Residential price quoting – getting the paperwork right

Concern and commentary around residential price quoting has focused on the quoted price range. This is important, of course, but there is a range of other details that must be complied with.

Residential only

These requirements apply to residential property listed for sale by real estate agents. Residential property means real estate that is used or intended to be used for residential purposes but does not include real estate used primarily for the purpose of industry, commerce, or primary production.

The authority

The authority must contain the agent’s estimate of what they assess buyers are likely to be prepared to pay for the property. It can be a single figure or a range where the top of the range is not more than 10% above the bottom of the range. The estimate must be based in the prices achieved for three comparable properties, or if there were not three sales of comparable properties there should be some other justification on file to show how the estimate was arrived at.

Comparable properties must be selected because of their similarity to the property being assessed, not because of the price they sold for and they must be identified before the estimate is made. In the case of a Melbourne metropolitan area listing, they must be within 2km and have sold within the preceding 6 months. In the case of a listing outside of the Melbourne metropolitan area they must be within 5km and have sold within the preceding 18 months.

The statement of Information

As soon as the property is listed, a SoI must be prepared regardless of whether the property is being advertised for sale. It must include:

• The address of the property, not just the suburb or locality; and

• An indicative selling price; and

• The median selling price for residential property in the locality, the type of residential property to which it relates, the period over which it was calculated and the source of the data; and

• The addresses, sale prices and dates of sale for the three most comparable properties (ie those used in arriving at the estimate on the authority), or if three properties could not be identified, a statement to that effect; and

• The date on which the statement was prepared.

If there are one or two comparable properties, they can be listed on the SoI, but the statement that there are not three must still be used. If there is no median price information available for the locality include a statement on the SoI similar to the one suggested in the Consumer Affairs “Underquoting fact sheet”. The SoI can stay as described even though the comparable property sales may become older than 6 months (metropolitan) and 18 months (non-metropolitan). However, changing circumstances may necessitate changes to the paperwork.

Updating the authority

If the agent’s estimate on the authority ceases to be reasonable they must notify the vendor in writing and amend both copies of the authority. Any sales of comparable properties used in arriving at the new estimate must have taken place within 6 months (metropolitan) or 18 months (non-metropolitan) of the date on which the revision is done.

Updating the statement of Information

The comparable properties used in arriving at a new estimate on the authority must be shown on a new SoI. A new indicative price may need to be included on a new SoI. It may need to change because the single figure or the lower end of a range must not be less than:

• The agent’s single figure estimate on the sale authority; or

• The lower limit of the agent’s estimated range on the sale authority; or

• The amount of a written offer rejected by the vendor based on price; or

• Any amount the seller has advised (whether orally or in writing) is the amount they will accept.

An updated SoI must contain the date on which it was created and the old SoI must be retained.

Record keeping

Records must be kept for all properties that are for sale and that have been sold.

They should be retained for 7 years as the Director of Consumer Affairs may require the agent to produce documents to substantiate the reasonableness of:

• The estimated price on the authority

• Any revision of the estimated selling price on the authority; and

• Any advice provided to the seller or a purchaser or prospective purchaser by the agent whether orally or in writing in relation to the estimated selling price included in the statement of information; and

• Any determination of the 3 most comparable properties; and

• Any statement of the selling price or likely selling price made by the agent while marketing the property.

Any direction from the vendor which limits the type of offers they are prepared to consider should be obtained in writing and retained on file.