Why Are Agents Still Underquoting In This Market?

When it comes to underquoting, from the outset we want to say that the majority of agents are tarred with the same brush as the minority doing the wrong thing.

At the moment, we are constantly being questioned by our clients, “why in a market with record low stock levels are agents still participating in this practise?”

The answer is two fold. Firstly those agents that historically under quote, know no other way. In the current market where demand is extremely high and there are large numbers of buyers attending inspections, there should be no need to under quote. As properties will sell based on the large demand, due to the desperate situations some buyers are finding themselves in.

Secondly, what buyers are not aware of, is that agents commission structures can be based on an incentive above “reserve price”.

What does this mean? Put simply if a property is worth $1,000,000 to $1,100,000, an agent could be getting 10% of any amount above reserve. It is in the agents best interest to quote the property $900,000 to $990,000 to attract lots of buyers and portray this is what is best for the vendor.

Some agents then provide feedback to the vendors that buyer interest is perhaps circa $1,000,000 and if they wish to be sold this is where they should set their reserve on auction day. Unfortunately, most agree to this.

 

If they advised their clients that interest was in fact around $1,100,000, then the vendors would likely set their reserve $100,000 more than the previous example. This would potentially cost the agent $10,000 extra commission.

Always remember, when an agents income is dependant on how low or high a reserve price is, then it’s easy to understand why they would prefer lower quotes & lower reserves.

This is exactly why we always advise our clients that they should never agree to any incentive based on a reserve price.

If we can help you in anyway please just ask.