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)

 

 

Sorry did you say 5 bidders! This is June not April. A great Jeremy Fox RT Edgar auction took place at this home 23 Ferncroft Avenue Malvern East. Bought under the hammer for $3,560,000

Stonnington seems to have got itself back into the game with a second “OK, sort of – almost normal” auction week in the 60’s clearance rate wise. We monitored 23 homes of which 15 were bought; that’s a 65% clearance rate (last week 69%). Of the auctions we  attended 7 of the 10 were bought.

What’s happening? Price reduction is happening. The buyers are there!  Buyers got hit early May with a lot of stock and could see a lot more coming and they paused. That meant things didn’t sell as easily as April, pass-ins occurred and prices dropped. Stonnington sellers have had two more weeks than those in Boroondara to face the “new order” and they have used those two weeks to price adjust and things are now beginning to move again at auction. Welcome back sellers – lets see what happens from here.

High Noon for K&B

It was a case of Toorak High Noon for Kay and Burton today with 3 substantial properties for sale around midday. One sold before (3 Cleeve with Andrew Baines) and two failed to attract any auction bidding interest (9 Kenley and 10 Moonga). The thing of interest is Kay and Burton’s new style of auctioning.

1)      Run the campaign and gather intelligence but give little way

2)      Tell everybody the ball park figure on Auction Day via a Vendor Bid and then shut it down quickly.

3)      Deal with the brave and inquisitive under pressure afterwards.

For the most part we thought this was not working early May – early June I’ve become a believer for now. It’s a well thought strategy. Early July let’s see …… Kay and Burton is a very strategic company; they run campaigns in waves – feeding off each other, regrouping and then going again. It was no coincidence that May was a stellar of stellar months for their vendors and themselves - they had obviously been planning it since Christmas. K&B appeared to lose their way for a short time when they focused on others; but the generals have pulled hard and the well oiled Millionaire Machine is back in full swing.

EOI

They are back and moving along. We have just assessed a really interesting home at 3 Avalon Road Armadale (Ross Savas of Kay and Burton). We have a rating on it and price thoughts. If we can help you through the EOI maze please give us a call.

Andrew McCann of Bennison Mackinnon’s thoughts on EOI to the question, “do you think EOI are increasing and working at the Top End”?

We don’t deal in a lot of EOI campaigns and as a company we don’t think they work as well as the Auction method so they are rarely suggested. Buyers tend to find them confusing and prefer to either know an asking price for a Private Sale or bid in a transparent and open environment which an Auction allows for. They do have a place at the “very top end” of the market and for some “unique” properties however from the more recent EOI campaigns we have seen they don’t seem to be working.

Twoday.com.au

Marshall White – the ever innovative have launched a new under a million, new age, internet savvy, younger persons company (I think I got that right). The main aim is to give a focus to this very important market while still allowing Marshall White to keep its exclusive high end identity. Darren Saunderson heads it up and while it is not our market, we will watch with interest. Good Luck with the new venture. 

Its not million dollar news but intersestingly South Yarra produced 18 results for a 78% clearance rate today however not one of  the sales was over $1million. Below are the results around and over a $million.

Make Good Decisions

Looking good Lachie! One of our favourites Lachlan Fraser-Smith ably assisted by Simon Dale gets four bidders zinging to an "under the hammer price" of $1,672,000. Prahran 1 York Place.

Which way are things going? South Yarra 32-34 Park St: David Colbran and Warwick Anderson of RT Edgar: Passed In: $3,903,000: Bought Afterwards: 4 bidders

It’s 6pm Saturday and the James million-dollar-plus Clearance Rate on the 41 auctions we attended today was 61%.

Bidderman is 1.7 and it seems to have found a momentary level of some strength on large numbers of auctions.

We monitored 174 $million sales across 56 Melbourne suburbs.

Overall Clearance rate is 60% for those 174 auctions and in line with our James clearance rates – confirming again our James Clearance rate is an accurate measure of $Million Melbourne.

Considering the large amount on offer today and two of the next three weeks, it was a solid result for the market, albeit on falling clearance rates.

