October 29th: Excerpt from October 15th James Marketnews: Want a home with a Tennis Court in Toorak? Got around $6 million dollars? In the last week we visited, assessed and rated: 11 Scotsburn Toorak (Andrew Smith), 10 Montalto Toorak (Mike Gibson) and 25 Scott Glen Iris (Rae Tomlinson). All have tennis courts.

The Question: After Super Saturday would these 3 not sell, sell lower or would the Mexican Wave** (see explanation below) kick in and they all sell once one had gone.
The Answer: The Jungle Drums beat loudly and the Mexican Wave kicked in with all three selling within 24 hours of each other. All three had quotes of $5m to $6m during their campaigns. Scotsburn was bought after a weekend pass-in (believed to be around $5m), Montalto was for most of its campaign a private sale (but finished in a Boardroom Auction at just over $7m) and Scott Grove was an Expressions of Interest closing Wednesday (reportedly 3 interested parties and sold 2 hours after the deadline for well over $6m).

October 29th: 54 Hanby St Brighton (above) (Kevin O’Brien) – The only auction I came out for today. Damian Davis – a bit out of his normal territory started up the engines with a solid opening spiel in front of a crowd of around 50. After he had finished his coverage on the home’s flow, light and feel, he asked for $3,300,000 from the crowd. Nothing was forthcoming, so a vendor bid at $3,300,000. Another vendor bid at $3,350,000 and a half time break did nothing to excite and so the words pass in brought an end to the proceedings on this lovely home that has a vendor at one level and potential buyers seemingly at another.

October 25th: 25 Scott Grove Glen Iris (Rae Tomlinson and James Connell): Bought within 2 hours of close of play for well in excess of the $6m+ price tag. This was a very good home on a very big parcel of land and the result was deserved and expected for a quality A grader – we rated it at almost 3 hats or 791/1000 (see our rating below). And a good night for Marshall White overall with 34 Chatsworth Prahran being sold through Madeleine Kennedy for $3,137,000.

October 24th: The collection of Expressions of Interest campaigns finishing in late October/Early November will be watched by many. There are some great homes, but the results this last weekend indicate they may not sell as strongly as September results suggested they might. We are monitoring a geographically widespread sample – all over $3m and will bring you the results as they come. Lets see if the K&B Mexican Wave** is in play for the Top End buyers or have taken their bat and ball and gone home.

**K&B’s Mexican Wave: It is possible that the above marketing campaigns could in fact produce higher results if we see more marketing campaigns in the style of Kay and Burton’s Mexican Wave effect. It’s just like at the MCG: Kay and Burton brings a group of homes together and push and prod till they get one buyer to perform and then uses that result to get other buyers to put their hands up on other homes. This is planned months beforehand, it’s totally legitimate, it’s brilliant in concept and it’s why people like Ross Savas and Mike Gibson are worth their fees and then some. Other Mexican Wave agents who plan and execute well are Marcus Chiminello, Rae Tomlinson, Heather Elder, Justin Long and Peter Bennison of Marshall White to name a few. However K&B are the absolute masters at the Mexican Wave.

Alastair Craig and Richard Winneke maneuver 3 bidders to a bought price of $2,855,000. This is where some of last spring's $3M plus action is right now at $3M minus.

October 22nd: During 2011 the $3M+ market has been as fickle as we can remember: it disappeared for most of the year, came back with a vengeance in September and has now seemingly run away lost again.
To demonstrate the point, only two homes out of 150+ scheduled $M+ auctions reported a sale price over $3 million today.  Yes two – that’s not many.

They were 34 Stevenson St, Kew with James Tostevin, which sold after auction and 7 Barrington Ave, also in Kew, with Scott Patterson, which sold before auction.

Mid- Week Apartment Auction: 3002/368 St Kilda Road (Marcus Chiminello) – Thursday night auction @ 7.00 pm. A similar property in the same building on the same side, same square metres, same décor, sold for $3.3m a short time ago. Quoting $3.3m plus then $3.5m plus. Surprising to have an auction in St Kilda Road but Marcus Chiminello and Nicole French (the new Batman and Robin) lined up auctioneer Growling Jack Bongiorno and 3 bidders fought it out past the last sale sales, past the first quote and the last quote and all the way up to $3,800,000.

Why did it sell so well? Demand exceeding Supply for North orientation; 315 sqm size with car parking on the 1st floor (no dizziness getting in and getting out) and Shrine views. Well marketed by one of the best in the business at this stuff.

Price: Has been gently improving in some key blocks on some key apartments – but it’s all about the apartment characteristics. There are literally hundreds of apartments above a million that have no buyers at all, because they have nothing unique to offer except a very cheap price.

Biggest Sale: 38 Kerferd St, Malvern East, Glen Coutinho (Hocking Stuart); Under hammer, $2,862,000, 4 bidders
Wow what an auction! This is as intense as it gets. Glen Coutinho has firmed as one of the best auctioneers in Melbourne in my humble opinion. What started out with meek interest from a lively crowd of around 70 people turned into the most hotly contested auction I’ve ever seen. A modest opening bid of $2,350,000 was announced from one party in the crowd and was quickly overtaken by another for $2,355,000.  The two went back and forth in increments of $5,000, then $2,000, then $10,000. Once the price reached $2,501,000 it seemed as though the action had come to a head, and Mr Coutinho retreated to his vendors to discuss the situation. Confident of reaching the price he and his vendors desired, Mr Coutinho continued unabated, knowing full well there were several other parties very interested in the property. As the property was being called down for a fourth time a third party entered the fray, bidding $2,540,000. This guy was ready for a showdown, but the original bidder stuck to it and was relentless in his pursuit of the Glen Iris home. Unable to continue, the young lion who made a worthy challenge correctly backed off, leaving the fight wounded but not insulted. At this point the crowd was able to breathe momentarily, but it wasn’t over! A fourth man entered the mix, and began his challenge. He proceeded to walk across the road towards the original bidder attempting to eye him down, but the original bidder was having none of it. As those who play enough poker know, when someone shows aggression towards you, it is generally a sign of weakness. Fortunately, the original bidder (who probably doesn’t play poker) picked up on the bluff and showed no signs of folding. Once the figure reached $2,862,000, the new combatant gave up announcing: ‘he can have it,’ and the auction ended with a standing ovation from the crowd, although it may have only been an ovation as they were already standing. (Daniel Ehrenreich)

Biggest Pass In: 11 Scotsburn Grove, Toorak, Jeremy Fox (RT Edgar); Passed in, $5,000,000, 1 bidder
A small crowd of around 40 and half are Toorak agents just looking. Jeremy Fox gives us a good solid spiel and we are away. Or are we? Jeremy calls for a $5,000,000 opening bid and gets nothing but silence. He goes inside for his half time break and leaves us all in the rain – actually he was pretty quick to return. I’m typing in Passed in on my Ipad and – whoops no – there was a genuine bid and $5,000,000 is taken up. Then it is passed in to the lone bidder. We await the outcome. (Mal James)

October 15th: Quality Stock Levels have improved for Buyers:
Good levels of good stock came into the market late September and buyers began to take deeper breaths and relax a little.  Angst dissipated somewhat as quality buyer saw more quality homes they could buy, diminishing the spectre of missing out on a home, leading to a drop in buyer urgency and ultimately price.

