The Sydney Underquoting Ratchet: How Winning One Auction Could Cost Agents the Next Sale

Earlier today, while driving to the Titlespace office on Bond Street in Sydney, I heard that NSW Fair Trading had sent covert inspectors into open homes as part of its latest underquoting blitz.

According to the NSW Government announcement, Fair Trading officers attended almost 80 open homes over two months. Ten agents received fines totalling $20,900, alongside five warnings and 16 education directives.

In one case, an agent reportedly told buyers that a property was expected to sell for $3.65 million. Fair Trading then found that the agency’s own estimate was between $4 million and $4.4 million, while the online advertising used a $4 million search price.

Fair Trading’s immediate case against underquoting is clear. It can create artificial competition and waste the time and money of buyers who could never realistically afford the property’s likely selling price.

That matters. But it is not the economic question that stayed with me.

My question begins after the auction.

That would be a genuine contradiction. The agent may achieve a slightly higher commission on one property while helping create the vendor expectations that reduce transaction volume across the next group of listings.

In other words, agents may be optimising the wrong number.

What is the underquoting ratchet?

The underquoting ratchet is a hypothesis about how the result of one property campaign could influence the next one.

An unlawfully low guide may attract additional buyers. Their participation may intensify the auction. The resulting sale then becomes a comparable transaction. The next vendor sees that result and uses it to support a higher expectation or reserve.

If the next group of buyers cannot meet that expectation, the property may pass in, remain on the market or fail to transact.

Can underquoting actually affect an auction result?

Potentially, yes. That does not make it legal or acceptable.

Under NSW Fair Trading’s current underquoting guidance, an agent must not advertise or communicate a price below their reasonable estimate of the property’s likely selling price.

A 2026 peer-reviewed Australian study published in The Review of Financial Studies examined reforms designed to deter underquoting. The researchers found that the reforms led to higher listing prices, but also to lower sale prices and lower sale probabilities in the markets studied.

Their evidence suggests that behavioural effects during auctions, including participating bidders overbidding, were an important part of the mechanism.

That does not prove that every low guide increases the sale price. It does suggest that a listing strategy can influence more than the number printed in an advertisement. It can change who enters the process and how the auction unfolds.

Titlespace’s existing guide to underquoting in NSW and other Australian jurisdictions explains the rules and buyer risks in more detail.

Why might the final sale price not be a clean reset?

We normally think of an underquoted campaign as having two stages.

First, there is the unreliable advertised price.

Then the property sells, and the completed sale reveals the truth.

But that assumes the final price is independent of the campaign that produced it.

If the low guide attracted additional participants, and those participants changed the competitive behaviour of the auction, the final sale price may have been partly shaped by the pricing strategy.

Economists call that an endogenous outcome. In plain English, the supposed answer was partly created by the process used to find it.

The completed sale is still a legally enforceable transaction. But it is not necessarily a neutral observation that arrived from outside the campaign.

That matters because NSW agents are expected to consider comparable property sales when determining and reviewing their estimated selling prices. Today’s auction result can become evidence used to price tomorrow’s listing.

How could one strong sale make the next property harder to sell?

Property markets do not remember every attempted transaction equally.

A house that sells for $1.55 million becomes a clear comparable sale.

A similar house whose vendor insists on $1.55 million but receives no acceptable offer produces no equivalent completed price. Its failure may be visible, but it is less precise and often less psychologically powerful than the sold result.

This creates a form of survivorship bias in street-level price discovery. The successful transaction becomes evidence. The negotiation that failed to become a transaction is easier to discount or ignore.

Recent Australian research published in the Review of Finance found that properties which failed at auction later sold at an average discount of 1.3 per cent. The researchers found evidence that behavioural perceptions contributed to that effect.

I am not suggesting that formal Sydney property indices are simply wrong. Sophisticated indices use large datasets and statistical adjustments.

But vendors do not set reserves by consulting an index model alone.

They remember the house around the corner.

They remember the suburb record.

They remember the agent who said the last sale had reset the market.

Why does this matter in Sydney’s current property downturn?

At the time of writing, Sydney is undergoing a clear property correction.

Cotality reported that Sydney dwelling values fell 1.4 per cent in August 2026 and were 7.1 per cent below their February peak. Falling demand, higher advertised stock and weaker buyer confidence were all weighing on the market.

In a rising market, a strong comparable may quickly be validated by the next group of buyers.

In a falling market, the adjustment is less symmetrical.

Buyers may reduce their budgets quickly as borrowing capacity, confidence or expectations change. Vendors can take longer to accept that yesterday’s price may no longer be available.

Classic housing research on seller loss aversion found that owners facing a perceived loss set higher asking prices and experienced a much lower probability of sale. That study was not based on Sydney, but it supports a familiar property-market behaviour: sellers can anchor to a reference price even when current demand has moved.

A strong recent comparable can reinforce that anchor.

The next vendor may reject a lower appraisal, resist changing the reserve or hold out for the price achieved by a property that sold under very different campaign conditions.

Could agents be optimising the wrong variable?

A real estate agent is usually paid a percentage of the final sale price. That creates an obvious incentive to achieve the highest possible result.

But price is only one part of the agent’s real business model.

The industry talks constantly about the middle number.

The last number may matter far more.