Summary Clearance Rates

• Bayside – 26 monitored – 12 bought – 46% clearance rate
• Boroondara – 46 monitored – 32 bought – 70% clearance rate
• Glen Eira – 18 monitored – 10 bought – 55% clearance rate
• Inner Melbourne (Yarra) – 11 monitored – 8 bought – 73% clearance rate
• Northern Melbourne – 22 monitored – 13 bought – 59% clearance rate
• Port Phillip – 22 monitored – 7 bought – 32% clearance rate
• Stonnington – 26 monitored – 18 bought – 69% clearance rate

Highlights

• Only 5% were not reported which shows a high degree of accuracy for clearance rates
• Increasing numbers of undisclosed results – maybe privacy or less than stellar numbers
• It is Port Phillip’s turn to not fire under the auction system
• Stonnington was surprisingly strong with Park St South Yarra (Warwick Anderson of RT Edgar) going passed $3,900,000 on multiple bidding and 81 Clendon Road Toorak (Gerald Delany of Kay and Burton) selling post auction north of $7,350,000 and 64 Burke Road Malvern East (Iain Carmichael of Benmac) selling before for 3,320,000 or $1366 per sqm for main road land. We think a number of Toorak and South Yarra vendors have wised up to the mood change and as a result clearance rates are improving.

In some segments, the market has dropped an estimated 5% in the past three weeks; in other segments, not at all. Fringe positioned, poor quality and hard to sell properties we feel could be as much as 10% off what they may have achieved in a frenzied April auction. This is of course opinion and hard to substantiate; but it is what we believe.

But our blanket headline is not 5%-10% price drop; it is mood change for all markets and some markets are patchy and some homes have experienced a drop in price.

Before we are yelled down by the lobbyists, let’s be specific.

First, there are several markets going quite well (for sellers), thank you very much.

$4 million-plus market
Evidence is emerging that this market, which we felt was in trouble a fortnight ago, is not as patchy as it seemed to us – and actually has some strength. Our correction: A more accurate read from us would have been that the auction system itself is frosty at this price level but there is activity outside the auction system (private sale, off market and expressions of interest). Michael Gibson of Kay and Burton agrees this is an accurate statement. He implied his company wouldn’t be selling $6 million-plus homes in Canterbury, Hawthorn; Scotch Hill; Grace Park and Flinders in the last month (and today at 81 Clendon Road Toorak, post-auction after a vendor bid of $7.35 million) if the $4 million and above market was declining substantially.

Note: Back in the GFC days during one six-month period (late 2008 – early 2009) at this same $6 million-plus price level, there were only nine recorded home sales in total (two in Brighton, one in Balwyn; and six in Toorak) for all real estate agencies in all of Melbourne.

$1 million – $1.75 million market in inner Melbourne
While there is definitely less bidder depth than a month ago, buyers may notice little change in end results on good properties going forward as there was such great depth pre-Easter. In fact, we were at an auction in Clarendon St Armadale (Madeline Kennedy and Andrew Hayne of Marshall White) where a nice little Edwardian single-fronted was bought for just over $1.2 million, and its twin sold earlier this month for $50,000 less. The $1 million to $1.75 million market is not seeing widespread price drops; despite less bidders per auction.

Shall we stop building the drama? Where do we feel the market has dropped?

$2 million to $4 million market
Is where the possible gains in 2010 have evaporated for a number (but not all) homes. On some good $3 million homes, we feel that the market view could be $100,000 to $200,000 less than Anzac Day and on poorer homes the drop feels more dramatic.

On what basis do we make such a claim? What about such and such, which went for $150,000 over reserve?

Clearance rates seem weaker at this price level; although today 10 from the 16 we witnessed in the $2 million to $4 million mark sold and that’s 62%. We feel the easing has been mainly in this market, but we have no evidence to suggest anything more than light price drops on some good homes.

Look at three Hawthorn homes we have been involved in, in the $3 to $4 million market in May 2010.

All three of these homes we assessed at $3.3 million under strong competition. All three of these auctioned homes had supporting evidence and independent outside agent opinion matching our $3.3 million assessments.

Yet the results were different (around $3.1 million on two occasions and $3.46 million on the other occasion). This had nothing to do with the agent (despite what their opposition may say). It may, of course, be our poor assessment of two but, if you assume we have some level of competence (others may argue), then it does hopefully give an insight into what we think is happening in the $2 to $4 million market in May 2010.

INCONSISTENT RESULTS and MINOR PRICE DROPS FOR GOOD HOMES

What does this mean for buyers going forward?

Opportunity!

There are $2 million to $4 million sellers out there that have to sell as they have bought and do not have the luxury of holding multiple homes. Interest rates are rising and business, as evidenced by the stock market index, is not as rosy as April.

Even those sellers that do not press the panic button may still be of a mind that things may not improve in their selling horizon and will, if they are listening to their selling agent, be more inclined to deal on a sensible offer rather than wait till the uninformed or ridiculous one arrives (which, increasingly from Anzac Day, is not happening).

A home that in April you would have paid $2.5 million for could now available to you for $2.3 million if:

1)      You know where to look

2)      You look

3)      You have some luck

4)      You put your hand up and then in your pocket.

Some important riders on our $2 million to $4 million blanket statement:

1)      It still needs to be the right home for you.