This Quality Supply Increase is best demonstrated at the Top End.

Want a home with a Tennis Court in Toorak? Got around $6 million dollars?

In the last week we visited, assessed and rated: 11 Scotsburn Toorak (Andrew Smith), 10 Montalto Toorak (Mike Gibson) and 25 Scott Glen Iris (Rae Tomlinson). All have tennis courts. So even if there are 10 buyers for tennis courts at this price level, there’s a fair bit a choice there. If normal market forces prevail and the buyers have good representation, then the prices on all three could be lower than if there was only one of these homes on offer. That’s unless, of course, one home is more strongly favoured than the others by a significant number of those 10 buyers – or if the Mexican Wave effect happens (see below).

Similarly in the last week we have been through some really good new home offerings at over $6 million, including 14 Kilsyth Toorak (Michael Armstrong); 15 Vista Toorak (Nicole Gleeson) and 33 Coppin Grove Hawthorn ( Scott Patterson) – see our ratings over the coming week.

These are just some examples. And in fact, quality stock levels have improved at all price levels. This is good news for Top End buyers and the reason we think October 2011 and hopefully November 2011 will be better months for buyers than were Winter 2011 and September 2011 in terms of:

1. More choice

2. Less chance of the runaway prices.

This price segment is all about either side of the Melbourne Cup – as a number of Expressions of Interest, Private Sale and Auction campaigns are scheduled for some sort of conclusion at that time. We anticipate publicly reporting in  early November as to market movements since September’s price and activity spiking.

You’re a $M+ family home buyer. Super Saturday (October 22) has been and gone and you didn’t manage to buy yourself a home from the 150 or so properties that were on offer. What now? With the Melbourne Cup break coming up, it’s time to a) assess your form b) assess your goals c) improve your decision making processes and/or d) panic.

Let’s start with d) Panic. As a homebuyer you effectively have a month to find a home or else you probably won’t be settled in a new place until at least Easter 2012. That is six months away, well into the next school year and – oh my god – the footy will have already started again. Six months more of your family unsettled and in limbo. Have you broken into a cold sweat yet?

Well stop it, right now. Take a deep breath and don’t panic. Panic only encourages one thing – poor decisions. Poor buying decisions now will give you and your family weaker long term outcomes – both financially and emotionally. Poor decisions can lead you to buy the wrong home or miss out on the home you should have bought. Panic leads to weaker negotiating stances.

With four weeks to go and with no obvious target home, the first thing to consider is an alternative home strategy. You could rent, move into a holiday house, move in with family, or buy an interim home. The key to getting temporary family shelter is not perfection but it does have to be comfortable. You want to be in a home that is not going to add stress that will encourage panic and lead to forced decisions – instead of waiting for the right 10-20 year family home.

Assess your form: If you were a racehorse would you back yourself at the next start to win after your last few months of homebuying performances? Have you missed the podium each time the auction race was on?  Was it because you didn’t get the values right, which meant you were shocked by the result every time. Even if you knew how much you needed to pay, did you miss out because you just didn’t perform when it counted? Truthfully assess your skills and your shortcomings and plug the holes either with alternative strategies or some professional assistance – otherwise you will get the same result.

Assess your goals: It’s possible you may not have actually found a home you have wanted to buy yet. You are not alone. We have been in a low quality stock environment all year and even as professionals we have found it hard sometimes to find good homes to buy. That’s not the case right now, but it has been. However your goals still may need some tweaking – especially if money seems to be front and centre of almost every family discussion. You may have $3 million tastes with a $2 million budget. You may have bought into what the papers have been saying about the world coming to end, yet the homes you like have 3 or 4 bidders and your buy cheap policy is not working. Whatever it is – take a look at what it is you really want. Write down your three Ps – Price, Property and Position – and then get a suburb report of the last 12 months sales and see if there are any homes within your price range. This will give you a clear idea of how realistic your current goals are.

Finally, improve your decision making processes: This can be in the form of DIY improvements or by getting some professional help. A process that will lead to informed and good decisions is 1) Clarity of Purpose – know what it is you want and match the home to your goals not the other way around. 2) Accurate Assessment of a home as to value and whether it meets your needs and 3) Planned and Professional Negotiation to maximise your chance of success within acceptable risk and reward parameters.

You have four weeks after Melbourne Cup to do some things that will make your life better for the next decade. Whatever those actions are base them on good decisions and on clear goals that will result in your family’s best long term emotional and financial outcomes –  and get on with it!

Printed each week in The Weekly Review – Melbourne’s $Million Plus property magazine

The Block was great entertainment – but for me it was also the best reality TV show in a decade because it showed the harsh reality of what happens when you break all the rules in the property investment book.

I took the opportunity to go through each property a few weeks before the auctions and assessed them according to our James Home Ratings criteria. What stood out most, apart from the fact that it was a hugely popular show that captured everyone’s imagination, was how many rules were broken. Breaking those rules has led almost inevitably to the end result, where only one of the properties sold under the hammer at auction. Sorry guys, but this was always going to a disaster in the making. For us though as viewers, it was an invaluable lesson in how not to make money through property.

So what did we learn from the show apart from the fact that Josh is getting married to Jenna?

Rule No 1: You make your money when you buy

If you’re buying property as an investment and you’re hoping to make a profit on the resale, what really matters is not the selling price but how much you pay for the original property. Okay we understand that Channel 9 was more interested in the show’s ratings than the profit they’d make on reselling the properties. But the price they paid for the initial properties was way too much. Sure it was a big block, and it had four houses on it, but at an average of around $900,000 per site, plus stamp duties of around $50,000 each, plus holding costs of 6% (another $50,000+ each), plus the selling agent fees…Well each home was priced at well over a million dollars before the first contestant even showed up and the first nail was hammered.

Rule No 2: Buy the best position you can

This for me was the real killer – the position was a shocker. Yes the properties were close to all amenities but anything in Richmond is close to all amenities. Have you been down that street at night? It’s scary. Stand in the street or look on Google streetview and do a 360 degree turn – what do you see? Industrial sites, multi storey car parks.  And who knows what is going there in the future? What if it’s a panel beater shop and you end up with the smell of paint thinners in the morning? There’s a vacant block of land to the west of No 37 that has recently changed hands for just over a $1million: who knows what will go in there?

Rule No 3: Consider your target market – before you start!

The properties themselves had some real positives in terms of the land. The north orientation will bring light and winter warmth into those back living areas. So sure, that’s a tick. They all had good street appeal (tick) and the block widths were above average for the area, meaning the homes could give that feeling of space which is very important in a home (tick). However they all had another huge negative: on top of the scary street there was no car-parking. Which means that your future buyers or renters are going to have park their car at night somewhere in the street. So that is going to knock single women, young married couples, and older couples out of your target market. In fact, just about anybody except students and local lads would have concerns about living here.

Rule No 4:  Don’t overcapitalize.

