Whilst another week goes by, another 1000+ properties were reported to the REIV. The auction clearance rate across the weekend remained at 86% on 383 reported auctions. The number of private sales this year to date has now exceeded both 2008 and 2007 year to date figures. In December and January we predicted a big year and we also predicted it would be without the huge auction numbers.
As we said last week, we need to talk about the “price bubble” and we will. But first, a quick note to finish off from last week about under quoting. Over the weekend, our advocates visited about thirty properties and three auctions. The variety of responses from the agents when asked “what’s it worth” was almost farcical. Some agents went to great lengths to explain they didn’t give out quotes anymore. Others explained that we needed to make our own determination based on the comparables given. And still others didn’t know what all the fuss was about and continued to underquote by about 20%.
This is the merry go round that won’t stop anytime soon. Agents have a fundamental duty to get the best possible price for their client, THE VENDOR. If the agent is not breaking the law he or she is required to do everything in their power to maximise the result for THE VENDOR. If the government legislates as it did about 6 years ago to fix the under quoting, it will probably take the same amount of time to “get around” these changes as it did last time. ONE DAY!!!!
The new authorities introduced an appraisal range and then retained a field for vendor’s amount which most of the time is “TBA” or to be advised. This allows agents to quote at their appraised numbers as they can make claim that the vendor will decide on a reserve when offers or an auction takes place.
I actually agree with this. It is always good to get some buyer feedback before making the final decision on a reserve. If agents are forced to set a reserve at the start of a sales campaign, the vendor will probably be asking themselves, “Will the agent work as hard after he has achieved this figure, Will he continue to strive for the best price or simply think he has done his job when they reach the reserve?”
Again, all this is a moot point if a purchaser simply hires someone to act on their behalf. The REIV would cease to be the butt of jokes from the media and its own members, the ACCC wouldn’t need to be worried about any potential purchasers being misinformed and CAV could amend its website and guidelines for potential purchasers, simply by recommending anyone representing themselves in a property negotiation should understand they are covered under “CAVEAT EMPTOR” (Buyer Beware) and if they wish to be on a level playing field with the vendor they should hire the services of a professional buyer advocate.
All this would render, underquoting, potential dummy bidding, some dubious tactics some agents use, and any other complaints that are floating around as moot.
PRICE BUBBLE
The “price bubble” assumes that property prices will drop at the same speed that they have risen. In other words the price growth will “BURST”. Whilst this may have some merit in the new estates where builders may be taking advantage of the very large First Home Owner Grants for those who are building, in the established areas closer to the CBD, I believe investors will take over as the First Home Owners diminish.
As the interest rates remain on a par with rental returns many people are simply buying their next home and not selling their existing one. Instead of selling your existing home, keep it, borrow the deposit for your new home from the equity of the first and then the tenant pays for your first mortgage and you pay for the second one. Most properties in good suburbs of Melbourne, where you have a mortgage of only 80% of the property value, will be revenue neutral thanks to the rental income.
We are about to see a fundamental change in property ownership over the next generation. I believe we will see people who have property, increase their holdings, and people who never have the opportunity to get into the market. We will begin to see long term leases on residential property. Some of these will become 10 and 15 years and will be traded similar to property ownership.
If interest rates rise again quickly, I believe it will be a long time before property ownership could be accessible to this many people. If you would like to get started on your next property purchase, please give us a call
Ian James.
Tuesday, July 28, 2009
Monday, July 20, 2009
Market Comment - Monday July 20th 2009
I think everyone has got the idea that the property market in Melbourne is going “Gang Busters”. Another 86% clearance rate and another week of more than 1000+ sales within the metropolitan area have been reported to the REIV. There were two issues doing the rounds of the media over the last couple of days. Is this a property price bubble and should agents and vendors be fined for underquoting. We will deal with the “bubble” principle next week.
As far as underquoting is concerned: by law the agent cannot advertise a property for sale (or auction) with a number that is below the vendors WRITTEN RESERVE. Nor can the agent advertise below their own appraisal. Where the vendor does not give the agent a reserve (probably 90% of the time) then the agents’ appraisal is used as the basis of the quote price or range.
If we assume the vendor is paying the agent to get the best possible price then we can also assume the agent will market the property to the best of his or her ability within the limits of the law. This being the case, the government will have a very difficult time legislating anything different to the current rules.