2)      It still needs to be a good home. Low land content, poor floor plans and badly positioned homes can become better in price but they never become good land content (above average growth), good floor plans (without serious money) or better positioned homes.

3)      Not all homes are adhering to our price drop assertion.

Overall Market Summary

At this stage, we have no feeling that the market corrections are anything more than normal market corrections. Market corrections come from market imbalances and the $2 million to $4 million property market has, in our opinion, been out of balance in May. Other markets are experiencing less bidder depth but not the imbalance and it’s not showing as much on the scoreboard.

While in all markets demand per auction has been steadily falling as evidenced by our Bidderman graph below; that is not necessarily as sinister as it may seem if you look at the supply graphs chart we keep on new million-dollar-plus stock to the market (graph 2). Those charts confirm what agents have been claiming – record months of auctions etc. Look at the up-swing in new stock (and we keep both on-market and off-market data) from 30 to 60 days ago. Big increases!

To some extent, these large increases in stock are the obvious reason why demand per home (Bidderman) has fallen; however, what is different to March and more in line with a normal market, is that the May 2010 market has not been robust enough to absorb all of this stock increase, particularly in the $2 million to $4 million mark. We have seen some seller stress for the first time since mid 2009. In addition the rest of the market seems to be leveling which can’t be a bad thing for all sides of the market.

Note: The above graph (2), implying lower stock numbers coming in over the last few days, may simply be a data entry timing issue from us – the guaranteed accurate stock level indicators for us are the 30 days and over figures and these are unseasonally high.

Three-month market outlook

$1 million to $1.75 million buyers.
There needs to be a big reduction in buyer overhang and a greater mood change resulting in an increased number of pass-ins before many good homes will reduce in price.

We think the current mood change and bidder depth has resulted in a leveling of price. Poorly supported properties are dropping in price.

As another aside there are an increasing number of pre-auction and off-market opportunities even at this level. By example, we bought a ripper little off-market one in Elwood last week at this price level. Good home – we were surprised it was offered as an off market (and, please, we don’t mean that negatively for either party).

$2 million to $4 million buyers
This is the most exciting and unpredictable market at present. Buyers, you need to turn up and keep turning up, because the opportunities to buy good homes are here and may not remain for long as you may think. The longer term big picture still shows population and migration pressures conducive to price increases.

At this level we suggest you need:

• Patience because some good homes are still selling very well.
• To cover a wider number of possibilities. There are off-markets and fringe properties that you are not aware of that are selling.
• To do your due diligence in two ways. Emotionally, is it right for you, and, importantly, is it for sale at $2.85 million or do you have to pay $3.15 million (financially).
• Advice. We’re biased. But with opportunities comes a number of decisions and a “no” decision can be just as harmful as a bad “yes” decision. All good decisions are either lucky or informed ones and it takes a lot of work to be informed for all decisions. So are you lucky or do you want to be informed? Possibly consider engaging a competent and ethical buyer agent experienced at this level to assist you.

Of course the market could also worsen (for sellers) but to assume that this market will continue to deteriorate after the forced sellers have gone is not a given; it is a guess. Going forward a number of $3 million owners have discretion and rather than put their home on the market or be in a forced sale they can renovate or hibernate. This will mean reduced choice for buyers which can start an upward price cycle on low quality stock – a buyers lament.

$4 million-plus buyers:
The proof is in the pudding. Sales at this level are up, surprising all of us. So demand is there (for now) and, while this level of home never attracts the bidder depth of further down the food chain, it also has fewer forced sellers than say the sub-million market unless business hits the wall. We don’t have as clear a take on this market as we thought we had, so, we’re keeping our powder dry and no longer passing  judgment until there is some more water under the bridge (love those clichés).

Buy happy

Mal

The Big Guns failed to fire at auction but didn't miss their target on the reload; with a post auction result in excess of the $7,350,000 Vendor Bid Pass-In. No bidders: Kay and Burton's Heavy Duty Gerald Delany, Mike Gibson and Ross Savas presiding.

Albert Park 144 Danks: Passed In for $2,410,000; but with 2 bidders there should be a result soon unless the vendor isn't aware of a buyer mood change. Karl Gillon of Buxton

With Bidderman less than 1 – meaning more auctions than bidders  – it may be time for a change of scenery for Port Phillip auctioneers unless things turn very quickly or they can come up with some new ideas. And the post auction sales are not happening either according to reported REIV results, so a pass-in and deal later strategy can’t be justified to a seller who is forking out $10,000 to $20,000 on marketing. But the sellers are not our constituency – buyers are. And buyers: you have opportunities if you can find the right home and it’s a goodie. The opportunity comes with your assessment and negotiations skills.