If you are about to spend $1million or so even before one sod of earth is turned or one nail is hammered AND you want to make a profit, you need to know whether you’re likely to recoup the costs of your renovation – and hopefully more. Otherwise you’re going to end up overcapitalising. How can you work that out? Well, look around you. What sales evidence was there in The Block area for $1.5million homes? Zippo. We can tell you this because coincidentally on the same day of the Block auction we bought a property at auction for a client in Richmond only a few hundred metres away. It was on bigger land,  it had car parking and good period features – and we got it for just over $1.2million. So if $1.5million is the minimum amount you need to make serious money, but there is little or no sales evidence of properties selling for that amount in the area – DON’T BUY.

Rule No 5: Amateurs don’t make money on renos – they make money because they are lucky that the market happens to be in an upwards phase.

Whenever someone tells me they made money on a renovation, I think, well, no you didn’t, you made money by buying the right home in the first place. They would have made the same, and maybe even more, by doing nothing. It’s the market that makes you money. If the market is not in your favour, most amateur renovators lose money and the Block confirmed this. The bloke at 35 Cameron St Richmond (the vacant block) made more money than all the renovators combined by doing little.

Rule No 6: Don’t think short term with property unless you like excessive risk

The Block also highlighted the risks of short term flipping. Besides the fundamental error in the initial choice, the market was also unkind to the contestants. Which again highlights the short term risks in property. To buy this year, tart up and flip next year is a strategy fraught with danger and can cost you a packet. Each of these homes lost at least $200,000 if you factor in all costs – and they probably lost a lot more.

Rule No 7: Choose local selling agents, who are experienced at your price range – and choose the best not the cheapest.

The four auctioneers chosen to sell The Block properties are all very good at their job. But it was interesting to note that the only home that sold under the hammer was sold by a local agent, Russell Cambridge. He is a good operator, as is his partner Sam Davenport, who got the buyers there. Glen Coutinho is a really good auctioneer but his patch is Hawthorn, which may be close but it is quite a different market to Richmond. Ruth Roberts is a top female auctioneer from whom we bought a property less than a fortnight ago – but she is well known in Carnegie, and that’s a long way from Richmond. And again, while Clayton Smith is a strong local agent, he was always up against it having to market the weakest home in terms of floorplan. There can’t be that many people wanting to buy in Cameron St and he was always going to get the leftovers. Tough gig. (By the way: well done to Jellis Craig and Biggin and Scott for their very generous donations to charity.)

Rule No 8: Good Buyer Agents are of value.

Apart from Frank Valentic who is a smart operator with Advantage, the buyers agents who showed up to The Block auctions were just embarrassing. Our apologies – this is not how normal quality buyer agents represent the clients and just shows that when you put a camera in front of an idiot, they are still an idiot. Notice how you didn’t see quality buyer agents like Morrell and Koren there trying to buy rubbish or making a fool of themselves – they simply didn’t recommend The Block homes to their clients.

Rule No 9:  Substance v Puffery

In homebuying, digital TVs, paint colours, furniture etc come and go. If you view our online ratings you will notice that we give a total of 1 point out of 1000 for stuff like cabling and shower screens etc. The other 999 points are for land, position and floorplan. And if you’ve learnt one thing off The Block then hopefully it’s that it is the price, property, and positional fundamentals that really count.

Unfortunately on all those three counts the contestants were doomed even before they started.

Printed each week in The Weekly Review, Melbourne’s million plus property magazine.

SOUTH Yarra, 17 Acland St: The maestro, Gerald Delany (Kay & Burton) in action. Passed in, $3,250,000, no bidders.

Key Points:

• Toorak 17 Lansell with Lisa Jarrett of Abercrombys sold mid week after being on the market since late last year
• Toorak 16 Cole St with Nicole Gleeson of Kay and Burton sold mid week after being on the market since late last year

Agent Q & A: Has the market changed since before Labour Day weekend?
Lachlan Fraser-Smith, BenMac, Armadale:” The main change in the market since Labour Day is that the quality of buyers at open for inspections is very good, however the numbers of people through opens has slowed after a busier than anticipated start to the year. The reasons for this are: as the year settles down after a typical February spike in prices, people have found out at open for inspections and attending the early auctions what they wanted to know about prices and have assessed the market and either go to auction themselves or sit still and stay where they are. Numbers of properties on the market has increased as well but there are still some very active buyers out and about so they quality of buyers is certainly still there. We have been seeing some very strong results between $1 million and $2 million in Armadale and between $3 and $5 million in Malvern and Malvern East.  We will see a reduction in properties coming onto the market going into the traditional Easter, Anzac day and school holiday period. This will, I believe, underpin the market for the homes that come on post Easter in May.”
Iain Carmichael, BenMac, Armadale:“The Stonnington market in recent weeks has performed well given slightly diminished bidding activity at many auctions. Pleasing elements from a vendor’s point of view is that sales are being made and that clearance rates in Stonnington continue to exceed the Melbourne-wide figures by up to 10% each week end. The trend for buyers to hold off bidding is puzzling as the great majority of properties auctioned are still sold for solid prices at or immediately after auction.  Stock levels are reasonably full and the market will test both vendor expectations and buyer depth in the weeks leading up to Easter. It will be interesting to observe whether buyers will continue to run the gauntlet and back themselves into post-auction negotiations and, in some cases, private auctions or whether the true transparency of the auction system will give consumers sufficient comfort to bid with confidence and buy ‘under the hammer’ or become the highest bidder to gain an exclusive seat at the negotiating table.”
Andrew Hayne, Marshall White, Armadale:“No I don’t think things have changed too much. The market has been pretty price sensitive for a while now, so provided vendor’s expectations are in line with the market then there shouldn’t be any problems selling. I am a big believer in each property sets its own market so each one has to be treated on an individual basis rather than generalize about market conditions or sentiments.”

ARMADALE, 2 Avondale Rd: Warwick Anderson (RT Edgar), Passed in, $1,950,000 no bids.

KEW, 36 Uvadale Grove: Alastair Craig shows some concern at this Boroondara auction as only one bidder came out to play on a relatively good home. Passed in $1,825,000, 1 bidder.

