Underquoting or free market





Buying your first home is once in a life-time, just like your first child, it is exciting and stressful at the same time. We save a great deal over years for the initial deposit and when its time to make the move... every opportunity seems to slip away. 


We had it all figured out but then something does not add up!!! 


You got that one right.

Yes, the reality is that it just does not add up.


So, what does not add up?

Simply, its the expectations.


What do you mean, we are honest and humble people looking to buy a decent home!!!


That is absolutely right and it is not your expectations about buying a house those are off, its the expectations from the transaction.

If you would allow me to explain?


Sure, go ahead


Buying a house is a set of transactions which directly and indirectly impact the outcome of the value of the property it would be sold for.


Every time we see a property listed for sale, it has been appraised and is signed off by the owner to allow the realestate agent to market the property for a certain price.


The real estate agent is the council and the owner is the final authority (yes, as per compliance and liability it is always the real estate agent's responsibility to follow all ethical practices and abide by legislation)


At this point in time there are mainly the real estate agent and the owner in a transaction.


Now, we enter the transaction as a buyer.

The transaction now looks like: buyer - real estate agent - owner, with an expectation that the real estate agent is a go-between the buyer and the owner, right?


Naa… 


What, why?


As per the legislation, the allegiance of the selling real estate agent is to the principal (owner selling the property). 


So, the game is rigged from get-go?


Not really, the real estate agent also has responsibility and obligation to play by the rules as per the ethical standards and the legislation.


Now, as a buyer that would be the first expectation to align with.

A close analogy would be that a real estate agents act as your in-laws in a given relationship and you are only allowed to interact with them in a given situation.  They have  a responsibility to establish and maintain a relationship but also hold allegiance towards their principal.



Right, but why is it still so hard for the buyers to buy if agents are playing by the book?


Firstly, I would say majority of the agents are playing by the book and only a few of agents may be bad apples.


Now, real estate agents and the owner will agree on a price guide.

This is where things get interesting…


The expectation is that the price guid is a scientific figure that real estate agents get from some super computer and it should only allow for 10% variation.


Kind of yes!


Well, sorry to say that is not the case.

Lets talk about how the price guide is set in the first place.


A price guild can be driven in a few different ways, but the most common being the comparison method.

In this, a subset of similar properties in the area is looked into and based on the comparison a guide is established.


Now, since this is not a commitment the owner of the property can change their mind and expectations at their will.

Generally, that is not the case, there is a fair bit of work happening to warrant a change like marketing analysis, market fluctuations, another sale in the area that has gone really well, and so forth. 



Hmmm… so that is where the underquoting happens.


Again, not really - underquoting is a deliberate attempt to mislead buyers but in situations when the price change has been calibrated due to market (also it does not have to be  calibrated because in a free market the owner is entitled to sell the property at the price of their liking) and as per legislation, the real estate agent has to follow the directions of the principal (owner of the property).


Also, the chances of underquoting happening are towards the initial offering of the property or towards the start of the marketing campaign, but since it is in the best interest of the real estate agent to finalise a sale, it is very unlikely a deliberate attempt is made to underquote later in the timeline.


Hard to believe, but you have a point.

So, who would be responsible for this then, if not the real estate agents?


That is a very good question!!!

Let me help you answer that in the context of a free market


Who drives the market analysis - buyer

Who buys a property at an inflated price - buyer

Who drives market fluctuations - buyer


Interesting, then how do we perform in this off balance play?



An owner of the property can pay unto 2% or more towards the sale of the property, the question to ask yourself is why is that they do not save that money and sell the property themselves as do the buyer do?

Or should the buyers play as the owners do and hire professionals to meet their needs.



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