Revealed: where property underquoting is rife in Australia – and when buyers are most likely to get stung

On a gloomy Saturday morning in Sydney, a small crowd with umbrellas and raincoats is waiting outside a terrace in the inner west for an auction to start.

The place is completely rundown, with peeling paint and water-stained ceilings. But the guide price online is $1.3m, and the house will sell for more than $1.8m after a six-minute auction marked more by a feeling of inevitability than excitement.

Louie, who wins today, is a builder who says he plans to renovate and move in for a couple of years. He was expecting the price to jump, maybe by about 20%, but not quite as high as it did.

"It's different for me," he says. "I'm a builder, but some people, you know, it's their livelihoods. They've saved their whole lives to come to an auction and they really think, 'OK, I'm going to get this one.' And they're nowhere near it." Guardian Australia does not suggest the house was deliberately underquoted.

An onlooker, who does not want to be named, was considering the place as a downsize opportunity. He says he has bought and sold in the area for decades, but was still surprised the place went for as much as it did.

"For the sake of community, for the sake of everybody, things have to change," he says. "It's bullshit ... nobody standing here now thinks it was going to sell [for the guide price]. It's just ridiculous."

A Guardian Australia analysis of property sales data provided by Spachus , a real estate price-tracking website, shows underquoting – here defined by the Guardian as any sale where the final sale price exceeds 10% of the highest pre-sale price guide – is more prevalent in Sydney (20% of sales) and Perth (18% of sales), and least prevalent in Canberra, Hobart and Darwin.

There are laws against deliberate underquoting in New South Wales and Victoria – but just because a house sells for more than its price guide does not mean that the selling agent has broken the law.

Real estate agents only fall foul of such laws when they deliberately provide a quote that is less than a property's estimated selling price. Agents in NSW are required to give a reasonable estimate of their price expectations in both vendor agreements and sales advertisements, while those in Victoria must provide a statement of indicative selling price that includes three comparable properties along with the local market's median sale price.

The Guardian has not analysed the Spachus data to ascertain whether any are instances of deliberate underquoting, and does not suggest the data shows rates of illegal practice.

The Guardian's analysis covered property ad listings from the end of October 2023 to July 2024.

The mismatch between the price guide on property ads and the final sale price is worse for houses than townhouses or apartments, and is much more likely when the property is being sold at auction rather than a private sale.

Buyers would be at most risk of a property being underquoted when these factors combine together – the perfect storm of location, auction bidding and free-standing houses results in the majority of sales being well over the price guide.

In Sydney almost two-thirds (65%) of the houses sold at auction would be classified as underquoted based on our definition, and this rate is even higher for specific suburbs.

Even in Melbourne, which had a lower rate of underquoting overall, some suburbs show high rates. In one north-eastern suburb, 54% of property sales exceeded the price guide by more than 10%.

Suburbs in Sydney's inner east have some of the highest rates, closely followed by those in the inner west.

Real estate agents v the algorithm David Morrell, a buyer's agent from the high-end Melbourne agency Morrell and Koren, says deliberate underquoting remains the "cancer of the industry".

Morrell was one of the founders of RealAs, an algorithm-based property price predictor developed in conjunction with RMIT in 2011. It was able to successfully predict home price sales to within a 5% margin.

He says that if state governments adopted a similar algorithm for consumers, "we could stop underquoting overnight".

"I can do it in each state, but the problem is that each consumer affairs in each state is a different beast, but basically all of them like to just slap people over the face with a wet lettuce [when agents are caught deliberately underquoting], and they are ineffective."

RealAs was sold to ANZ in 2016.

During the short time the company had its data publicly available, real estate agents twice threatened RealAs with defamation proceedings after they were "named and shamed" as the worst offending agencies for underquoting.

Morrell says he had frequently reported serial underquoters to the regulator – including one whom he reported 47 times over a six-month period – but there had been no consequence.

"For some [agents], because the fines are so little, it is just the cost of doing business."

If you are a prospective buyer not wanting to get stung by an unrealistically low price guide, a Guardian Australia analysis suggests you are better off checking an automated price estimate for a property rather than going by the agent's price guide.

For properties sold at auction in Sydney, where underquoting is most prevalent, Domain's median price estimate was consistently closer to the final sales price than the price guide given in the ad:

You are also much less likely to be shocked by a higher price on auction day. The final sales price was higher than the price guide for 92% of sales, but it was only higher than the automated estimate for 44% of properties.

Automated price estimates are available for free to customers of some banks and mortgage brokers.

'Simply not enough action' Families and onlookers are crowded into the living room of a three-bedroom apartment in inner Sydney, but ultimately only two parties bid as the price begins to climb. Guided online at $1.45m, it sells for almost $1.8m.

Surbhi and Saurabh do not bid, but have come from St Leonards to do research as part of their own house hunt. They have been to homes on the lower north shore and the inner west, and there is always a "significant difference" from the guide price. "We need to go maybe 15-20% lower on the auction guide price to actually see a place which is within our budget," Saurabh says.

The Real Estate Institute of Australia president, Leanne Pilkington, says she receives a lot of complaints about claims of deliberate underquoting by real estate agents, but too often people do not lodge formal complaints with Fair Trading.

She also says in some cases people fear the repercussions from real estate agents if they do.

"Some of the agents that [deliberately] underquote are very successful, they are very financial and they are not afraid to put pressure on home sellers, and in some cases even engage in legal action," Pilkington tells Guardian Australia.