Key Points:

• Both Jellis Craig and Marshall White report very strong clearance rates into the 80s
• Stock continues to come onto the pre Easter market – the question is whether the market will be able to sustain this
• James Tostevin: “Overall a good day, the $3m+ market is hard to read and we are not getting huge numbers of bidders at many auctions;  so there is a case to say the results maybe looking healthier than the market actually is – but from a purely stats points of view (clearance rates) today was a good day.”
• Balwyn 34-36 Linckens:  (Toby Parker of Hocking Stuart) – a $3m+ auction slotted in for auction this weekend has been bought before. The quote was over $3.7m and if, as we believe, it was bought for close to $4 million then it was a strong sale.
• Kew 41 Victor Avenue: (James Tostevin) – Two strong bidders and sold under the hammer for $4,100,000.
• Canterbury 17a Alexander Avenue: Passed In $3,200,000. No bidders
• Kew 22 Stawell: Passed In $3,000,000. No bidders

Agent Q & A: “What is your take on the Economist’s article that Australian house prices are overvalued by 56%?”
Jeremy Desmier, Fletchers, Balwyn North:”Views of economists vary widely and most will recall that in the past predictions made by highly regarded members of this industry have proven wrong.  For every pundit who is talking a bubble and predicting a collapse of significant magnitude, there will be another talking about population growth fuelling demand, and a  lack of new building approvals contributing to the already short supply of homes, resulting in continued price growth.  It must be remembered that Australia is diverse, so in assessing the performance of the real estate market it needs to be broken down into regions.  Areas that will continue to do well or at least maintain prices are those supported by good infrastructure and job opportunities rather than the more remote areas that rely on overseas income for tourism and are directly affected by the current world economy. At the coal face, we as local agents are observing continued confidence and strong demand in the Melbourne market.  Although prices in general are not surging, most agree that a booming market, with prices rising rapidly as they did during 2009/2010, would be neither sustainable nor healthy in the long term.  What we are observing now is a more balanced marketplace. When the Global financial crisis hit in 2008, many of those who had predicted doom and gloom for years, and had stated that the market was over-valued, claimed vindication.  Interestingly the local market only faltered for a short time, before entering another growth cycle of 12-18 months, where the highs of 2007 have now been well and truly been surpassed. With the strength of our natural resources boom underpinning the Australian economy, and continued strong employment leading to disposable income, in my opinion  there is no reason to consider that there will be any significant change in the immediate future.”

Steve Burke, Jellis Craig, Hawthorn:“Our housing prices are obviously in the higher range in relation to other countries and the statistics mentioned by The Economist article support this. However we live in a country with a relatively stable political landscape and operate in a resources led economy where interest rates have remained relatively low for many years making money fairly cheap to borrow. In recent decades Australians have moved to double income families with both parents generally working and earning healthy incomes enabling people to purchase property at a higher level and thus have the income capacity to service their debt. We also have consistent strong immigration levels resulting in a shortage of housing and thus pushing pricing up across the board. Property prices have risen considerably in the prestigious and affluent ‘school belt’ suburbs of Brighton, Toorak, Camberwell, Hawthorn, etc where the demand outstrips the supply and the higher valued demographic families can afford to pay the higher prices and this is not likely to change. The other thing we must also take into account in the equation of whether our market is over priced is the large size of the land generally associated with our housing purchases in Australia as compared to other countries that operate on higher density living models. We expect the housing market and prices to remain relatively stable over the next few years and believe the resources economy is robust enough to support this. Remember people have been predicting a property bubble for many years and if you took that advice and have been waiting for the market to collapse the affordability gap due to consistent strong capital growth will have left you way behind.”

Glen Coutinho, Hocking Stuart, Kew: “Australia is the most unique country in the world in  terms of space, safety and lifestyle so it probably costs a premium to live here. There is still a strong demand  for good properties in the schoolbelt area.”

Valuing land is difficult enough, but there are even more variables when it comes to getting a consistent opinion of the market value of an actual building.

We always counsel long term passive investors to buy purely on land value, or to buy proven populist homes like Victorians and Edwardians as opposed to new homes.  Why?

Buildings are very much like clothes: they are fashion statements and, as such, various styles go in and out of fashion. Many of us love period homes now, but in the 1960s the thinking was to modernise them and in the process a number of classic buildings were destroyed. Similarly, Art Deco was loved in the 1920s and 30s but now has a limited following  – a very passionate one who will pay strong prices, but limited nonetheless.

The value of a home depreciates just as a new car does the moment it is driven from the showroom.  If half your money is spent on the home (the other half on the land) and that home goes out of favour as many do (such as the recent fad to Georgian reproduction homes), then while the land component may be growing in value, the other half of your money is working in a negative direction growth-wise.

To demonstrate the various ways different people can regard the same building, here are the opinions of four famous agents on the value of a 25 square 1970s home, with an ensuite and double garage, on a nice block in Inner Melbourne.

Ms Artina Deco: $400,000. “I think this home will be bought by an overseas buyer who would consider this a good solid home.”

Sir Eddy Wardian: $300,000. “I think this home will be bought by a new home buyer and renovated to new. My estimate of its value when renovated is $700,000 and I think it will cost $400,000 to renovate – therefore it is worth $300,000.”

Mr Victor Rian: $200,000. “I think this home will be bought by an investor who will get a 3% rental return so I have based my calculation on that.”

Cal Bung: Zippo – $0. “I think this home will be bought by a developer who will bulldoze and put up units.”

As for me – my opinion of the market value of this home would depend on where it is located. If it was Balwyn I’d say $300,000 to $400,000, because that’s how overseas buyers from China and India have been assessing similar homes recently.

But if I was in Brighton or Toorak, I’d say between zero and $200,000 because it is more likely to be bulldozed and the site developed. Many great homes in Toorak have no value because they are bulldozed by a new owner with plenty of funds who want to make their own footprint.

While there are no set in stone rules in building value assessment – here are a few guidelines that we follow

1.       New homes we calculate at replacement value

2.       Near new homes we calculate at replacement value minus a cosmetic update cost

3.       Homes 20 to 50 years old depend on the suburb. A way of getting a handle on values on these buildings is to build a database of comparable (similar) sales, subtract what you consider to be land values, and build a range of how the market values homes.

4.       1940s to 1970s homes without architectural merit – zero. With merit – difficult!

5.       Pre 1940s period homes that need to be completely gutted – a token amount depending on size

6.       Pre 1940s period homes that need some work – completed value less estimated renovation value

7.       Pre 1940s period homes completely renovated – compare to others in area and if that is not easy we value at replacement cost as if it were a similar quality and sized new home.

Valuing homes and land and emotion is the pursuit of perfection by the imperfect – but the closer you get, the better your decisions and strategies can be.

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

Market value is useful when considering capital growth, however unlike with the share market, the market value of a property is often more a concept than an exact figure – and everybody has their own ‘recipe’ for how to go about it. But there are three consistent ‘ingredients’, that agents use to get a sense of the likely market value of a home: Land + Building + Emotion (or X factor).

So how do we put a price on these different components?

Let’s start with land, in many ways the most straightforward component.

For canny investors land is the key ingredient. Certainly, when we are buying for $M+ investors we look closely at the land value to price ratio as a pointer to growth.

By way of example, imagine three identical blocks of land up for sale side by side. If two were vacant blocks that sold for $1,600,000 and you bought the other one, which had a home on it, for $2,000,000, then your land to price ratio would be 80%. That’s an exceptional ratio, a pointer to good capital growth and a common ratio for period homes.

But if, on one of the vacant blocks, a neighbour spent $1,600,000 to build a nice new home with a pool and a lift  and a whizzbang kitchen, then their land to value ratio would be 50%: Land $1,600,000 + Building $1,600,000 = Price $3,200,000.  Next to your property, that is only OK (financially), but a lot better than many apartments which have land content as low as 10%.