If Graeme Samuels (ACCC) or Tony Robinson (Minister for Consumer Affairs) believe one advocate paid by one party should assist both Buyer and Vendor, then I have no doubt there next mission should be to overhaul our legal system. Why would each side need their own legal representative? “I don’t need a lawyer; if I don’t understand the law; I’ll just ask the other sides’ Queens Counsel to help me out”
When one party is paying for advice and counsel, why should the other side of the contest expect any assistance whatsoever? We are talking about hundreds of thousands of dollars. A good selling agent can make the difference in getting a good sale, not selling or getting a record price. Conversely, a Buyer’s Agent can make the same difference for the purchaser.
Any potential purchasers looking to the REIV to solve the dilemmas of unhappy potential purchasers should seek other advice. Enzo Raimondo’s comment (Herald Sun July 20 2009 page 2) about being the fault of a few Buyer Advocates must have been taken out of context. Nobody could possibly be that stupid. The REIV are the Estate Agent’s peak industry body and to think there CEO would disparage its own members would be thoughtless. Mr Raimondo made himself clear over the weekend when he was quoted in the Herald Sun, “Consumer Affairs Victoria needed to take action against agents who were breaking the law.” The REIV exists to assist the Real Estate Agents not do the job of Consumer Affairs.
Purchasers seem to be complaining that they are wasting huge sums of time, money and effort. And this is specifically the selling agents fault. There is a simple solution: Hire a Buyer Advocate!!
A reputable buyer’s advocate will be a licensed estate agent. You can check this at the Business licensing authority website: justice.vic.gov.au
A good Buyer Advocate will not sell any property. They will not assist any vendors. They will not do any Vendor Advocacy. A reputable Buyer’s Advocate will assist buyers to purchase a property.
This past weekend we successfully purchased 2 properties at auctions for the price we had expected the properties to be sold for. On both occasions our clients had all the correct preparation done for them by JPP Buyer Advocates, understanding the current market, with little of no stress..... one overseas client & one local client. Different suburbs, different price ranges.
As a Buyer’s Advocate, we do not need to worry about the “quote price”. A good buyer advocate will assist you in property selection, property sourcing, property assessment and the negotiation. You should be charged a fee by the advocate. If you are not it means your advocate is being paid by someone else (usually the vendor or developer).
Call us for a free no obligation meeting and we can help you save time effort and MONEY.
Ian James
As far as underquoting is concerned: by law the agent cannot advertise a property for sale (or auction) with a number that is below the vendors WRITTEN RESERVE. Nor can the agent advertise below their own appraisal. Where the vendor does not give the agent a reserve (probably 90% of the time) then the agents’ appraisal is used as the basis of the quote price or range.
If we assume the vendor is paying the agent to get the best possible price then we can also assume the agent will market the property to the best of his or her ability within the limits of the law. This being the case, the government will have a very difficult time legislating anything different to the current rules.
If Graeme Samuels (ACCC) or Tony Robinson (Minister for Consumer Affairs) believe one advocate paid by one party should assist both Buyer and Vendor, then I have no doubt there next mission should be to overhaul our legal system. Why would each side need their own legal representative? “I don’t need a lawyer; if I don’t understand the law; I’ll just ask the other sides’ Queens Counsel to help me out”
When one party is paying for advice and counsel, why should the other side of the contest expect any assistance whatsoever? We are talking about hundreds of thousands of dollars. A good selling agent can make the difference in getting a good sale, not selling or getting a record price. Conversely, a Buyer’s Agent can make the same difference for the purchaser.
Any potential purchasers looking to the REIV to solve the dilemmas of unhappy potential purchasers should seek other advice. Enzo Raimondo’s comment (Herald Sun July 20 2009 page 2) about being the fault of a few Buyer Advocates must have been taken out of context. Nobody could possibly be that stupid. The REIV are the Estate Agent’s peak industry body and to think there CEO would disparage its own members would be thoughtless. Mr Raimondo made himself clear over the weekend when he was quoted in the Herald Sun, “Consumer Affairs Victoria needed to take action against agents who were breaking the law.” The REIV exists to assist the Real Estate Agents not do the job of Consumer Affairs.
Purchasers seem to be complaining that they are wasting huge sums of time, money and effort. And this is specifically the selling agents fault. There is a simple solution: Hire a Buyer Advocate!!
A reputable buyer’s advocate will be a licensed estate agent. You can check this at the Business licensing authority website: justice.vic.gov.au
A good Buyer Advocate will not sell any property. They will not assist any vendors. They will not do any Vendor Advocacy. A reputable Buyer’s Advocate will assist buyers to purchase a property.
This past weekend we successfully purchased 2 properties at auctions for the price we had expected the properties to be sold for. On both occasions our clients had all the correct preparation done for them by JPP Buyer Advocates, understanding the current market, with little of no stress..... one overseas client & one local client. Different suburbs, different price ranges.