Port Phillip is a very fickle market at the best of times and May is proving more fickle than usual. Especially if its $2m and over.

If you need some help in getting through the maze of unsolds to find the gem then please consider giving us a call. There is actually a lot on offer and buyers if you can’t recognize this buy signal then we advise a change of medication.

Population and Wealth pressures mean that sometime soon this part of the Bay will again shine – so the smart recognise this an opportunity and those that are waiting for more easing are brave.

Sound a bit “salesmany” but we encourage your participation as some of the market seems to be returning to 2009 pricings – how long that will last we don’t know.

Next month maybe a different story

Port Phillip Auctions – 22 monitored – 7 bought – 32% clearance rate

Buy Opportunity

Port Melbourne 266 Esplanade East: Joseph Allen: Passed In for $1,720,000.

We know what is happening in the market, but can you tell us why Scotty? Canterbury: 19 Margaret: Passed In. Scott Patterson Jellis Craig.

Its 6.00 pm Saturday and the James $Million+ Clearance Rate on the 36 auctions we attended was 64%.

Interestingly, 20 of the auctions initially passed in. Therefore we witnessed an under the hammer clearance rate of 41% – obviously a number were bought almost immediately afterwards.

Bidderman is up from 1.5 last week to 1.8 bidders per auction this week supporting the clearance rate improvement also interestingly in an environment of increased choice.

The market can’t be all that bad when Kay and Burton is just about to tell you they have sold 69 properties worth over $200 million in May. With a rival agent confirming that 3 of those Kay and Burton properties worth a combined $20 million have been bought in Hawthorn in the last few days. Shakespeare Grove, Scotch Hill and Grace Park (Sam Wilkinson and James Scarff). This is an amazing set of numbers when you look at Kay and Burton’s and other agents less than stellar Toorak “at auction” clearance rate in May.

So what is happening?

The market has changed and has eased on the Top End properties. No doubt.

So why has it happened?

Well we are less clear after today than we were last week. Is the easing just a normal ebb and flow caused by an increase in supply (record numbers of auctions) or is it something deeper and longer term such a weakening of demand caused by external influences. To be honest we can’t really tell.

Why do we need to know?

Is this temporary or the start of longer term buying opportunity like 2008?

While no selling agent has argued the toss with us re our market change headlines; many seem to genuinely believe the market is still pretty healthy. And those we respect acknowledge that while buyers mindsets have changed, they also add that this could be in part due to unseasonal and large amounts of quality stock on the market. In their words now maybe nothing more than a brief buying opportunity on the way to market normality.

There are two agency directors we really like at Market News – Scott Patterson of Jellis Craig and Mike Gibson of Kay and Burton. We like them because come rain or shine, doom or gloom they will take your call and give you an honest assessment – no party lines with them. Both state the market has changed since last month but both think there is still a certain underlying health to the market. Michael feels the poor auction results in South Yarra and Toorak will see the auction method questioned as the best way to market high end properties going forward and in fact feels the Expressions of Interest method is usurping the “best method” mantle as every day goes by. Scott says it’s too early to tell if this market has been severely effected by outside influences and feels that even if we see more pass ins that may simply be vendors not adjusting to life’s ebb and flow realities more than any sinister market undercurrents of long term demand reductions.

We think there is truth in the above comments and feel the current market is best summed up like this

1. Buyers you have significant opportunities – to say those opportunities will remain over the next few months is more a guess than a guarantee.
2. Auctions are not all-conquering as they were last month and as buyers you should rethink the blitzkrieg of fear approach and perhaps replace it with a more balanced one – and that includes before, during and post auction negotiations. You need to get ready for an increase in `Expressions of Interest’ and you will need different buying strategies.
3. Traditionally as the stock market implodes we see a strengthening in the property market – its called a flight to quality. So unless we see catastrophic stock collapses you may in fact at the $1m level see rising prices again quite soon – once supply drops and the overhang (which maybe less than we thought last week) is mopped up. You may of course not see price rises if in fact this current market mood worsens (lower demand rather than a more balanced supply being the real issue).
4. When I was twenty, property was a cyclical thing – and we talked in years, even decades. Now property is still in cycles but we are in a “ipodean” era; meaning weekly or monthly. Long term is …  is ….. is….. are two words seldom mentioned. So next month the market could be different again. The power of instant information.

In summary today was more market alive than last week – some numbers coming through from Kay and Burton are significant market positives when you add them to record months for Jellis Craig in May and record June sign ups ahead. But its not just Boroondara and Stonnington – talking with Ivan Blow of Buxton in Bentleigh mid week, they too have had an incredible month for auctions (record) as has many other firms.

