Enzo Raimondo – Auction System’s Fair, You Can Quote Me

OPINION
by Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

Following on from my previous posting in which I acknowledged Enzo Raimondo, CEO of the Real Estate Institute of Victoria (REIV) as a master of the partial-truth, comes a newspaper article in which Raimondo confirms that “Much misinformation is abroad about property sales” (sic). Of course, Raimondo does not acknowledge his own role in the dissemination of this misinformation.

The Age newspaper is very generous to Enzo Raimondo and the REIV. Raimondo is permitted to misinform consumers on a wide variety of real estate-related topics through his own column in the Saturday Age, and is even permitted to write his own copy. To see just how well The Age looks after Raimondo and his crew, take a look at this item featured on the ABC’s Media Watch: “Dirty Little Secrets“.

Here is is the full article from today’s edition of The Age:

“Auction system’s fair, you can quote me

Much misinformation is abroad about property sales, writes Enzo Raimondo.

SINCE changes were made to the Estate Agents Act in 2004, including the banning of under and over-quoting, we have seen community discussion about the practice on two occasions in 2007 and again this year. These two years have one thing in common: unusually strong demand resulting in vendors’, purchasers’ and estate agents’ expectations being exceeded.

The stories of potential purchasers, and the views of commentators, are frequently reported but rarely are the views of vendors or purchasers canvassed. Like the true picture about this state’s real estate laws, their stories are missing. If the vendors’ or the purchasers’ stories were covered, one thing would be clear: the most important two people in any property transaction generally don’t think the property sold for too much, cost too much or was underquoted.

In a rising market the estate agent may wrongly estimate the sale price, but that does not change the fact that the vendor is pleased because he got a great price. The successful purchaser is pleased because he thinks he got a great home at a fair price.

The underbidders may be disappointed because they did not secure the home they wanted at the price they wanted but that alone doesn’t prove theestate agent or vendor has done the wrong thing; it just shows how auctions work.

Auctions are designed to get the vendor the best price on the day and that depends on a few things none of which is the advertised price. It depends on demand on the day, how many bidders, how much they are prepared to spend, comparable homes that are also for sale and, finally, what the vendor wants.

If you want the surety of knowing what the vendor wants, private sales are the way to go. Unlike an auction, the vendor’s asking price is generally advertised for the 70 per cent of homes in Victoria sold privately.

If you do want to bid at an auction, it’s critical to know that sale prices may often exceed advertised prices and that is not underquoting.

The laws in Victoria require that an estate agent neither overquotes to the vendor to get his business nor underquotes to the public. The price they quote to the vendor and the public are the same unless the vendor has told them the minimum he will accept, in which case the higher one must be reflected in the advertising.

It is suggested that estate agents should be able to predict in a hot market what a home might sell for and their quotes should reflect the final sale price. In a fast-moving market that would only result in estate agents providing inflated quotes to vendors and being accused of overquoting.

It’s important to note that complaints from consumers to Consumer Affairs Victoria are running at about 600 a year out of 140,000 residential property sales seemingly indicating that it’s really not a problem, but that doesn’t mean we can’t improve the transparency and operation of the market.

The Real Estate Institute of Victoria supports the action of Consumer Affairs and we would like three changes. We have asked the minister to change the law to ban advertisements that use “price plus”. If accomplished, this will make it much easier for consumers to compare property ads, as agents will have only three options: no price, a range, or a flat price. This is a position we have held for 2 years.

We want increased education about the state’s laws and how auctions work, so consumers can be better informed. The more access to information about the auction process there is, and the more information there is about what similar homes sold for, the better consumers’ judgments will be.

Finally, when an estate agent uses a price in an advertisement, we want the agent to show every prospective purchaser the comparable sales that were used to reach that judgment. This will enable the purchaser to make the best judgment about how much they want to spend on the day and the highest bidder will win.

Enzo Raimondo is chief executive of the Real Estate Institute of Victoria.“

Let’s examine Enzo’s free plug, and see if we can address any misinformation it may contain:

“SINCE changes were made to the Estate Agents Act in 2004, including the banning of under and over-quoting, we have seen community discussion about the practice on two occasions in 2007 and again this year. These two years have one thing in common: unusually strong demand resulting in vendors’, purchasers’ and estate agents’ expectations being exceeded.”

