This year we have been keeping you up to date with the developments in Consumer Affairs Victoria’s (CAV) push to stamp out underquoting by real estate agents. Earlier this month, legislation was passed which amends the provisions of the Estate Agents Act 1980 (Act) to address underquoting.1 Below we have summarised some of the key changes to the legislation which take effect from 1 July 2017.2
The New Legislation – Key Developments
Estimated selling price must be reasonable – Sections 47AB and 47AC
The new section 47AB requires an estate agent to ensure that an estimate of the selling price contained in an engagement or appointment to sell residential property is reasonable and determined in accordance with section 47AC.
Section 47AC requires an agent, when determining an estimated selling price for a residential property, to take into account the sale price of three comparable properties (being properties of a similar standard and condition located within a prescribed distance of the property being sold and which have been sold within a prescribed period.)3
The section will not apply if the agent reasonably believes there were no comparable properties sold within the relevant period.
Revision of estimated selling price - Section 47AE
If an estate agent knows or could be expected to know an estimated selling price has ceased to be a reasonable estimate, the agent must notify the seller, in writing, stating:
- that the estimate in the engagement has ceased to be reasonable
- why the agent believes that the estimate has ceased to be reasonable
- that the agent proposes to revise the estimate
- the amount of the revised estimate.
Statements of Information – Section 47AF
Under the new legislation, an agent is required to prepare a statement of information for a residential property that they are appointed to sell. The statement of information must contain, among other things:
- an indicative selling price
- the median selling price for properties in the relevant suburb during a prescribed period
- if the agent took into account three comparable properties to determine the estimated selling price (see above) the address, sale price and date of sale of those properties.
The statement of information must be:
- displayed at the property during inspections
- included with any advertisement of the property on the internet
- on request, provided to a prospective purchaser within two business days.
False Representation to Prospective Purchaser – section 47C
Section 47C (2) prohibits estate agents making certain representations while marketing a residential property, including stating a selling price or likely selling price:
- that is less than the estimated selling price in the agent’s engagement
- that is modified by words or symbols. For example, estate agents will no longer be able to state that a price range is ‘over’, ‘from’, ‘starting at’ or ‘plus’
- if the estimated selling price is a range, where the difference between the upper and lower limits of the range exceed 10 percent of the amount of the lower limit of the range
- that is less than any written offer that the agent knows the seller has rejected.
If an estate agent is caught breaching the new laws, a penalty of $31,000 (200 penalty units) may be imposed on the estate agent.
In addition, the new section 94A empowers a court to require an agent to pay into the Victorian Property Fund any commissions received for a sale of residential property in circumstances where certain offences have been committed.
As demonstrated by recent cases, CAV is actively pursuing estate agents that engage in underquoting.
Although the new provisions do not take effect until 2017, estate agents should begin to review their practices to ensure they are ready when the provisions come into effect. A failure to comply with the new provisions may have significant financial consequences.