The informed comment saying the jury is still out on a sustained downturn has credence, although no respected selling agent denies there has not been a strong market leveling in the last three weeks. For now runaway prices have runaway and good sales results now require a vendor at market and a sales method suited to the property before a buyer will consummate.

Many of today’s and the last two week’s results were partly set in stone by buyers’ perceptions pre this current market leveling – so it’s what happens in June and July that will either confirm or deny all the theories.

Stay Tuned!

Fight Back against the Clayton’s Reserve

Two weeks ago, we discussed the issue of Clayton’s Reserve – the reserve an agent states when they are not stating the real reserve. As promised, here are some suggestions for how to deal with this dubious practice. The crux of the problem is that sellers and selling agents are not playing by their rules – the rules they lay down at auction.

To refresh your memory, a Clayton’s Reserve is not a real reserve. It is a figure the auctioneer gives after a home has been passed in to you and is usually very different to what the true reserve was 15 minutes ago. The Clayton’s Reserve is an opportunistic grab for cash (in isolation, we would be cool with that) but, more importantly, it is an immoral, and possibly illegal, action as you, the buyer, have engaged in an auction in good faith. You have been the highest bidder and, according to the rules read out by the auctioneer at the start of the auction, you should be entitled to hear the genuine reserve so you can accept or refuse, as is your right.

Now we offer some FIGHT-BACK suggestions. (Please we are not advocating disrupting behaviour at auctions. We are totally against poor buyer behaviour, agent abuse etc. It’s no good for you if you lose it. Don’t get mad – get even. Think Gandhi and all that sort of stuff. You need to keep your cool as buyers, but don’t just stand there like a rabbit in a headlight or a stunned mullet.)

1. Perhaps don’t bid yourself

Perhaps don’t bid yourself or don’t stand with your buying agent as it only identifies who you are and, if you’re not successful, then watch at your next auction how it miraculously passes in to you or your agent and the reserve is miraculously at or above your previous unsuccessful bid.

A selling agent’s job is to know your “hurt level” but you don’t need to help them in that job. We buy many different properties each month and it is our policy not to reveal to agents who we are working for (where we can avoid this). This is not to be difficult or to treat agents with a lack of respect; it is to reduce a selling agent having certainty.

Buyers who think that they can better negotiate from a position on an emotional buy, such as a family home, at $2.8 million when the agent is aware that you have previously bid $3.3 million just do not understand how real estate works, especially when you are up against professional high-quality selling agents.

It’s just a help – the agent not knowing is not a cure-all.

2. Ask if the property is on the market

All buyers should be asking at ALL times when you are above the quote range or at a fair level: “Is it on the market, Mr Auctioneer?” You need to keep asking that question if you want to minimise a chance of a Clayton’s pass-in to you. Please don’t be put off by the auctioneer saying “I will tell you” and implying that you are being a smart alec. When the reserve is not declared pre-auction, it’s a perfectly reasonable question to ask. Keep asking it. Don’t be put off. Of course, in some cases, it won’t work, especially with a ridiculous reserve, or a rude or unreasonable auctioneer, but it can reduce the number of Clayton’s pass-ins. It is your right to ask a sensible question during the auction.

DO IT AND CONTINUE TO DO IT (when it is fair and reasonable to do so). Buyers and fellow bidders should be supporting other bidders and buyers who are asking this reasonable question. Sure, the other buyer is a competitor, but when it’s not on the market you have another competitor – the Clayton’s Reserve. Think of it as a Masterchef Challenge – you need to avoid the elimination or pressure test by working together. Then, when it’s on the market, you can fairly and openly compete against each other.

It’s just a help – asking the on the market question is not a cure-all.

3. Negotiate in an open forum rather than behind closed doors

Why not do as we do during an auction: ask that if I bid “such and such”, will it be on the market? You need to really know what you are doing here, but it is also a fair question. If you choose this option, then you need to be knowledgeable in your values, experienced in your auction timing and, if you are ethical, be prepared to bid that amount if the auctioneer says “yes”.

It’s just a help -  not a cure-all.

4. Back up and lower your bids after a pass-in.

What you can do is bid backwards after the pass-in. Please read this with caution as, in certain circumstances, it’s disastrous and you will lose the property. But it can refocus an unrealistic vendor. For instance, if you are buying an investment property and you are prepared to take some risks, we advocate that you can sometimes bid backwards at pass-ins. For example: a property is passed in at $2.2 million. The agent gives you a Clayton’s Reserve of $2.7 million. Our next offer may BACK UP from $2.2 million to $2.175 million. Caution: this strategy can be a disaster if you think you know what you are doing but you actually don’t. Talk to us, or your professional buyer agent, about the risks versus rewards before doing it. But it can work in the right circumstances. And it is ethical, fair and reasonable. Be ready for the auctioneer to either give some agro, express some dismay, or claim you are not playing by the rules – we almost choke when this line comes out. We’ve entered into an auction on behalf of our client, bid sensibly, had it passed into us, the agent has simply made up some figure and not given us the true reserve and he claims we are not playing by the rules. When an agent is acting unethically, don’t just sit there and get walked all over.