As a Buyer’s Advocate, we do not need to worry about the “quote price”. A good buyer advocate will assist you in property selection, property sourcing, property assessment and the negotiation. You should be charged a fee by the advocate. If you are not it means your advocate is being paid by someone else (usually the vendor or developer).
Call us for a free no obligation meeting and we can help you save time effort and MONEY.
Ian James
Tuesday, July 14, 2009
Market Comment - Monday July 13th 2009
The sales data in Melbourne continues to prove beyond doubt that the property prices in Melbourne are not a “bubble.” Since the week ending February 23 this year the only time there have not been over 1000 sales reported to the REIV each week, have been holiday weekends. 5 months of data showing 1000 sales per week is not an anomaly or a bubble it is a trend.
“Too cheap – and you can quote me” Herald Sun Saturday July 11
“Can I quote you” Herald Sun Sunday July 12
“Price discrepancies anger home buyers” Herald Sun Monday July 13
There have been several articles and comments in the Age newspaper as well.
Underquoting seems to be the catch cry of many media and professional commentators. I attended an auction two weeks ago that was quoted as “over $830k”. This beautiful property was on excellent land, was soundly built and had everything you would want from a home in the area. As I walked from the open for inspection 3 weeks prior I had said to the agent I would give him $1M right now for the property. He explained to me that his vendors wanted to go to auction. He didn’t think he would get that figure. The property sold for $1.260M. I did not think it was worth that the evident comparables put good buying around $1M - $1.1M easily, but two people fought out the auction to the final figure. Most other purchasers fell away between $1M & $1.1M
Was this property underquoted? Would the vendor have taken something close to $830k on the day? Had they quoted $830 - $900k I would have thought the quote a little low but not enough to warrant even a comment. The property was on the market in the low $900’s. So if nobody bid over $950k then the property would have been sold for that amount. And it may have sold cheaper than this if the bidding had not reached $950k.
If competition takes a property well above the asking price, this is due to the good work of the selling agent. The selling agent is working for the vendor not the purchaser. If a purchaser wants to save money on needless inspections for properties they have absolutely no chance on, if they want to know what is likely to purchase a property then they should hire an expert to work for them. A good buyer’s advocate who is constantly buying property all the time will know what is likely to happen to any given property they are looking at.
I do think if an agent has received an unconditional offer above their advertised price they should change their quote if they don’t accept. This happen everyday and I think this is unfair. I am also not sure that a 20% margin is an expected amount for the quote to be below the reserve. But it is extremely rare for a property to sell more than 10% away from the expected price of a professional analysing the market; whether that be a selling or a buying agent’s appraisal.
Just because you see one result, this does not mean you understand the market. There was a very strong result at an auction I attended in Sandringham on Saturday. Approximately 2600sqm of land with a derelict house sold for $3.350M. This would make people think the land value in the area was worth about $1290 per sqm. It is only on further investigation you would find out there was a covenant on the land limiting the property to only 2 house sites and therefore substantially lessening the value per sqm. Sandringham property sells for $1400 - $1500 per sqm for large house sites of approximately 1000sqm.
There are also plenty of agents out in the market at the moment that genuinely do not have the experience to know what the property will sell for. There are some properties that are difficult to estimate, such as the example above. Other properties are difficult because the agents do not realise that they may have the only property of its type in a much broader area than they are used to dealing in. For example, if there were a distinct lack of single fronted period homes in Northcote, an agent may realise he has a good property and has the only one in Northcote and Thornbury, but he may not realise he has the best single fronted home in Northcote, Thornbury, Preston, Fitzroy north, Carlton North, Fairfield and Alphington. He may not deal in these areas, but a good buyer advocate will take all this into account.
Unfortunately, there are plenty of selling agents who will put a bait price out to the market simply to gather names for further marketing, either to on sell them or to use in their own future campaigns. These are the unscrupulous agents that should be stopped by Consumer Affairs Victoria. Any selling agent that is breaking the law, or doing anything that simply benefits the agent to the detriment of both the vendor and other purchasers should be stopped.
You must remember selling agents work for the vendor. It is a bit unrealistic to expect a professional negotiator, who is being paid by the vendor, to do anything to assist the purchaser. If purchasers want to save money, be successful at auctions and in private sale negotiations, find properties that are not yet advertised on the open market, or simply want to save time, they should engage a buyer’s advocate.
