan says. “Effective regulation must recognize and include these distinctions.”
Penal system for dangerous agents and other reforms
As part of its plan, the REIV has also adopted several reforms that have long been flagged as possible solutions to the problem of underpricing, an illegal practice in which agents deliberately submit a low sales estimate for a property in order to attract crowds.
Instead of spending thousands of dollars on building and pest inspections of homes they ultimately cannot afford, potential buyers will be given free reports through section 32 documents. Reflecting the model already in place in the ACT, the cost would eventually be passed on to the successful buyer.
A survey conducted by the Center for Consumer Policy Research It found that in 2022, nearly one in six Victorians received seven or more building and pest reports during property searches, costing an estimated $4200.
“I think it clears up a lot and I think it will give buyers a lot more confidence without having to spend a lot of money,” real estate veteran Barry Plant said.
“They might be looking at six houses. They don’t need to have six building inspections. They can just trust what’s there. Certified, guaranteed [and] “There is a guarantee behind it.”
More unexpected proposals in the plan include a plan to introduce a license penalty points system that could result in agents being banned or suspended if they receive multiple fines or commit a serious breach.
McCann said it was incredibly frustrating that much of the real estate industry had its reputation damaged because a few people did something wrong. He compared the offer to the AFL’s “three strikes and you’re out” illegal drugs policy.
REIV is also seeking to disclose the sale price of all residential properties if the contract becomes unconditional.
Currently, many buyers struggle in their efforts to estimate the value of a property because many sale prices are not disclosed but are instead marked as “price reserved.”
Staikos, the consumer affairs minister, confirmed that the government will continue its plan for reserve prices this year. However, REIV’s other proposals will be considered by the government, which is considering further reforms to the sector.
“We want to get millennials into homes and we want the housing market to be fair. Underpricing is not fair and young Victorians and families are paying the price,” Staikos said.
‘Small minority’ responsible for under-citation
The working group behind the plan met, based on the findings of the Tender Blind investigation, with the acknowledgment that “the public perception remains that undercitation is widespread”. However, the final report suggested the practice was something practiced by a “small minority of practitioners”.
Balazs argued this claim was supported by the number of complaints received by Consumer Affairs Victoria about underpricing (1647 in the last financial year) representing only a “very small percentage” of the tens of thousands of property transactions made each year.
“I don’t think this is as widespread a problem as some people believe. [Nevertheless] “This is a set of recommendations to address situations where this may occur.”
Barry Plant, co-founder of the Barry Plant Group, questioned the feasibility of any bid that forces sellers to disclose their reserve prices before auction, given that many sellers have unrealistic expectations about the value of their homes.
“A lot of people almost have to go through the wringer, for lack of a better phrase, to make them understand that if you don’t make a decision, you’re going to lose the buyer,” Plant said.
“A week after the auction, the vise was released because there was no emergency.”
Plant said this could result in a situation where a buyer willing to spend $1.8 million doesn’t show up at the auction because the seller sets the reserve at $1.98 million.
“Don’t kill the spirit of a system that has provided great results for both buyers and sellers for decades,” he said. “Just wrap it up so everyone can benefit from moving forward.”
Aisha Dow is an investigative journalist for The Age. A Walkley award winner, he previously worked as a health editor and co-authored a book about the COVID-19 outbreak in Australia.Connect with: excitement or email.