It’s just a help – backing up is not a cure-all and please this is a high risk strategy (meaning lose deal) in the hands of the inexperienced.

Please respect a decent and ethical agent involved in fair dealings. If it’s a good home, you do have to pay for it, and possibly even pay a slight premium, even in this changing market. These comments above are not about fair dealings; these suggestions are for unfair dealers and dealings. Don’t be naive. If they’re playing hard or stupid or unethically, you need to return serve and then some – but also please remember this is theory and, in practice, you may be best advised to get some assistance, rather than get involved in a higher risk strategy such as backing up.

There are many more Clayton’s or dual reserve management techniques but this is not the place to discuss them and it would be a lot better if the practice was outlawed. It’s better to have fixed reserves stated on auction day. This gives time for market movements during a campaign, which are fair to the seller, and the buyers know what they need to do at auction to buy the home.

Selling agents, many of whom we respect and admire, we truly hope you can see your way clear and agree to something like a stated reserve at the start of the auction (no, not during the campaign) before legislation comes to pass that may be far more onerous and detrimental to your clients (eg fixed reserve from start of campaign) and may even limit the beautiful auction system we could have.

As we said, Melbourne Storm and Carlton are great teams and involved in great games, but they felt a need to play outside the rules, thus not only damaging themselves but the game they loved to play. We had dummy bidding now we have dummy reserves – not good enough!

Buy happy

Mal

Michael it's easing now, but is this a short or long term phenomenon and why? Toorak: 216 Kooyong: Passed In $2,310,000: 1 bidder: Mike Gibson, Kay and Burton.

Strange. Very strange. Yes Glen we can see you but check out the guy to the right. I'm not sure if he was there for marketing or to revive injured buyers. Maybe he will be mandatory at all auctions soon. Camberwell: 52 Athelstan Road: Glen Coutinho. Passed In.

It is 6pm Saturday and the James Million Dollar-Plus Clearance rate for the 38 Auctions we attended today was 74%; basically no change on the 77% ( pre Easter Super Saturday -March 27).

Bidderman was down from to 3 to 2.3 bidders per auction but that is still very strong all things considered (stock quality and Easter holidays).

Market Mood

Today was expected to dip to reflect this being a secondary weekend for $m+auctions; but it didn’t. Many of the really top homes wouldn’t have been launched with an Easter or School holiday start and May 1 and May 22/29 are shaping up to be the next $M+ Super Saturdays (stock quality and numbers wise).

The last 2 weeks confirm the March 27 strength. Hot! Hot! Hot! You know the market is very strong when you see that REIV agent members have reported 170 properties $m+ properties as sold since that pre Easter Super Saturday. That does not include today’s auctions. So basically the large majority were private sale at a rate of 8.5 a day.

This tells you the mood far more accurately than auctions today. Some expected and some unexpected suburbs below ($m+ sales in last fortnight).

Balwyn (5); Brighton (7); Caulfield (11); Docklands (3); Eaglemont, Elsternwick and Elwood (4 each); Hawthorn East (5); Malvern (5); McKinnon (3); Melbourne (5) and how about Mounts Eliza and Martha (6 between them); Surrey Hills (4) and Williamstown (4).

Interest Rates, Population Pressures, Volcanoes  – not sure what is going to stop this speeding train but it does need to and should slow down some time ……..

FIRB rule changes and major price increases confirmed.

The REIV trend chart confirms the effect on prices the FIRB rule changes had in March of 2009 and the leveling off that occurred when the Aussie dollar started to strengthen strongly against the US dollar (relevant to the Chinese community) later in 2009. With the help of Canberra, the Chinese community single handedly (a bit of exaggeration) rescued our Inner East $M+ property market and whether you like what is happening now with prices this was the beginning, one of the catalysts for the incredible 2009 price improvements right across Top End Melbourne.

Liar Liar Pants on Fire

Hi I’m Mal James and some people think I’m a liar.

It’s a bold statement. Is it grounded in truth? Initially, when representing a client, if I do not know the other side well, I instinctively hold information back. I offer information in a structured way, which helps me in assessing the objective and subjective connection to whatever information I perceive they control. If I am asked a direct question, but I believe that it is not in my client’s best interest to give up that information, then, at times, I will make a statement that may not disclose the whole picture or may allow confusion. Eg Privacy of a client’s identity or limits.