Any good negotiator in any sales field anywhere in the world will tell you: “Never let the salesman deal directly with the decision maker.” If you do not know what this means you really do need an advocate working for you. If you do know what it means call us for a free no obligation meeting and we can help you purchase your new home.
“Too cheap – and you can quote me” Herald Sun Saturday July 11
“Can I quote you” Herald Sun Sunday July 12
“Price discrepancies anger home buyers” Herald Sun Monday July 13
There have been several articles and comments in the Age newspaper as well.
Underquoting seems to be the catch cry of many media and professional commentators. I attended an auction two weeks ago that was quoted as “over $830k”. This beautiful property was on excellent land, was soundly built and had everything you would want from a home in the area. As I walked from the open for inspection 3 weeks prior I had said to the agent I would give him $1M right now for the property. He explained to me that his vendors wanted to go to auction. He didn’t think he would get that figure. The property sold for $1.260M. I did not think it was worth that the evident comparables put good buying around $1M - $1.1M easily, but two people fought out the auction to the final figure. Most other purchasers fell away between $1M & $1.1M
Was this property underquoted? Would the vendor have taken something close to $830k on the day? Had they quoted $830 - $900k I would have thought the quote a little low but not enough to warrant even a comment. The property was on the market in the low $900’s. So if nobody bid over $950k then the property would have been sold for that amount. And it may have sold cheaper than this if the bidding had not reached $950k.
If competition takes a property well above the asking price, this is due to the good work of the selling agent. The selling agent is working for the vendor not the purchaser. If a purchaser wants to save money on needless inspections for properties they have absolutely no chance on, if they want to know what is likely to purchase a property then they should hire an expert to work for them. A good buyer’s advocate who is constantly buying property all the time will know what is likely to happen to any given property they are looking at.
I do think if an agent has received an unconditional offer above their advertised price they should change their quote if they don’t accept. This happen everyday and I think this is unfair. I am also not sure that a 20% margin is an expected amount for the quote to be below the reserve. But it is extremely rare for a property to sell more than 10% away from the expected price of a professional analysing the market; whether that be a selling or a buying agent’s appraisal.
Just because you see one result, this does not mean you understand the market. There was a very strong result at an auction I attended in Sandringham on Saturday. Approximately 2600sqm of land with a derelict house sold for $3.350M. This would make people think the land value in the area was worth about $1290 per sqm. It is only on further investigation you would find out there was a covenant on the land limiting the property to only 2 house sites and therefore substantially lessening the value per sqm. Sandringham property sells for $1400 - $1500 per sqm for large house sites of approximately 1000sqm.
There are also plenty of agents out in the market at the moment that genuinely do not have the experience to know what the property will sell for. There are some properties that are difficult to estimate, such as the example above. Other properties are difficult because the agents do not realise that they may have the only property of its type in a much broader area than they are used to dealing in. For example, if there were a distinct lack of single fronted period homes in Northcote, an agent may realise he has a good property and has the only one in Northcote and Thornbury, but he may not realise he has the best single fronted home in Northcote, Thornbury, Preston, Fitzroy north, Carlton North, Fairfield and Alphington. He may not deal in these areas, but a good buyer advocate will take all this into account.
Unfortunately, there are plenty of selling agents who will put a bait price out to the market simply to gather names for further marketing, either to on sell them or to use in their own future campaigns. These are the unscrupulous agents that should be stopped by Consumer Affairs Victoria. Any selling agent that is breaking the law, or doing anything that simply benefits the agent to the detriment of both the vendor and other purchasers should be stopped.
You must remember selling agents work for the vendor. It is a bit unrealistic to expect a professional negotiator, who is being paid by the vendor, to do anything to assist the purchaser. If purchasers want to save money, be successful at auctions and in private sale negotiations, find properties that are not yet advertised on the open market, or simply want to save time, they should engage a buyer’s advocate.
Any good negotiator in any sales field anywhere in the world will tell you: “Never let the salesman deal directly with the decision maker.” If you do not know what this means you really do need an advocate working for you. If you do know what it means call us for a free no obligation meeting and we can help you purchase your new home.
Tuesday, July 7, 2009
Market Comment - Monday July 6th 2009
The clearance rates have firmly entrenched themselves above 80%. The market is moving relentlessly upward. Whilst the first home buyers, who are building new dwellings, may be eligible for up to $35,000, the smart purchasers are looking for good long term growth investments.
These will not be found in new estates. These will be found in good pockets of firmly established suburbs with good amenities. All the papers this week are talking about “unfathomable” results. They are talking about how the new estates are leading the way forward with growth. This will last only as long as the grants do. Most of the commentators go on to say this was inconceivable to think our property market would move the way it has.