Consider a simplified, hypothetical Sydney transaction. This example ignores GST, agency splits, marketing expenses and other costs. It does not assume that underquoting always produces a three per cent uplift. The figure is used only to demonstrate the commission mathematics.

The asymmetry is brutal.

A three per cent increase in the sale price gives the agency a three per cent increase in gross commission.

One failed sale removes 100 per cent of that sale’s commission.

The vendor captures almost all the immediate price uplift. The agent receives a relatively small share, while carrying the regulatory and reputational risk. Under current NSW guidance, an agent found guilty of underquoting may also lose the full commission and fees from the affected property.

Meanwhile, the stronger result may become the comparable sale that makes the next vendor less willing to accept the market.

If the answer is yes, even occasionally, the industry’s focus on record prices may be economically short-sighted.

When one agent’s advantage becomes the industry’s problem

Agents who comply with the law still get caught in the ratchet, because they are pricing against comparables set by those who do not. This argument is not an accusation that the industry as a whole underquotes.

It is an analysis of what can happen when an individually attractive tactic spreads.

If one agent advertises below a reasonable selling estimate while competing listings are accurately priced, that property may capture a disproportionate share of buyer attention.

Competing agents and vendors then see the busier inspections and larger auction crowd.

The pressure to imitate the tactic grows.

But underquoting does not create:

• higher household income;
• larger deposits;
• greater borrowing capacity;
• lower mortgage repayments; or
• more households needing to purchase a property.

It may redirect the same finite pool of buyers towards one campaign.

When one agent does that, the agent may benefit.

When everyone tries to do it, the relative advantage disappears. Buyers simply learn that every guide requires a large and uncertain adjustment.

The industry has not created more demand. It has moved existing demand around more noisily, while potentially creating stronger comparable sales and less trusted price guides.

This is a classic fallacy of composition. What may be rational for one agent can become irrational when it becomes common behaviour.

I would call it the tragedy of the comparable sale.

Every agent wants the strongest possible result for the property being sold today.

Every agent must then sell tomorrow’s property in the market those results helped create.

Is the underquoting ratchet proven?

No. The full chain is an economic hypothesis, not an established explanation of Sydney-wide prices, transaction volumes or agent revenue.

Several parts of the mechanism are supported by evidence. The final connection still needs to be tested.

There are credible counterarguments.

Valuers and experienced agents normally use several comparable sales, not one. An unusual auction result may be discounted. The stronger price may reflect genuine demand that the campaign simply revealed. Interest rates, credit availability, taxation, income, supply and consumer confidence are far more powerful drivers of Sydney’s overall property market.

The Australian underquoting study also found that deterring the practice reduced sale probabilities in the affected campaigns. Underquoting may therefore help today’s property transact even if it creates possible problems for future vendor expectations.

That tension is exactly what makes the thesis interesting:

The idea is testable. Researchers could compare confirmed underquoting cases with similar nearby campaigns over the following six or twelve months. They could examine subsequent price estimates, reserves, time on market, withdrawal rates, auction outcomes and total agency commission revenue.

Fair Trading is correctly measuring illegal conduct and buyer harm.

The industry should also ask whether the tactic makes its own long-term economics worse.

What does this mean for Sydney property buyers?

For buyers, the practical lesson is not to assume that every property selling above its guide was underquoted.

It is to stop treating the guide as a valuation.

1. Set your limit independently of the advertised guide. Base it on your financial position, recent comparable sales and appropriate professional advice.
2. Review several comparable Sydney sales. Do not let one suburb record or unusually competitive auction define the entire market.
3. Distinguish attendance from effective demand. A crowded open home does not tell you how many people can compete near the vendor’s expectations.
4. Keep written records of price representations and changes. Save advertisements, emails and written guide updates in case the campaign raises concerns.
5. Complete your due diligence before bidding. Our guide to common property auction mistakes explains why preparation matters before auction day.

Let’s wrap it up

Underquoting is illegal in NSW, and Titlespace does not condone it.

The obvious harm is already well understood. Buyers can waste weekends, money and emotional energy pursuing properties outside their realistic budgets.

The less obvious possibility is that underquoting may also damage the long-term economics of the industry using it.

An unlawfully low guide may attract additional bidders and contribute to a stronger auction result.

That result becomes a comparable sale.

The comparable may harden the next vendor’s expectations.

The next property may take longer to sell, pass in or fail to transact.

Because agents earn far more from completing another sale than from achieving a small percentage uplift on the previous one, any meaningful reduction in transaction volume could overwhelm the immediate commission gain.

A healthy property market is not one where a small number of successful transactions achieve the highest possible prices.

It is one where informed buyers and realistic sellers can meet, agree and transact.

Underquoting may help preserve today’s headline result.

But if it also helps create tomorrow’s impossible reserve, agents may be shooting themselves in the foot.

The views, opinions and interpretations expressed in this article are those of the author and do not necessarily reflect the position of Titlespace Conveyancing Pty Ltd (ACN 633 723 163), its directors or its staff. The information in this article is general information only and does not constitute legal advice. It does not take into account your objectives, financial situation or particular circumstances, and the law differs across NSW, VIC, QLD and the ACT. We do not warrant or guarantee that the information is complete, accurate, current or suitable for your purposes, and it may become out of date as legislation and regulation change. You should verify any information that is important to your circumstances and obtain advice tailored to your situation before acting. Reading this article does not create a solicitor-client relationship with Titlespace.