So, to some people, I am therefore a liar. That’s fair enough – you can call me what you like, some people do. I also assume that, at any time, I may be lied to – not always to deceive but I assume that some people are communicating to me in a way that, if I want to jump in over my head, then they will let me do that.

What is a liar?

Is it one who makes false statements? False is a most interesting word with a myriad of meanings and powerful consequences, depending on the interpretation applied in each and every specific instance.

On the definition of making false statements is Channel 7 weatherman David Brown a liar when he tells me tomorrow will be sunny and it’s not? Is Eddie McGuire a liar when he says Collingwood will win and they don’t (it seems he could be an infrequent liar this year) or is your bank manager a liar when she promises something will happen by next week and it doesn’t?

In real estate, is Low Bidders Real Estate’s Artina Deco a liar when she says a property should go for $X and it sells well above reasonable expectations, meaning she is 12 per cent out? Is Top Drawer’s Eddy Wardian a liar if he says a house will be on the market at $Y, the vendor changes their mind and it’s not? Is Victor Rian of Home Sweet Home  a liar if he says Z will be sold by tomorrow and that doesn’t happen, because a previously trustworthy buyer recants?

Are any, or all, or none of the above liars?

You may say lying depends on intent. In the end, does that really make any difference to you?

Is it important?  It was rainy, Collingwood lost, the loan didn’t go through or you missed the property.

Is it the lie itself that is of importance or the rules you apply and your reaction to the lie?

The community views deliberate and accidental “lies” very differently in law, despite in many cases the consequences to the “victim” being the same.

Let’s forget the word semantics. Let’s say an agent told you the reserve on a property is $2.45 million when, in fact, he knew it would not be sold for under $2.7 million, or, conversely, it could be sold to you at $2 million. Is it the deliberate lie or what you do with it – and how you react to it – that is the issue? Or does the lie itself determine the end result?

A deeper question is how should a lie affect you?

That may lie (excuse the pun) in the rules you apply to the circumstance.

If you perceive buying a home as being like a relationship, then you will probably react very differently to a lie or liar than if you perceive buying a home as like a business transaction.

What is the right way to react to a lie?

For me, truth or lies are mostly varying shades of grey – even the ones that seem black and white have shades of grey. To be honest, in business, I prefer truth but I’m not fazed that much, if at all, by a lie. In my personal life I take a very different stance. You may have an alternative take and fair enough, but if that different take involves an emotional response that doesn’t maximise your outcomes then …..

Is lying right or is it wrong?

1.  Is wrong related to unacceptable behaviour or self-interest or the greater good?

2. Unacceptable behaviour usually revolves around

• community self-interest (standards, laws etc) and/or
• individual self-interest (your opinion).

3. If it’s right for you but wrong for other guy – is it right or wrong?

Your self-interest opinion may be different to mine, in turn different to the seller’s, the seller’s agent and different again from community expectations. A current real estate and lying conundrum is notional propriety and the disparate self-interests of underquoting.

So, is a lie always right or wrong? You know, truthfully, I’m not exactly sure. We are taught that, morally, a lie is always wrong. I think a lie that kills a soldier is wrong but, if it saves 100 others, maybe it is right to tell a lie in those circumstances. A less dramatic situation is whether a lie is wrong that gets two parties together on a $2.5 million deal, which would not have happened but for the lie and the fact that the deal is in the best interests of both the buyer and seller.

Does a lie really matter?

Let’s return again to the example of a house quoted at $2.45 million, when, in fact, it can be bought at either $2 million or $2.7 million. Is the real issue the lie of $2.45 million? Or is the real issue the fact that you might get it at a different price if you know how? Is the issue that the lie is a danger to you or is it that you don’t have a lie detector process that is the real danger to you.

If you have a tried and true process – in other words a certain set of self-interest rules (such as the CAN process that we use) then is a lie a big deal?

If you have a process such as the CAN process,  then no matter what is presented, you or your advisers will break it down and look into it in an organised and beneficial self-interest manner. You will save flair and risk for the last little leap of faith when the agreement gap is small and all other elements of the deal have been explored and confirmed. Your procedural disciplines will discourage reactions that can be dangerous for you in the event of a lie.

In real estate, when you have such a process, liars are just interesting people you meet along the way that present opportunities to you rather than dangers.

If, however, you do not have a solid set of rules such as the Clarity-Assess-Negotiate process, then liars are Melbourne Real Estate dangers to you.

Is the issue in home-buying the lie or the process required to obtain the truth?