The important words in this paragraph are “expectations being exceeded“. What Raimondo has failed to acknowledge is that expectations tend to be built by real estate agents. It is the real estate agent who tells the vendor what to expect to receive for their property, it is the real estate agent who tells purchasers what to expect to pay for the property.

And what does the term “Unusually strong demand” mean, and how does this result in “expectations being exceeded”? Raimondo doesn’t define his terms, and doesn’t provide any truly meaningful explanations. He assumes (probably correctly) that readers will not seek any explanation. Obviously, this is just a lead-in to Raimondo’s next assertion.

“The stories of potential purchasers, and the views of commentators, are frequently reported but rarely are the views of vendors or purchasers canvassed. Like the true picture about this state’s real estate laws, their stories are missing. If the vendors’ or the purchasers’ stories were covered, one thing would be clear: the most important two people in any property transaction generally don’t think the property sold for too much, cost too much or was underquoted.”

The first two sentences are true enough, but the conclusion is quite meaningless. Purchasers of real estate never complain that they have paid too much. They wouldn’t have bought if the property cost too much. Nor do purchasers complain about underquoting. Complaints about underquoting usually come from consumers who have spent money on inspections etc. in the belief that the quoted price range was accurate, only to discover that the property was secretly priced will beyond their means.

“In a rising market the estate agent may wrongly estimate the sale price, but that does not change the fact that the vendor is pleased because he got a great price. The successful purchaser is pleased because he thinks he got a great home at a fair price.”

In other words, some people can be happy with the outcome, despite the real estate agent’s bungling – this is quite common.

The underbidders may be disappointed because they did not secure the home they wanted at the price they wanted but that alone doesn’t prove the estate agent or vendor has done the wrong thing; it just shows how auctions work.

Almost true. But Raimondo spoils the paragraph by adding “it just shows how auctions work”. Raimondo attempts to “piggy-back” an irrelevant and unexplained assertion into the discussion to somehow legitimise auctions, but without providing anything in support.

“Auctions are designed to get the vendor the best price on the day and that depends on a few things none of which is the advertised price. It depends on demand on the day, how many bidders, how much they are prepared to spend, comparable homes that are also for sale and, finally, what the vendor wants.”

This paragraph is an excellent example of the partial truth. What Raimondo has failed to acknowledge is that while auctions may be designed to get the best price, they rarely do when it comes to real estate. This is because the auction process automatically eliminates a huge part of the market, limiting bidders to those who have cash on hand, or those who are prepared to gamble on the likelihood or otherwise of being able to secure bank finance.

Of the portion of the market that is left when those relying on finance have been eliminated, further potential purchasers are culled by competing auctions being held in other locations at the same time. And then there are other factors that limit the pool of potential purchasers, such as football, cricket, wet weather, and innumerable other distractions that can prevent people from being in a particular place and a specified time.

What Raimondo has failed to acknowledge is that the “best price on the day” is not the same as “the best price”.

When applied to real estate, the auction system fails in its primary purpose. While the transparency of open bidding may be present, what is hidden from public view is an objective estimate as to the property’s current market value. Raimondo has been very careful to avoid telling vendors or purchasers that they should obtain their own independent valuations. Why? Because secrecy favours the real estate agent, and allows the real estate agent to remain in control.

Look at it this way, would a consumer who possesses an independent written valuation (be they a vendor or a purchaser) care one iota if real estate agents underquote or overquote? Of course not. But the real estate agent’s ability to lie, cheat, deceive and manipulate would be severely diminished.

“If you want the surety of knowing what the vendor wants, private sales are the way to go. Unlike an auction, the vendor’s asking price is generally advertised for the 70 per cent of homes in Victoria sold privately.”

The first sentence is only partially true. In fact, real estate agents use a variety of schemes (scams) to attract and control those who fear auctions. Read our posting “The Private Auction – A Haven For The Dummy Bid” for just one example.

If you do want to bid at an auction, it’s critical to know that sale prices may often exceed advertised prices and that is not underquoting.