Back to values – if the three blocks were each 800 square metres in size, the land would be assessed as $2,000 per square metre. Say if you were interested in a block nearby that was 600 square metres in size, what selling agents would do is multiply the size of the block by the $2000 square metre unit price (in this case), just as we do when buying cloth at the market or meat at the butcher. So, in this case 600 sqm x $2,000 per sqm = $1,200,000.

Seems simple.  But remember that it is rare to find such a scenario. More often than not, in inner cities such as Melbourne, vacant blocks are rare or they’re not all the same size or recent sales are limited (and given how the market shifts every week, the more recent they are the more relevant). Or they are in different areas with different characteristics, say on a main road or with water views or they’re bigger or smaller or you can develop them or you can’t. But with some diligent study, with all the sales and facts in front of you, you as a buyer could with hand on heart say that this 600 square metre parcel of land currently has a market value of $1900 to $2100 per sq metre or $1,500,000 to $1,700,000.

It is important to get this figure as close as you can to “right” or “market” value, by gathering many recent sales of similar blocks in similar areas of similar sizes bought in similar market conditions – and then taking an average or range as your result. If you cannot easily do that, you may be best advised getting professional buying assistance. This is what we do on a daily basis.

If your information is inaccurate, and leads you to believe that the land we talked about above should be $1600 per square metre, it’s likely you will think it is overpriced and you won’t buy it. Similarly, if you think the land is worth $2,500 per square metre you will happily buy it at $2,000,000 – but long term you may struggle for growth.

So these are the nuts and bolts of valuing a vacant block of land. If you think that was complicated, prepare for the next part  where you work the value of the building. That’s where it gets really interesting – as we’ll hear about next time.

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

While the value you place on a property is ultimately the most important factor in influencing what you are prepared to pay, you also want to know its market value. But how do you know what that is? Is there some secret market value formula?

No there is no single definitive “sticker price” market value figure when it comes to residential homes. Unlike BHP shares where it is possible to know the market value at any given moment just by looking at the list of bid and ask prices that indicate what other sellers and buyers are prepared to accept or pay for a share exactly the same as yours.

With homes there are two major differences from shares – systems for viewing other opinions of market value are often not as transparent and rarely are two offers exactly the same on either the buying or selling side.

In Melbourne the closest we come to the sharemarket market value system is an auction with multiple bidders and it is a great system when not affected by price- distorting practices.

In order then to have something like an accurate opinion of a property’s market value before an auction or private sale, we could build our own “Collective of Opinions” along the lines of a sharemarket’s Bid and Offer, Open and Close, High and Low Boards.

Agents have to do something like this when they come up with an estimate of what a property is likely to sell for. It’s only ever going to be an estimate, points out Tim Fletcher of Fletchers Canterbury, because the only way to truly value a home is to ‘put it on the market and find out”. But there are some some important indicators of what the market might be willing to pay for a particular home, he says. First, look at what the home sold for last. Two look at trends in the overall market – is it a buoyant booming market, or is it looking a bit sluggish? Then it’s a matter of comparing recent sales in the street, suburb  and area/municipality.

One of the biggest pitfalls for vendors, says John Haley of Barry Plant Eltham, is to base market value on one “hot” sale of a property in their own street. He believes the most important indicator of a property’s likely value are comparable sales that have occurred in the last few weeks as well as comparable properties currently on the market. “Like shopping for most things, buyers are comparing prices, so there must be some relativity there, otherwise buyers are unlikely to inspect your home!”

Jenny Dwyer Hocking Stuart Sandringham, says that she looks at a number of factors in valuing a property: its location and its closeness to beach, shops, schools and transport, the land size itself, the streetscape and the surrounding properties, the age and condition of the home and comparable sales achieved within the suburb over recent months.  But, she adds, “there is always the ‘x’ factor where some homes have an intangible extra about them where logic often plays no part and market forces will clearly determine the outcome.”

Meanwhile David Hart of Buxton says that the agency arrives at an estimate assessing the value of the land, and add the value of improvements, combined with an analysis of recent comparable sales evidence. However, he adds, agents also go by gut feel for what buyers will pay for a property, based on many years experience, “which interestingly enough, often ends up the most accurate.”

A home’s market value is often more a concept than a figure – but we live in a modern world and that requires a figure. So while there are many differences in market valuing homes there are some across the board consistencies – criteria and method. 3 main criteria are valued – land plus building plus the X factor or emotion and the main method in determining value of each is comparing what others have paid for similar criteria.

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

Hands Up, says Greg Costello and 4 bidders oblige: 84 Carpenter Brighton: Bought under the hammer for $1,470,000

Key Points:

• We attended seven Bayside auctions, with only one selling under the hammer
• In Bayside since Super Saturday we’ve seen some good activity, especially in Brighton. This graph (click on to enlarge) shows the clean-up of unsold stock in the last two weeks.
• We believe the 50% clearance rate figure for Bayside is being dragged down by the high number of pass-ins of low quality stock. On good homes priced at market levels deals are still happening, making the Bayside “Good Home” clearance rate well above the current 50%.

Price Check:

• Brighton 11 Kent Campbell Cooney bought mid week for $4,100,000, which puts south-facing, non beachfront land on the Golden Mile at $$3,800 per sqm
• Middle Brighton 84 Carpenter Greg Costello puts land around the library at $2,400 per sq metre (albeit on a tight block)

Biggest Sale Under Hammer & Bidderbuzz Auction: Brighton: 84 Carpenter St: Greg Costello  (RT Edgar) Under the Hammer $$1,470,000: 4 bidders
“A modest and reserved crowd of 30 (and one child) gathered in the sun for the commencement of this Brighton auction. With a ring of the bell the auction was underway. Auctioneer Greg Costello was business-like in his preamble. Before long there was an opening bid from the crowd of $1,275,000 and with Mr Costello’s encouragement another 3 bidders joined in, vying for the property. The property was bought for $1,470,000. A great result.” (Kate Agnoleto)

Biggest Pass In: Black Rock  1 Hunter Ave: Steve Tickell (Hocking Stuart) Passed in $1,950,000 Zero Bidders
“A perfect Spring day welcomed a crowd of 35 with a strong neighbourhood presence. Auctioneer Steve Tickell spoke enthusiastically about the many features of the property in his preamble. Mr Tickell received an opening bid from the crowd of $1,950,000. Despite a great effort from Mr Tickell there were no further bids from those present and so the property was passed in at this figure.” (Kate Agnoleto)

Agent Q & A: How do you value a home?
David Hart, Buxton, Brighton:“There are three main ways: The first is by summation, where we assess the value of the land and add the value of improvements. Secondly, analysis of recent comparable sales evidence. And finally, from many years experience, by gut feel for what buyers will pay for a property, which interestingly enough, often ends up the most accurate.”
Tom Davidson, RT Edgar, Brighton:”Find the uniqueness of a property…something that stands out.”