"In my view in NSW it is getting worse, not getting better. Fair Trading needs to take some action [on deliberate underquoting], some very visible action, to deal with the perpetrators."

Pilkington says she understands why agents engage in the practice – which is designed to spur buyer interest – but it needs to be stopped.

"It does encourage more people to inquire on the property, but it is misleading and deceptive and a breach of the legislation we work under," she says.

"Whilst there are penalties for doing it, there is simply not enough action being taken. It is not a matter of changing the underquoting rules, it is a matter of actioning and penalising the rules we have now."

Number of complaints rises The Australian Competition and Consumer Commission emphasises that it is illegal for real estate agents to mislead consumers about a property's price, or any other information about the property, and they "must not mislead consumers in order to encourage higher offers".

More than 1,000 people have contacted the ACCC since 2021 regarding misleading and deceptive conduct in the real estate sector, with complaints in 2024 on track to be 50% higher than in 2023.

However, the federal agency says that in most cases the state-based regulators would "address localised conduct" under Australian competition law, while its focus was on "systemic and national matters".

"The state and territory consumer affairs and fair trading authorities are in most cases better placed to consider issues of misleading conduct in the real estate sector.

"As such, the ACCC will generally refer those with issues of misleading conduct in the real estate sector to their local state or territory consumer affairs and fair trading authorities."

NSW and Victoria introduced laws in 2016 and 2017 aimed at curbing the practice of underquoting, requiring real estate agents to ensure listing prices are aligned with comparable recent sales from the same area, as well as some other measures.

An analysis by economists from the University of Melbourne and the USC Marshall School of Business showed the laws were effective in reducing the rate of underquoting at auction sales, but did not eradicate it entirely.

In NSW, almost 90% of the almost 5,000 complaints to the regulator last year related to residential tenancies, strata and community living. Only 162 complaints related to underquoting in 2023, and 105 complaints to date in 2024.

NSW Fair Trading has issued 55 fines worth $113,850 for underquoting across NSW this year.

"Any agent who engages in unlawful practices damages the reputation of the industry and this is frustrating for the many agents doing the right thing and looking out for their clients," a spokesperson says.

In Victoria, Consumer Affairs received about 2,500 "contacts" regarding real estate agent conduct in the 2022-23 financial year, with most of these relating to the issue of underquoting. Contacts include both inquiries and complaints.

In the same year the regulator issued 48 infringement notices and 37 official warnings to 29 different estate agencies.

But the number of complaints continues to rise, with more than 2,567 contacts made about underquoting in 2023-24, 89 infringement notices and 128 official warnings.

Agents who underquote risk fines of more than $11,000 for each breach, or penalties of over $38,000 under the Estate Agents Act.

Underquoting can also result in penalties under the Australian Consumer Law of up to $50m for corporations and $2.5m for individuals.

A Consumer Affairs spokesperson says that the department's dedicated taskforce has issued $1.5m in fines since it was established in September 2022. In March, it launched criminal charges against a Melbourne estate agency for failing to provide a reasonable estimated selling price on an Ivanhoe townhouse. In a statement at the time, the agency said it "genuinely believed" the property was quoted appropriately.

"Further investigations are currently under way into estate agencies suspected of engaging in systemic underquoting practice," the spokesperson says.

In Queensland, there are almost no complaints about underquoting – just five in 2023 – with a spokesperson for the Department of Justice and Attorney General saying this is due to the state's restrictions on price disclosures. Real estate agents are not allowed to give any price guide on a property being sold at auction in the state.

But the state's Office of Fair Trading received approximately 1,023 complaints about the real estate industry in 2023, with the most common issues related to unsatisfactory service from agents, conduct of agents and disputes over fees.

'It feels like a bit of a game' In Sydney, buyers continue to be frustrated by homes selling for hundreds of thousands of dollars more than the advertised price guide.

The sun is out by the time the auction gets under way on the large back deck of a three-bedroom house in Sydney's inner west. It's the biggest crowd of the day, for a generously sized home that's been staged with nondescript art, a white couch and rattan rugs.

After the place sells for more than $350,000 above the price guide, Jackson and Sujin linger out the front.

As they hunt for a home for their growing family, Jackson says they get a much better sense of the likely price from bank reports and other sources, rather than the agent or online listing. "You've got to add like $300 to 500 [thousand] for properties like these ones," Jackson says. "There are houses that actually hit that mark, but that's because of their very poor quality."

Anna de Sterke and Michael Sproul are living in an apartment in the area, but would love to have a garden and a bit more space. This place is out of their budget, but they have come to watch anyway. For them, underquoting is just part of the obstacle course you need to overcome to find a home. They know all the rules: add 20% to any auction guide, look in the south of the suburb where the prices seem more achievable.

"It feels just like a bit of a game," Sproul says.

"It's different to the purchase of any [other] product ... I'm used to it now, but it is pretty messed up," De Sterke says.

Do you know more? Email Notes Guardian Australia's analysis of the difference between price guide and sale price used data on sales between 26 October 2023 and 5 July 2024. Only ads that listed a price guide were used, and the upper range of the price guide was used if a range was listed. The difference between the sales price and price guide was calculated, and then properties were categorised as "underquoted" if this difference was greater than 10% of the original guide.

For the analysis of price guides compared with algorithmic valuation, details for 2,200 properties listed for sale in July 2024 were exported from RP Data, and those without a price guide were discarded. The remaining properties had their value estimated using Domain's API. The upper price guide and median estimated value were then compared to the final sale price, if available, from RP Data.