It’s 6pm Saturday and the James Clearance rate for $1 million-plus auctions in Melbourne is 70 per cent again from the 20 auctions we attended.
This week, we cover two issues: first, the topical “quoting” issue and, secondly, underlying value.
It’s been an emotional week for many and the issue that is making emotions run hot is quoting, particularly under-quoting. We support those such as David Morrell from Morrell & Koren Buyer Advocates, Graeme Samuel from the Australian Competition & Consumer Commission, John Keating from Keatings Real Estate, Neil Mitchell of 3AW and Craig Binnie of the Herald Sun, who, irrespective of claimed agendas (which we may not support), are at least doing something about this issue. We encourage selling agents to focus on the issue of quoting, because buyers hate agent misrepresentation and anything that can reduce this is a good thing for our industry. There are many selling agents now trying to manage this issue, while some agents are still in denial that there is any issue at all.
We, as buyer agents, also need to take some responsibility and avoid taking cheap shots in this strengthening market when we know some selling agents are trying to give good advice but do not have a crystal ball to predict an incredible result. Finally, buyers also need to take responsibility for their role in this process. There are alternatives to going it alone, not doing extensive research and simply relying on an agent’s quote before bidding at auction. You can get professional buying advice to help you or you can actually do your own extensive research. You should not expect sellers to provide information that will reduce their end outcome – why should they? It goes against a basic human instinct of self-interest (which in many cases is not a bad thing).
Furthermore, many agents are decent people but, if you treat them badly, or supply them with “crap”, then it will basically be returned to you. If you talk to good agents with respect, then, providing you are not too naive in what you say, you will get good information back in many circumstances – but, granted, please pick your mark.
Try Heather Elder or Sean Cussell from Marshall White or Sam Wilkinson or Michael Gibson from Kay and Burton or Scott Patterson or Paul Keane from Jellis Craig or Jenny Dwyer or John Holdsworth from Hocking Stuart to name a few. They will actually tell you where they think buyer interest might be and if the seller is thinking something different and what is happening in the campaign. They, like many agents, will try and help you (please, it’s not a perfect science) while still maximising their client’s position (the seller).
We believe that the underlying issue is not under-quoting, dummy bidding, lying, not returning phone calls or any of the other things some agents do that annoy buyers. The underlying issue, in our opinion, is lack of respect and care. All people, whether buyers or sellers and, yes, even agents, initially have a right to be treated with basic respect and care, and this is especially important during an emotional process such as buying or selling a house. As agents, we are charged with the responsibility of helping people throughout this process and people need – and want – our help and guidance, whether they are buying or selling.
We would prefer to work in an industry where this guidance and help is genuine; where it is not OK to say anything and then blame the legislation for allowing loopholes. It’s not the government’s fault that we as a group have lost our way a little – the Estate Agents Act does not say that any action is OK in the name of protecting a vendor or buyer and, as buyers, it’s not OK to just abuse agents and to be physically intimidating because “oh, well, they are just selling agents”. Many selling agents have more “morals” than some of those yelling the loudest at them.
But we digress. Apologies for the lecture but things are hotting up out there and that is our take. While people are looking at underquoting, let’s try and work out for buyers what real valuation is all about.
In last week’s James Market News, we gave an overview of valuations. Today, we will look at why you should value homes correctly. It is very important that, as a buyer, you understand the underlying value of your target home, which can be very different from the price you are asked to pay. Why? Well, if you understand good value, you will make better financial and emotional decisions and you will have a happier life. Buying poor value will lessen the quality of your life.
Figure i in the chart above shows the market. It’s a dynamic, gyrating thing, not a straight line. Last year, you could have bought homes (labelled M – O – R – T – G – A – G – E) and they are all the same size with the same number of bedrooms; they are in different parts of Hawthorn, different states of repair and they were for sale at different times between July 2008 and June 2009. You, the buyer, had similar feelings for all eight of them in that you were desperate to buy them. (Very few people only have one house that is for them – and, if you are married to one of those people, our condolences.)
Looking at figure i, homes M and R seemed OK buys at the time, but they weren’t because they were priced well above market and, no matter how good the home is, being 20 to 30 per cent above market is not a smart thing – unless you can afford it and you have full knowledge.
Homes G and G were not good buys. The market was short of stock and their positions were not as good, so, despite being bought at market (it was spiking in a surge), these were expensive and will not perform that well growth-wise.
Homes O, R, T and E all look good buys. But, when you find out extra information, such as T was very poor quality needing excessive maintenance and A needed a lot of renovation to bring it up to scratch, you see that actually T and A cost roughly the same as M and R.
So, homes O and E were your best buys and, in this market, the buyer of E showed that they were smart. They missed on O earlier in the year but they were patient and waited and stuck to their goals and, although they had to pay more later in the year, they actually made very good decisions until then by NOT BUYING.
Who cares what price you pay and what home you buy, as long as you buy? If Capital Growth is important, you should care. Look at figure ii in the chart. In 10 years, when somebody comes to buy your home and the market is normal – eg if future buyers have stock choices - then they won’t care what you paid, they will only care how your home compares in value to others on the market. Is yours in a good position, is it well renovated, does it have good flow and light? How much is yours going for, compared to others that are similar?
Your selling price in 10 years will be determined by the quality of what you bought, not what you paid, in 2009.
Figure iii: I’m not selling. Ever. That is fantastic news. However, if you are now 30 and single, then, statistically, in a few years, you will have a partner and you may need a different home (Happy Wife – Happy Life). A few years after that, statistically, you may make a big mistake like many of us do and have children, who unfortunately require bedrooms and space, so you need Different Home No 3. Different Home No 4 comes either at your mid-life crisis, when you need a change of life or you get divorced, and, finally, Different Home No 5 comes as you approach retirement age.
Just about every human being wants to live in a better home than the previous one as they move on in life. Now, the really smart people make home number 1 to 5 the same home but make it different and better, or, at least, homes 2 to 4 are the same home with differences, thus avoiding time out of the market and government and other transaction costs.
Figure iv shows the gap that can develop in your wealth options. If, as you go through life, you buy a few homes, then you can either buy well and be wealthy, spending money on holidays, hobbies, family, yourself, charity whatever. Or you can take the poverty route of buying poorly and buying homes that are expensive, of poor quality and that lead to unhappy spouse, unhappy house and the holiday and Porsche money is used not for cars and holidays but for mortgages.
If all of this is too much to think or worry about, then just panic, buy anything at any price and cross your fingers. Yep, a more common strategy that eases immediate pain and stress, only to see it heightened in later years. Alternatively, you could get professional buying advice or do the extensive research yourself.
Buy well (please).
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