Raimondo deliberately misses the point. Why is it necessary for a price to be advertised at all? Why not simply advertise the property is being the subject of an auction without disclosing any price? This may force purchasers to inform themselves as to the current market value of the property. It may also encourage vendors to do the same. If both vendors and purchasers were to arm themselves with formal valuations there could be no underquoting.

However, this would work against the real estate agent, because there would be no more “buying of the listing”, there would be no more “vendor conditioning”. In fact, there would probably be no more real estate auctions.

Real estate agents need to have a role in the creation of “expectations”. The real estate agent needs “expectations”, so that he or she can claim responsibility (and a fat commission) when those “expectations” have been met or exceeded. Of course, these “expectations” are often as false as the dummy bids still in common use.

As soon as transparency, certainty and accountability are injected into the auction system “expectations” and the other related phantoms disappear, leaving no room or role for the real estate agent.

“The laws in Victoria require that an estate agent neither overquotes to the vendor to get his business nor underquotes to the public. The price they quote to the vendor and the public are the same unless the vendor has told them the minimum he will accept, in which case the higher one must be reflected in the advertising.”

This paragraph really doesn’t go anywhere. It may be the law, but so what. Laws have to be observed to be of any value.

“It is suggested that estate agents should be able to predict in a hot market what a home might sell for and their quotes should reflect the final sale price. In a fast-moving market that would only result in estate agents providing inflated quotes to vendors and being accused of overquoting.”

This paragraph is really quite silly. No-one would suggest that a real estate agent should be able to undertake such a task. Real estate agents should NEVER attempt such predictions. The problem is that they do purport to make such predictions when they do not have the skills or the means to do so.

Raimondo slips up when he intimates to readers that real estate agents would provide “inflated quotes to vendors”. This is the very reason why real estate agents are regularly accused of overquoting.

“It’s important to note that complaints from consumers to Consumer Affairs Victoria are running at about 600 a year out of 140,000 residential property sales seemingly indicating that it’s really not a problem, but that doesn’t mean we can’t improve the transparency and operation of the market.”

No, Enzo, it’s not a problem if you’re the one who is simply comparing statistics on behalf of real estate agents. But it matters one heck of a lot if you’re one of the 600 disgruntled consumers queuing at the doors of Consumer Affairs Victoria each year.

“The Real Estate Institute of Victoria supports the action of Consumer Affairs and we would like three changes. We have asked the minister to change the law to ban advertisements that use “price plus”. If accomplished, this will make it much easier for consumers to compare property ads, as agents will have only three options: no price, a range, or a flat price. This is a position we have held for 2 years.”

Consumer Affairs Victoria and the Real Estate Institute of Victoria (REIV) usually keep each other warm under the cosy REIV doona. If CAV has any complaints about the REIV, they are simply ignored. For example, back in 2007 Enzo Raimondo said that he would advise his member agents to ignore key recommendations from Consumer Affairs Victoria. (See “Estate Agents Revolt Against Toothless Tiger“).

Instead of 3 changes, one simple change would solve the entire problem. A rule requiring any advertised price to be informed by a formal written valuation would do the trick. In my previous posting I drew attention to the API President’s open letter to the Chairman of the Australian Competition and Consumer Commission.

“We want increased education about the state’s laws and how auctions work, so consumers can be better informed. The more access to information about the auction process there is, and the more information there is about what similar homes sold for, the better consumers’ judgments will be.”

This is the core of Raimondo’s misinformation. The best form of education a consumer can receive is the formal written valuation provided by an independent and qualified valuer. A consumer who has access to a proper valuation and and a qualified lawyer is well equipped to enter the real estate market. However, Raimondo steadfastly refuses to acknowledge the benefits of the formal indepement valuation.

“Finally, when an estate agent uses a price in an advertisement, we want the agent to show every prospective purchaser the comparable sales that were used to reach that judgment. This will enable the purchaser to make the best judgment about how much they want to spend on the day and the highest bidder will win.”

When real estate agents show consumers comparable sales figures they will do so with the same degree of care, skill and responsibility they use when they explain the Exclusive Sale Authority and the Contract of Sale of Real Estate. The use of a formal valuation would eliminate such nonsense.

To post your comment on this item, please return to