Which auction is this? No auction, it is a normal open for inspection at 24 Kingsley St in Camberwell. Selling agent is Jeremy Desmier of Fletchers.

It’s 6pm Saturday and the James Clearance rate for $1 million-plus auctions in Melbourne is 70 per cent from the 20 auctions we attended.

There are very few quality $1 million-plus auctions or private sales of note to report this week. Please note the Chinese translation to the right.

Auction behaviour on both sides is slipping and there will be issues if it is not addressed. The heat in the current environment is being fuelled by many and things will continue to hot up as homebuying is a passionate pass-time; shelter is a basic need and lots of money is involved. So, will we see threatening behaviour as well as the stress? Will we need security guards at one of Australia’s favourite Saturday outings – outings that on many Saturdays in Melbourne have more followers than the footy.

The temperature is rising, in part caused by agent quoting, and it’s not because the media is highlighting it unfairly. Reading Neil Mitchell’s article in the Herald Sun and listening to Monique Wakelin on the ABC, they both made valid points and did it in a non-inflammatory and balanced way. As an aside, I truly hope Enzo Raimondo’s (from the REIV) comments stating that underquoting was rare was indeed a misprint or taken out of context because ………well, what hope is there if indeed this comment was correctly quoted?

In our Market Insight article May 30th on Quoting – we asked the question what are selling agents quoting. There is no definition and Government guidelines are well intentioned but very, very confusing!!! Are we quoting

• what the seller or vendor wants?
• what the seller or vendor will take?
• what the agents think buyers will pay?
• what the agents hope buyers will pay?
• what offers they have had?

Full article at http://www.jamesbuyeradvocates.com.au/marketnews.html?newsid=54

But this is NOT another article about bagging agent quotes. Being optimists (we are buyer agents), we hope that, like dummy bidding legislation (which really does work), somebody smarter than us will find the magic pill that shows:

• selling agents, some who continually misrepresent, just how destructive their quoting mindset is to buyer relationships;
• sellers that they cannot have a last-minute greedy tablet and hide behind their selling agent without some consequence;
• buyers that selling agents are truly not there to act in your best interests at the expense of their “master” and income provider – the seller; and
• buying agents that we cannot, with good conscience, land cheap shot after cheap shot when we know that quoting is not a perfect science and, at the moment, is extra difficult especially in the early part of a campaign.

Then it would be great if that same magic pill could force or encourage behaviour through clearly defined rules that returns a common decency and respect equilibrium to the home buying and selling market.

The real question is not agent quoting or the agent quote range! It is HOW CAN YOU WORK OUT THE REAL ESTIMATED MARKET PRICE RANGE?

Remove the selling agent quote from your mind, as it is currently not a reliable indicator in Assessing Price. Replace it with one or both of the below:

• Engage a professional buying adviser such as a buyer agent (of course we’d say that) or valuer or even an experienced friend. This in itself it not an answer unless they can get the essence of price assessment right – at least 80 per cent accuracy before the day (forget those hindsight experts).
• Adopt a regime of personal research that includes:
  a) the latest comparable sales in the area of similar homes;
  b) the latest land values (price per sq m) plus building costs;
  c) the recent record of the listing agent and auctioneer on similar homes; and
  d) auctions, auctions and more auction visits in your area and surrounding areas to ascertain prices, bidding strengths and buyer depths.

Please note Assessing Price is Step 2 of Three Steps to Smart Buying and is an important foundation on which to build a buying campaign, but it is not the only step you need to take. You still need Step 1 – Clarity of Options and actually finding the right home, and Step 3 – Negotiate, which is a lot more than a few lines of theory. But I digress.

We mentioned Comparable Sales. What are they? At James Buyer Advocates, we look at hundreds of sales to find four to six homes that have as many similar characteristics to our target property as we can find. Homes with multiple similar characteristics we call Comparables. Some similar characteristics we look for are:

1. Same Market – Houses bought in December 2008 were bought in a different market to now but houses bought last month were not.
2. Same Area – Houses in different suburbs command different prices. Houses in the same suburbs but in different precincts command different prices.
3. Same Land Size – eg 500 sq m is a big difference in value from 700 sq m.
4. Same House Style – Period homes command different prices to New Homes.
5. Same Size – Bedrooms, Bathrooms, Living Areas, Car Spaces. Different numbers means different values to many.
6. Same Condition – Renovation, Quality.
7. Same Features or WOW – Views, Road Types, Neighbours etc.

The more similar characteristics between the properties and your target home, the better the comparables. The higher the number of GOOD comparables, the more accurate your price assessment is likely to be in, say, eight out of 10 cases. Comparables and price assessment in general is not a 100 per cent exact science like mathematics; it’s more an 80 per cent science like medicine.

Good comparable: Similar sized home in same condition sold around the corner four weeks ago, especially if it was at auction and there were five bidders. It tells you what your market competition (other buyers) thinks a similar home is worth and history often repeats itself.

Poor comparable: A very different type of home sold last year on very different land size, in very different condition at a private sale scenario and, with further research, you find it was a private sale and one “wood duck” buyer paid 30 per cent more than anybody else thought it was worth.

Why are Comparable Sales important? Because, in property you cannot predict what each individual is going to do (eg spend) but you can predict what a large number of people will do based on well researched recent history. Alternatively put, you cannot predict every result correctly; however, you can predict what will happen in a large number of sales (before they happen). In a rapidly changing market, the less skilled you are in the research, the lower your correct price prediction percentage will be.

Our client ratings system goes well beyond our public rating system and addresses each potential property and narrows the search down to four or six best comparables.

These “best comparables” are rarely perfect matches and, in some cases, there are few or no comparables or ones that tell very different stories. This is where you either bite the bullet and hire a professional or you learn from experience (missed opportunities) until you can distil the relevant points, estimate a range of possible price estimates and determine your own price quote or price foundation with which to proceed. If you have done this well, then “your quote” will be a lot more helpful to you than the agent quote.

Knowledge should encourage you to feel more confident to make the right decisions under pressure. Of course, you can always just turn up or override the financial logic you arrived at and buy anyway if emotion so directs you. At least your decision to either hold ‘em or fold ‘em was an informed one.

Of course Happy Wife, Happy Life in many cases still overrides “but Darls the Comparables say…..” .

Think of a selling agent quote like you do a council valuation or a bank valuation: it’s one more piece of information of interest but it usually in no way relates to your reality and this is especially true in a moving market such as we are in now in July/August 2009.

STOP PRESS: ACCC’s Graeme Samuel in today’s Herald Sun has said he will get involved in underquoting. In our opinion he along with buyer advocate David Morrell of Morrell and Koren and some good Victorian government legislation were instrumental in changing key real estate directors’ opinions in 2003 that dummy bidding was OK. I also notice Graeme Samuel has placed a focus on owners. Let’s hope this previously successful trifecta can put in a repeat performance and our industry cleans up it’s act. Please also note that in this rapidly rising market it is difficult to be 100% accurate. How can an agent control or predict how far over the reserve the market will take the final price (every time)? All they should be able to control (every time) is where a price range is declared, that the seller’s reserve, is within that range. Anyway ACCC’s involvement is seriously good news; if it’s true and they can make a difference. Most real estate directors (who are hard to scare) would be genuinely concerned (if they had done something wrong) about a call from an agro Mr Samuel – I for one, certainly would be.

Buy Well

Mal