BEAUMARIS	98 Scott Street		Not Reported
BEAUMARIS	160 Tramway Parade		Passed In
BLACK ROCK	1 Hunter Avenue		Passed In
BRIGHTON	1A Higinbotham Street	undisclosed	Bought
BRIGHTON	84 Carpenter Street	$1,470,000	Bought
BRIGHTON	64 St Andrews Street		Passed In
BRIGHTON	55A Bay Street		Not Reported
BRIGHTON	1/68 Bay Street		Passed In
BRIGHTON EAST	26 Billson Street	undisclosed	Bought
HAMPTON	33 Avondale Street		Not Reported
HAMPTON	5b Ocean Street		Not Reported
SANDRINGHAM	32 Keats Street		Passed In
SANDRINGHAM	22 Reno Road		Passed In
SANDRINGHAM	57 Vincent Street		Passed In
SANDRINGHAM	44 Tennyson		Passed In

Elwood, 45 Dickens, Jason Scillio (Kay & Burton): The biggest auction we attended in Port Phillip on Saturday. Bought under the Hammer, $3,535,000, 3 bidders and a big crowd of 80.

Key Point

• There were three bidders at both hammer auctions and none at the two pass ins.

Biggest Sale: Elwood 45 Dickens St:  Jason Scillio (Kay & Burton) Under the Hammer, $3,535,000, 3 bidders
“A large crowd gathered in the front garden of this magnificent property to hear Jason Scillio provide a well prepared preamble prior to inviting bids from a large crowd on this beautiful afternoon. After the usual hesitation, strong bidding emerged from three buyers and it was on the market at $3,450,000. The house was soon bought with a strong bid $3,535,000.” (David James)

Bidderbuzz Auction: Elwood 69 Ruskin:  Sam Gamon (Chisholm & Gamon) Under the Hammer, $1,600,000, 3 bidders
“An opening bid of $1,000,000 was quickly surpassed by the effervescent Sam Gamon, who offered a vendor bid of $1,350,000. This produced brisk bidding from three buyers with a fourth entering a little later. The property was declared to be on the market at $1,500,000 and, with a strong knockout bid of $1,600,000, was successful in obtaining this well located house.” (David James)

Biggest Pass In: St Kilda 94 Wellington:  Jason Scillio (Kay & Burton) Passed In, $1,700,000, zero bidders
“Following a brief but well prepared preamble, Jason Scillio invited bids for this magnificent two storey period home, a really sumptuous residence just so close to every amenity. Unfortunately his appeals failed to produce a response and the property was passed in on a Vendor Bid of $1,700,000.” (David James)

Agent Q & A: How do you value a home?
Matthew Young, Buxton, St Kilda:“When valuing a property there are two forms: a market appraisal which is what most agents conduct and a valuation that only a sworn valuer is licensed to carry out. As a licensed estate agent, the most important aspect when appraising property is to look at comparable sales. That is, what other properties have sold for in a similar area, the market conditions, the property’s size, features and importantly quality. It is almost impossible to find an exact match so adjustments will need to be made.  This is where experience and local area knowledge play a vital role. We also need to look at a several properties to eliminate any irregularities such as buyer emotion or a freakish result. When buying property don’t hesitate to lean on the experts for professional advice, be it buyer advocates or estate agents.”

Damian O’Sullivan, BenMac, Albert Park:”In order to accurately value a home, comparable sales evidence is of utmost importance. Relying on factual data, rather than guess work is imperative. In particular, our due diligence is based around researching recent sales of a similar / relevant nature in the immediate vicinity of the home being appraised. The research compares homes that are similar in style as well as taking into account the land size, the orientation, the condition they are in, the streetscape and more. We feel that home owners not only deserve a transparent and realistic approach to valuing property but advice they can actually rely on.”

Sam Gamon, Chisholm & Gamon, Elwood:“When we appraise a home, we adhere to certain consistent guidelines in order to ensure we take a scientific approach and provide our clients with a logical estimate, based upon recent sales of like properties. In the event there are no direct comparable sales, we assess properties which might have less features or more features and then add or subtract depending on the perceived value of those attributes. Our first port of call when appraising a home is the “walk-through”. We like to do an internal inspection so we can get a feel for size, light, floor plan, etc. All of these factors weigh into a buyer’s decision making when they’re comparing one home to the next. We then step away from the property and undertake extensive research on comparable sales within the area before we make some judgements on the final appraisal range…and submit our client with their free marketing appraisal report. We take every care to ensure the accuracy of the estimate we’re giving is fair and reasonable.”

Some of our buyer prayers have been answered

Market: Even with significantly reduced auction numbers this weekend (owing to a more important event which finally delivered a result that proved there was justice in the world), we still saw a pretty healthy market result for sellers – with a 74% Clearance Rate on the 55 $Million+ auctions we monitored. Of those 55 auctions, 9 results were not reported. But even that is not unreasonable under the circumstances of the GF Replay.

There seems little doubt that the market is on the rise. The big interest now is how the market will absorb the stock surge that will culminate in Spring/Summer’s first Super Saturday on October 23rd.

And it really is Super Saturday - with a massive 81 $M+ auctions booked for Boroondara alone, and around 200 $M+ auctions booked in our key focus $M+ areas – Bayside and Inner East. Check out the size of the Weekly Review this week (it’s as big as a phone book). By comparison this weekend saw only one quarter of that number of auctions. So if you were at an auction this weekend, those four bidders you competed against may well be spread across four homes in a couple of weeks. Well that’s the “buyer-hope” theory anyway.

This Week’s Highlights:

• Two land sales showing vastly differing land values
  a) Land at 101 River Avenue Plenty (39,500 sqm), which can be subdivided, was auctioned  by Rob Stefanovski of LJ Hooker Greensborough and  bought for $3,830,000 or $96 per sq metre
  b) A large land parcel (1,813 sqm) at 3-5 Heath St Sandringham sold after a failed auction by Bill Jowett of Buxton for $2,800,000 or $1,544 per sq metre
• The major stock inflows that took place on Monday, Tuesday and Wednesday when agents began their marketing campaigns for the next Super Saturday – October 23rd.
• The continued improvement of the $3M+ market – two examples below
  a) Off market in Black St Brighton (Peter Bourbaud and Barb Gregory) – bought for around $4 million
  b) 27 Moorhouse Armadale with Gowan Stubbings of Kay and Burton – bought after an Expression of Interest campaign for more than $5 million
• The Pies Forward Line pressure (whoops, sorry – I got distracted)

Auction Snapshot from this weekend: 133 Rathmines Fairfield: Michael Fry and Grant Leonard of Nelson Alexander. Bought under the hammer for $1,116,000. 5 bidders.
There was a buzz about this well located timber period home, which had had its quote lifted to $930,000 during the campaign. It was a surprising development given Grant’s comment that the property failed to attract any interest in the high $800s a few months ago with a quiet sale campaign. It was on the market with the first bid at $900,000. Second bid $950,000. Third bid $970,000. Fourth bid-  bang $1,000,000. Three more bidders joined in before the action stopped at $1,116,000. It was a well run auction campaign. I always enjoy a Michael Fry auction. He has a sophisticated grace about him incongruent with the fact that he is yanking the dollars from buyers’ pockets. Enjoyable to watch unless you’re an underbidder – which unfortunately this time we were.