This is almost comical. It was so obvious what was happening in our Melbourne’s property market late last year and certainly January and February this year. In December last year we wrote in this column – December 15th 2008
“All in all, properties that are in good locations that show a history of good capital growth, have an improving yield and are under $500,000 will be the hottest property for the first six months of next year. In the later half of the year, depending on the economic outlook and what consumer sentiment brings, properties between $500,000 and $1M will be the next bracket to move. Once the economy begins to recover, properties above $1M will rebound extremely well. If you are in the market for this type of property, spring 2009 may well be the last time to buy at reduced prices before a recovery in early 2010.”
The only change to exactly what has happened is it was a little quicker than anticipated. Anyone wanted to be in the Melbourne property market in the next few years needs to think about purchasing NOW!!!!
Supply and demand are the two elements of price movement. All contributing factors have a bearing on either supply or demand. If people decide not to purchase now for any reason that will affect demand. Conversely, if people decide not to sell property or sell because they are forced to, then this affects supply.
We currently are tens of thousands of dwellings short of what we need in Melbourne now. It does not matter whether buying or renting you still need a place to live and we do not have enough dwellings. Even if people become unemployed in droves – even if it reaches 10% and people start selling their houses. The extra supply will not exceed demand. And all of the people who are selling will still need to rent. This will push up rental returns and therefore bring more investors to the market increasing demand.
The only thing that will slow price growth in the Melbourne property market is interest rate increases. If the interest rate rises faster than rental returns, which is not in our foreseeable future, this would slow the investors and all but stop the first home buyers. If this occurred it would also strangle businesses and plunge us very sharply into the recession the rest of the world is currently experiencing. The Reserve Bank is highly unlikely to do this.
Short of massively rising interest rates or Armageddon, I can’t see property prices falling anytime soon. In fact property prices will increase more rapidly over the next decade than they did over the last. People with lower budgets have to buy much further from Melbourne CBD. This will have an impact on everything from government infrastructure planning to the effect on the environment.
If you want to secure good long term wealth creation you should think about direct property investment. Call us now and we can assist you with your next purchase.
Ian James
These will not be found in new estates. These will be found in good pockets of firmly established suburbs with good amenities. All the papers this week are talking about “unfathomable” results. They are talking about how the new estates are leading the way forward with growth. This will last only as long as the grants do. Most of the commentators go on to say this was inconceivable to think our property market would move the way it has.
This is almost comical. It was so obvious what was happening in our Melbourne’s property market late last year and certainly January and February this year. In December last year we wrote in this column – December 15th 2008
“All in all, properties that are in good locations that show a history of good capital growth, have an improving yield and are under $500,000 will be the hottest property for the first six months of next year. In the later half of the year, depending on the economic outlook and what consumer sentiment brings, properties between $500,000 and $1M will be the next bracket to move. Once the economy begins to recover, properties above $1M will rebound extremely well. If you are in the market for this type of property, spring 2009 may well be the last time to buy at reduced prices before a recovery in early 2010.”
The only change to exactly what has happened is it was a little quicker than anticipated. Anyone wanted to be in the Melbourne property market in the next few years needs to think about purchasing NOW!!!!
Supply and demand are the two elements of price movement. All contributing factors have a bearing on either supply or demand. If people decide not to purchase now for any reason that will affect demand. Conversely, if people decide not to sell property or sell because they are forced to, then this affects supply.
We currently are tens of thousands of dwellings short of what we need in Melbourne now. It does not matter whether buying or renting you still need a place to live and we do not have enough dwellings. Even if people become unemployed in droves – even if it reaches 10% and people start selling their houses. The extra supply will not exceed demand. And all of the people who are selling will still need to rent. This will push up rental returns and therefore bring more investors to the market increasing demand.
The only thing that will slow price growth in the Melbourne property market is interest rate increases. If the interest rate rises faster than rental returns, which is not in our foreseeable future, this would slow the investors and all but stop the first home buyers. If this occurred it would also strangle businesses and plunge us very sharply into the recession the rest of the world is currently experiencing. The Reserve Bank is highly unlikely to do this.
Short of massively rising interest rates or Armageddon, I can’t see property prices falling anytime soon. In fact property prices will increase more rapidly over the next decade than they did over the last. People with lower budgets have to buy much further from Melbourne CBD. This will have an impact on everything from government infrastructure planning to the effect on the environment.
If you want to secure good long term wealth creation you should think about direct property investment. Call us now and we can assist you with your next purchase.
Ian James
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