Price baiting: the ‘blatant’ and sometimes illegal tactic frustrating Australian house hunters

When Jack Sukhen checked out a property for sale in western Sydney, he decided to put in an offer before auction. It was a nice place - renovated, four bedrooms, with solar panels and a pool.

The real estate agent's price guide ranged from $999,000 to $1,098,000, based on "prospective buyer sentiment" gathered from people who had visited the property.

Sukhen advised he was willing to pay around $1.2m, but was told the property would go to auction. He later noticed the price guide stayed put, despite his higher price indication.

Sukhen believes he was subject to price baiting, an industry tactic whereby an agent deliberately lists a property's price low to lure in potential buyers and encourage competition..

Paul Mulligan, a buyer's agent, did not see the western Sydney property in person but says it's easily worth $1.2m or more based on a quick look at recent sales on the same street.

It sold on 17 September for $1,291,000.

Under Australian Consumer Law, it is unlawful for real estate agents to make false or misleading claims. This includes advertising a property at a price lower than a rejected offer, unless the seller is now prepared to accept a lower offer.

Agents are also prohibited from intentionally misleading buyers, providing a false impression or hiding important information.

But Mulligan says price baiting, which he describes as "unethical conduct and bad practice", is a common tactic.

"They bait them in the hope of getting them interested and that they'll go up in price after seeing the property," he says. "This also happens with auctions, when the agent doesn't adjust the guide."

In New South Wales, it's illegal to use vague price statements like "offers over" instead of a specified selling price or range.

A price guide should be determined by comparative market analysis including the location of a property, current competing listings, recent sales, its size, the year built and renovations and major changes since the last time it was sold.

It doesn't necessary need to be the same as the reserve price, which is usually not set until the day or days leading up to the auction and takes into account buyer interest during the sales campaign, as well as updated data.

A spokesperson for NSW Fair Trading said the act "does require real estate agents ensure the estimated selling price of a property is a reasonable estimate and have evidence to show it".

"Real estate agents must not make statements in the course of marketing a residential property for sale that indicates the property may be sold for less than the estimated selling price," they said.

"Failure to comply with the rules of conduct attracts penalties."

NSW's property services commissioner, John Minns, said real estate agents are "required to act on the instructions of the property owners" based on their professional advice to all parties.

"As long as the advice given on the sale price is consistent between buyer and seller, there are no regulatory issues," he said.

Fahey Younger, a property advocate, says determining price guides is a "total skill set" poorly taught when sitting for an agent licence.

She says it's "misleading and deceptive" for an agent to knowingly list a property at a price under what the vendor is willing to accept - even if their price is unrealistic.

The "grey area" is the morning of the auction, when a vendor suddenly lists a reserve price above the range of previous conversations with agents.

"I've personally seen this happen many times. It's frustrating as hell," she says.

Jessica* has made multiple complaints to the body during the 12 months she and her partner have been looking for a property in Sydney.

"We are desperate at this point," she says. "We've seen hundreds of homes, we've bid at dozens of auctions, put in offers before auctions and owners just want more."

At the end of August, Jessica lost a bidding battle for a three-bedroom penthouse in Sydney's south that sold for $1,425,000.

Prior to the auction, the agent informed Jessica the price guide was $900,000 to $1m.

"After three inspections and spending money doing reports, we made an offer of $1,190,000, which we thought [was] fair," she says.

"This was rejected days before the auction, and we then offered another $40,000. The agent told us the sellers were 'too nervous to sell before auction'.

"We went to the open home days after the offer was rejected and heard the agent guiding new buyers to the price of $1m to $1.1m, well under our top offer of $1.23m."

For Jessica, it was another home she had "invested time and money in" that had slipped away. But it was the huge discrepancy between the price guide and sale price that frustrated her.

"The price guide never changed despite our written offers," she says.

Scott Aggett, the founder of property negotiation service Hello Haus, says positioning a property lower than its value lures buyers "into the fight" by manufacturing a level of competition and emotion.

"It's so confusing for buyers," he says. "You can't be quoting outside of a range of 10% of what you told the seller, but some agents are telling me they're having to quote as low as 30% to drive traffic to a property."

Aggett says baiting is one of many "pressure tactics" agents employ.

It starts at the beginning of the process, when agents tell sellers they can obtain a sale price higher than the property's value.

"Agents have to be very positive to win the listing because they're competing against each other to get their foot in the door, and then they have to underquote that property to the market," he says.

He says discrepancy between the price guide and reserve price doesn't necessarily mean underquoting, as the market can change between the time of the two estimates.

But agents make it "difficult to prosecute" by pitching a low market estimate to the vendor without asking them what their expectations are.

"The vendor won't set their reserve price until just prior to the auction and this is why so many reserve prices are well beyond the price guides given to buyers."

Aggett says he "constantly" makes written offers to agents that aren't outwardly rejected, but sidestepped to avoid changing the price guide.

"The agent says the owner is 'committed to selling at auction', which is just bullshit code for 'it's not enough money'," he says.

In one recent example Aggett offered an agent $975,000 for a Newcastle property - more than 12% higher than the price range.

"The agent said we're committed to selling at auction," he says. "But he was still quoting $800,000."

The property sold for $1.4m.

Aggett says the regulators "don't seem to care". "It's so blatant. How come Fair Trading can't find these examples if I can?"

In May last year, NSW Fair Trading established a dedicated underquoting team to address "rising concerns" about the practice.

Last week, the Victorian government followed suit and announced a $3.8m taskforce had been established after underquoting was identified as a "key concern" in the state's property market review.

A spokesperson for Consumer Affairs Victoria says underquoting is taken "very seriously" in the state and agencies face penalties of more than $36,000 and a loss of sales commissions.

In Victoria, it's illegal for an agent to advertise or advise buyers of a price less than the seller's auction reserve price or asking price; a price in a written offer already rejected by the seller on the basis it is too low; or the agent's current estimated selling price. Agents must update price information they provide to buyers if this changes during the sales campaign.

Hayden Groves, the president of the Real Estate Institute of Australia, says the taskforce is an "overreach".

But he says the practice is "relatively common" in Australia and "it can go too far, straying into price baiting territory".

"If buyer sentiment pre-auction indicates a higher price than the initially expected selling outcome, agents ought to adjust up the price expectation accordingly."

* Name changed to maintain anonymity