Bumper Market Insight: We have an information packed Market Insight this week; even though there are no Market Wraps, Bidderman, reports or videos.  The footy replay threw this auction weekend into a bit of chaos, with a few auctions even changing days. But it was a very low stock weekend anyway, so no major damage. All $M results are at the end of this Market Insight. But the big news now is the next three weekends that will lead full bore into the Melbourne Cup Long Weekend.

Stock Levels and Price Assessment:
The big question the market will be asking now is: What will happen to prices on October 23rd? With this big stock influx, how is the price game of snakes and ladders going to pan out? Are we going to see the slippery snake and big price slide of May 2010 or will the market just take this in its stride, as it did this time last year, with prices climbing further up the ladder? Time will tell. Importantly as buyers you need to get yourself organised – and don’t count your chickens before they’ve hatched.

With this apparent largess of choice, perhaps you don’t need brilliant home-seeking skills right at this moment. But you will need first class assessment procedures (e.g. sorting the goodies from the baddies in terms of capital growth prospects, and working out which one is best from a “happy wife = happy life” point of view). You will also need good negotiation strategies – because while you may have more choice, you will also have competition. Remember, our bidders per auction indicator Bidderman was strong on lower numbers in September, especially on good homes. On the flipside, some sellers expectations may be disappointed, so planning good negotiation strategies will improve your chances of grabbing a bargain when it presents.

Have a look at our Forward Auction Booking graphs below to get an idea of what is ahead of you: (click on a graph to enlarge)

There are also some exciting trophy homes on offer through private sale and off market – especially in the $3m+ segment.

Have a look at the New Stock Graph at the top of Market Insight – which compares the last week in September to the last week in June, (private sale and auction weekly new stock numbers are combined).

Special Report on the $3m Market

The $3m+ is back, after the self induced May hiccup that led to a very quiet winter.

There have been over 50 buys in the month of September at this level, with buyers coming from all quarters. Let’s pick one of the segments – around $4million. We have bought 3 homes at this specific level in the last few weeks. All were classic period homes with land of over 1000 square metres. Two were bought post auction (eg after a pass-in) and one was off market (Black St Brighton). However, the interesting thing were the buyer profiles. One buyer was a change of life family, one was a growing family that needed more space, and one was an expat family returning from overseas. This is a fairly accurate representation of the range of people we look for homes for. Of the last case – expats returning from overseas -Brighton high end agent Peter Bourbaud believes “this group will push the market along for the next few years, after a couple of very quiet years from the expat community”. We concur. Last year we conducted very little in business terms last year for expats. However in 2010 there has been a distinct pick up in action from expats returning home.

The James September $3m+ Report with all reported $3m+ boughts and solds can be viewed from the Home Page (next to Market Insight and below Buyer Masterclass) or click here

If you are new to the $3m market you may find the charts below (using 2007 to 2010 Valuer General, REIV and our own James Databases) of some value, as they help to show how the overall $3m+ market works. Note particularly that:

• The two powerhouse $3m+ suburbs are Brighton and Toorak (see 2009 results graphed below). However these two suburbs behave quiet differently from each other (see median graph). More on that another time.
• More $3m+ is bought later in the year than early. (2009 graphed below)
• There are some real name streets around and there are some falsies (where if you pay top dollar you will stand out like a beacon)
• Less than a quarter (25%) of $3m+ homes sell under the hammer at auction (click on September Graph below)
• A lot more activity is off market (not advertised) at this $3m+ level than any other price point, e.g. sub $3m.

Click on any of the graphs below to bring them up to full size

Agent Comments on the current $3m+ market

• “Prior to the school holiday period there was some renewed strength in $3m+ market due to things stabilising after the election and to the shortage of good quality homes. With the spring market in full swing it will be very interesting to see what happens with the increase of volume. But if the enquiry rates are anything to go by, October will be a strong month of sales.” Andrew Hayne of Marshall White Malvern
• “The $3 million plus market is strong, and we are expecting a big finish to spring in this market for good family homes.” Nick Johnstone of JP Dixon Brighton
  
• “There seems to have been a resurgence of buyer enquiry for the upper end properties recently.  It will be interesting to see if this follows through once we see increased stock levels after the school holidays and round 2 of the Grand Final.” Julian Augustini of Hodges Brighton
• Andrew Baynes from Kay and Burton South Yarra “Last Monday was the busiest auction sign up day for me in 10 years.”

Media Monitor: Domain – The Age 2/10/10. Headlined: “Hands up if you don’t have a clue” by Josh Jennings. Basically a solid article – but Josh, how many homes has Dr Damien Eldridge, Economics Lecturer from La Trobe University, bought using his quoted bidding advice this year? Would it have been 5 or 10 or 50? Going by his auction comments we were unclear as to whether you were holding him out as an expert – or simply providing supporting evidence to your headline.

We are not all brickbats here for the mainstream press. Congratulations to Chris Vedelago from The Age who this year has been consistently reporting the market as it really is and who actually seems to get out of the ivory tower (that so many property reporters are stuck in) and goes to auctions and talks to agents. We mightn’t always agree with you Chris, but we respect your work. Keep it up and keep getting out into the market.

Market News TV: On Tuesday of this week we ask the question: Is the ACCC or CAV the right watchdog for the real estate industry? Check out our Agent Opinion Videos.

Buyer Masterclass: We conclude our Negotiation Masterclass series with an article on Backward Bidding. From next week until Christmas we will be looking at “Pricing and Values” in Million Dollar Melbourne

Reported Results:

I'm not having a good day am I? I've passed the property in despite there being 3 bidders and now some galoot is taking my photo. 65 Charles St Prahran - George Metax - 3 bidders. Passed In for $1,400,000

This week we have combined the council wraps. There is little to report within specific council areas, and for those who normally just read one wrap we hope you will benefit from looking at some data graphs across the council areas that confirm what we have been saying so far this year.

Hopefully, this will help you as buyers to see what you need to do to buy the right home in the next six months.

Please note: Data comes from REIV, Valuer General (Government) and our own records. There is a time lag in some of the official data.

Confirmed: This year has been a bumper year in terms of $M+ transactions.

Confirmed: It has also been abnormally high stock wise.

We have used Boroondara as an example, but the stats show the same trends across the board in Port Phillip, Stonnington and Bayside.

Confirmed: It is part of a longer term trend of increasing $M+ sales.

Only the GFC got in the way in 2008/2009, as the above graph shows. Most of us froze and stock dried up. But that stock shortage, combined with the FIRB changes and the Chinese community kick-starting the Melbourne high end market in March 2009, meant that prices didn’t stay down for long.

Ignoring for a moment the Toorak chart, which shows a flat trend (we don’t understand the Toorak chart), prices across $M+ Melbourne went up in 2007, then down in 2008, then up late 2009 and then back down again in May 2010. In our opinion the charts of Kew, Brighton etc show what is really happening. And these charts confirm our James Price Wormie (which estimates price movements in the $M+ market).

The latest statement released by the REIV show a significant market price drop in the June quarter. That again confirms our Wormie.

So what’s happening right now?

