Nine months into their search for a first home in Melbourne, Scarlet and Andrew have a trick for figuring out what they can afford: add roughly 20 per cent to every listing they see.

"Every house we've liked and we're interested in has gone for at least $200,000 over the top of the [price range]," Scarlet says, with Andrew adding, "$200,000 to $300,000 easily."

"You think 'I'm in this with a chance' — then three to four bids in, BANG, you're already out."

Scarlet and Andrew are among a crowd of hopeful homebuyers who turn up at auctions every weekend just to see the price soar beyond their expectations and out of their reach. In Melbourne and Sydney competition is to be expected, but some real estate agents say widespread underquoting is getting buyers' hopes up.

Underquoting occurs when a property is deliberately advertised for less than its estimated selling price or the owner's asking price. But a property selling above its advertised price range doesn't necessarily mean underquoting has occurred; the key word is deliberately.

The ABC met Scarlet and Andrew, who did not want their surnames published because of their jobs, at an auction for a three-bedroom house in Brunswick. It was advertised with a range of $1,300,000 to $1,400,000 and sold for $1,550,000. The property across the street — an old three-bedroom house (that was later demolished) on a similar block of land — sold for $1,600,000 one year ago, so Scarlet and Andrew suspect this house was underquoted.

"We came to the auction intending to bid and just being hopeful," Scarlet says. "We sort of knew in our heart of hearts we wouldn't be getting it."

Earlier in the day the ABC observed a crowded auction for a three-bedroom house in Coburg, with a price range of $1,050,000 to $1,150,000. The bidding was competitive and quickly hit $1,260,000, at which point the auctioneer declared: "We're on the market and we're selling!" It sold for $1,300,000. About 10 couples walked away downtrodden.

Another auction, a two-bedroom unit in Fitzroy North with a price range of $1,000,000 to $1,100,000, drew a smaller crowd. The highest bid was $1,050,000 and, as it turned out, below the reserve. The winning bidders simply won the right to negotiate further. A few days later, the property was re-advertised with an asking price of $1,149,000.

It turns out all of these scenarios could technically fit within the rules — and may not constitute illegal underquoting at all.

'People will pay whatever it takes'

Underquoting has been an issue for a long time, making headlines again recently due to a surge in complaints. New South Wales recently announced it was cracking down on repeat offenders. In Victoria, where an underquoting task force was set up in 2022, complaints have almost doubled in the past year.

Rather than stamping the issue out, some real estate agents — such as John Keating, who has been in the industry for more than 50 years — believe the underquoting task force in Victoria has made real estate agents more conservative and smarter in how they operate.

"I think there are thousands of people being duped every weekend," he said. "Some agents have been using very creative vocabulary to conceal … what they know the value of the property will probably be, and/or what they know the vendor wants for the property."

But real estate agents and buyer's agents alike say there are misconceptions about what illegal underquoting actually is.

In Victoria the seller's asking price can sit anywhere in the advertised price range, including near the top. A seller can also set or change their reserve at any time — including during the auction — so the final asking price ending up higher than the advertised range may not constitute underquoting.

There's also another factor that can push prices up: the market.

"I think it's really important to draw a distinction between underquoting and a situation where competitive bidding actually results in a sales price that's well above the vendor's reserve," says Melinda Jenneson, the president of the Real Estate Buyers Agents Association of Australia.

"I think we've all seen situations at auction where people who are emotionally connected to a property will pay whatever it takes to purchase that home."

That distinction can be difficult to draw — which is part of the reason why underquoting has become such a heated issue. The ABC described the Brunswick and Coburg auctions mentioned above to Jacob Caine, the president of the Real Estate Institute of Victoria (REIV). He said depending on the circumstances, underquoting may not have occurred.

He also pointed to data showing that less than 5 per cent of underquoting complaints in Victoria lead to fines.

"I think there's a sentiment amongst some of the buying population … that this practice of underquoting is widespread, when I think the data confirms that it's the exception rather than the rule," he said.

Data provided to the ABC by REA Group, which runs realestate.com.au, also suggests underquoting may not be as common as perceived. In both Melbourne and Sydney, the number of properties that sold above the asking range at auction increased slightly between 2023 and 2024. Most auctioned properties sold either within or below the price guide.

'A lot of tears' from first home buyers

Despite the data, underquoting remains a very real concern for homebuyers.

"We see a lot of tears," says Julie DeBondt-Barker, a buyer's agent who works with first home buyers. "They are really shattered sometimes, by the time they come to us."

Buyer's agents say it's not just about the emotional investment buyers make in a property; they're also losing money. Properties sold at auction are sold "as is", so it's important to do due diligence such as building inspections, pest inspections and contract reviews before placing a bid.

"They might have spent roughly $1,000 … thinking they have a chance. Then they wait three to four weeks for the auction to roll around, go to the auction, then the bidding just soars past them," Ms DeBondt-Barker says.

Underquoting also ticks off real estate agents who do the right thing. Rosemary Jamonts, who has been selling real estate in Williamstown for 24 years, believes "the vast majority of real estate agents underquote", despite what the REIV says.

"The industry is not looked upon kindly by the general public, and there's a good reason for that," she says. "Underquoting is still an issue. It's a very, very widespread, endemic issue. It is not going away."

Government facing a complex problem

But the solution depends on who you ask.

Some real estate agents, such as Mr Keating and Ms Jamonts, believe vendors should be required to declare their reserve price before auction. The move, they say, would mean buyers don't waste their time with a property they had no chance of buying in the first place.

Ms Jamonts believes vendors who underquote should be held accountable, as well as the real estate agent. "If you cheat on your tax, you can't hide behind your tax agent," she said. "I think underquoting would stop pretty quickly if vendors had to take the rap for that as well."

Including a minimum selling price in property advertising is another option some agents think would help.

Meanwhile, buyer's agents stressed the importance of buyers doing their own research — such as looking at recently sold properties — to figure out what a home is worth, rather than relying on the advertised price range.

Nearly everybody the ABC spoke to said more education was needed for both buyers and agents, and that the government should look at introducing clearer laws.

"It's not an uncomplex problem for them to solve," Mr Caine says. "But as long as they [the government] continue, and the public continues, to see this as an unresolved problem, they've got work to do."

Consumer Affairs Victoria declined an interview but said in a statement: "We expect all estate agents to follow the law and accurately represent the property they are selling — our task force will not hesitate to take further action against estate agents who break the law."