A LOT LESS THAN A MONTH AGO – look at the auction numbers below. You may have read our analysis in this weekend’s Market Insight showing that only 1 in 4 homes for private sale in our market sold during the 6 week period June 7 – July 18. With fewer auctions coming up, it’s probably good for overall market health and may allow the overhang to be mopped up.

There is a choice – it’s just hidden.

Overhang: A hundred more properties went in to the Boroondara $M+ market than went out (sold) in April to June 2010. That’s a lot. It’s similar in Bayside and less dramatic in Stonnington and Port Phillip councils (they are both smaller in size).

How that overhang is mopped up could well determine the price trend in Spring!

The next graph below confirms that you currently have a 1 in 5 chance of  buying a home at auction. This is eerily close to our stats of last year where we bought 80 homes in the $1m to $5m range and only 15 were under auction conditions within 20% of the agent’s price. Over the last few weeks things have been changing a bit – but it is an interesting stat for those that think buying a home is always just about putting your hand up at auction. You need a number of different negotiation skills and techniques – as this graph below proves.

Overall what do these lovely pictorials tell us buyers?

1. There are homes for sale out there – but you need to look
2. There may well be a reduced amount of stock coming onto the market in the next few months, so you may need to look beyond the auction alerts to find your best option.
3. Prices at auctions may improve slightly, which could lead to claims of big improvements in the market by sellers over the next few months. But that may not necessarily be the case. We acknowledge that at times perception does become reality and that the market may well improve on the back of some highlighted results. But the fact is that there is still an overhang of unsolds out there. That means that, across the board, price hikes seem unlikely when Spring comes. If we had to bet it would be on flat to falling prices for some time – although our get-out clause is that if the overhangs are mopped more quickly than anticipated then Spring could see price improvements, as long as current demand is not affected by outside influences.

Buyers: you have choice and opportunities now –  if you know where to look and how to assess and negotiate.

We only buy homes

6 bidders for Justin Long at 7 Monomeath Toorak. Bought under the hammer for $2,005,000.

Auctioneer Jeremy Desmier. He's a happy guy even when he doesn't sell. We at James Market News like him. Balwyn 29 Narrak: Passed In for $1,310,000. 1 bidder

This week we have combined the council wraps. There is little to report within specific council areas, and for those who normally just read one wrap we hope you will benefit from looking at some data graphs across the council areas that confirm what we have been saying so far this year.

Hopefully, this will help you as buyers to see what you need to do to buy the right home in the next six months.

Please note: Data comes from REIV, Valuer General (Government) and our own records. There is a time lag in some of the official data.

Confirmed: This year has been a bumper year in terms of $M+ transactions.

Confirmed: It has also been abnormally high stock wise.

We have used Boroondara as an example, but the stats show the same trends across the board in Port Phillip, Stonnington and Bayside.

Confirmed: It is part of a longer term trend of increasing $M+ sales.

Only the GFC got in the way in 2008/2009, as the above graph shows. Most of us froze and stock dried up. But that stock shortage, combined with the FIRB changes and the Chinese community kick-starting the Melbourne high end market in March 2009, meant that prices didn’t stay down for long.

Ignoring for a moment the Toorak chart, which shows a flat trend (we don’t understand the Toorak chart), prices across $M+ Melbourne went up in 2007, then down in 2008, then up late 2009 and then back down again in May 2010. In our opinion the charts of Kew, Brighton etc show what is really happening. And these charts confirm our James Price Wormie (which estimates price movements in the $M+ market).

The latest statement released by the REIV show a significant market price drop in the June quarter. That again confirms our Wormie.

So what’s happening right now?

A LOT LESS THAN A MONTH AGO – look at the auction numbers below. You may have read our analysis in this weekend’s Market Insight showing that only 1 in 4 homes for private sale in our market sold during the 6 week period June 7 – July 18. With fewer auctions coming up, it’s probably good for overall market health and may allow the overhang to be mopped up.

There is a choice – it’s just hidden.

Overhang: A hundred more properties went in to the Boroondara $M+ market than went out (sold) in April to June 2010. That’s a lot. It’s similar in Bayside and less dramatic in Stonnington and Port Phillip councils (they are both smaller in size).

How that overhang is mopped up could well determine the price trend in Spring!

The next graph below confirms that you currently have a 1 in 5 chance of  buying a home at auction. This is eerily close to our stats of last year where we bought 80 homes in the $1m to $5m range and only 15 were under auction conditions within 20% of the agent’s price. Over the last few weeks things have been changing a bit – but it is an interesting stat for those that think buying a home is always just about putting your hand up at auction. You need a number of different negotiation skills and techniques – as this graph below proves.

Overall what do these lovely pictorials tell us buyers?

1. There are homes for sale out there – but you need to look
2. There may well be a reduced amount of stock coming onto the market in the next few months, so you may need to look beyond the auction alerts to find your best option.
3. Prices at auctions may improve slightly, which could lead to claims of big improvements in the market by sellers over the next few months. But that may not necessarily be the case. We acknowledge that at times perception does become reality and that the market may well improve on the back of some highlighted results. But the fact is that there is still an overhang of unsolds out there. That means that, across the board, price hikes seem unlikely when Spring comes. If we had to bet it would be on flat to falling prices for some time – although our get-out clause is that if the overhangs are mopped more quickly than anticipated then Spring could see price improvements, as long as current demand is not affected by outside influences.

Buyers: you have choice and opportunities now –  if you know where to look and how to assess and negotiate.

We only buy homes

Hawthorn 17 William: A crowd of 60 watched Richard James of Jellis Craig pass the home in and sell afterwards for an undisclosed amount. 1 bidder

Shortest day of the year today – June 21 is the winter solstice, which means the shortest amount of daylight hours.

In Melbourne this also means one of the coldest days as well.

When assessing property, one of the most important criteria I believe is rear orientation. Due to the tilt of the Earth’s axis, in Australia we prize a north –facing rear orientation. Why is this? There are multiple reasons……..

1. Light from the sun is direct and powerful into rear open plan living areas and backyards - this is where we live and entertain
2. Warmth from the sun helps tremendously with passive solar gain – how often do we as humans sit by a table near a window on a cold day that is bathed in light?
3. Shadows are minimised in the rear yard, gardens grow better and pools are not in shadow
4. Due to building regulations assessing energy efficiency, houses with north facing windows score much better (and are cheaper to build) than those with south facing windows.

Now some people (particularly skilled real estate agents) will defend houses with south facing rear orientations, claiming that that the light is good in the rear living areas – while this may be partially true, what about the warmth and also the shadows?

Against the trend of the market, I attended two auctions on the weekend (51 Murray Street Prahran and 77 Page Street Albert Park) and they both flew, selling well over reserve. Three common factors with these properties –

1. Pretty, original facade (one was Victorian, the other Edwardian);
2. Great location;
3. North facing rear orientation – the back areas even on cold day were light filled and uplifting – areas that you subconsciously gravitated to.

The rear orientation of a property is really important – our James Rating system gives additional points for properties with north facing rear aspects and rightly so.

Design Smart

Adam

 

 

 

 

77 Page Street Albert Park (Michael Coen, Hocking Stuart)