Finally sometimes the liar is within

Yes, some liars are faceless agents representing their clients. However, for some buyers, a far more dangerous liar is part of the inner sanctum.

He says to his family. “It’s just bad luck” that he keeps missing out. He is constantly surprised by the actions of agents, the process of real estate purchasing, the sold prices compared to the quotes. He has missed numerous times on homes his family wanted to –and should have – bought.

Or it’s a she: one who expects history to not repeat itself, just for her, and reacts badly when it does. She ignores that her emotional world of buying a home has collided head-on with the unemotional world of selling agents. She has taken no action, and made no change to her modus-operandi to cope with the emotional/unemotional disparity.

These liars take a “she’ll be right” attitude and say to their family “Let’s move further away” and accept less than they have to, or they say “Let’s look again in five years time, when prices will be cheaper.” Furthermore they take the identity of a victim, a victim with a family and worthy of pity, but a victim without a family home.

In real estate, and in life, some lies are very wrong and can hurt deeply. We have all seen and experienced that. However, lies can allow beautiful things to happen. As truth does; lies save and destroy. Truth and lies are a part of life. Your level of understanding, management and reaction to lies will ultimately determine your short and longer term property outcomes.

Buy happy

Mal

Footnote: Clarity on my position: I personally think truth adds considerable value to the home buying process. The best agents, deal makers and negotiators know how to use both lies and truths to maximise their client’s position and most do so with little emotion. Most experienced negotiators realise truth often bridges gaps that lies cannot. Please, for all my talk of lies, most of the deals James Buyer Advocates are involved in with high-quality selling agents are often win-win and with a high degree of truth. Truth and lies are why again and again we outline the benefit of professional buyer and seller agent relationships.

Rocket Rodney Morley and Marvelous Mike Gibson; Real Estate’s dynamic duo usually playing on opposite sides - this time K&B and TBM were working together to extract a lazy $10,000,000 plus from the market. Toorak: 4 Trawalla and next door: Sold $10,450,000. 4 bidders.

Brighton: 10 Kent Avenue: Nick Johnstone of JP Dixon. Bought afterwards for over $2,100,000; a 16% increase on last year. But for some sellers the 2010 jig maybe up. Next week looming as a real test - are we turning a corner or are we as buyers dreaming?

It is 6pm Saturday and the James Million Dollar-Plus Clearance rate for the 27 Auctions we attended today was 65 per cent.

Bidderman remained steady at 2 bidders per auction. However 1 in 3 of the auctions we attended today had no bidders. 33% of auctions (on OK James rated homes) had no bidders under the hammer today!!

If you look at the REIV auctions reported you would see a more buoyant story than we show, because a  number of the auctions that were passed in, were not reported.

Having said that some of the $2.5m to $5m market seemed quite strong this week; highlighted in the north west by 2 strong sales at 36 Ardmillan St Moonee Ponds (Matthew Febey Nelson Alexander) bought for $4,650,000 and 110 the Boulevard Aberfeldie (David Vaughan also of Nelson Alexander) also bought under the hammer  strongly for $1,770,000 and most would be looking to put an additional million into a rebuild.

The Inner East was also strong in the $3m range. All these sold before today’s Auctions.

• 28 Coleridge Street Kew (Hamish Tostevin/James Tostevin, Marshall White),
• 14 Royal Crescent Camberwell (Peter Batrouney / Campbell Ward, Jellis Craig),
• 94 Argyle Road Kew (Stuart Evans / James Tostevin),
• 18 Callantina Road Hawthorn (Joanna Nairn / James Tostevin, Marshall White),
• and a quiet off-market property in Raheen Drive Kew (Scott Patterson, Jellis Craig).

Bayside was buoyant in most ranges above a million. It’s big $3million sale was an old car museum on less than 374 sq metres of land out the back of Church St Brighton for $3,367,000. Matt Nichols of Nichols Crowder, who runs a really good commercial Bayside selling agency told us there were 6 bidders on this mid week auction.

Port Phillip also strong (except a few misses in Elwood).

Stonnington Top End seems to be a different story with a large number of pass-ins in this range. They may be bought over the next few days - lets wait and see.

Nonetheless across all these markets Bidderman has dropped from 3 weeks ago; even though we just rattled off 8 or so $3 million plus sales in the last week and that’s the conundrum right now.

Strong results but a falling Bidderman.

Feel and Mood
Those that are good homes with an asking price within reasonable expectations are still selling incredibly well and have a strong Bidderman;  but if you have a home that

1)       Is priced above the market view

2)      Has Issues

Then as a seller you may have a home that is not being bought in a frenzy under the hammer at auction – a different story to a month ago or late last year when almost everything was frenzied selling.

A number of credible agents (Andrew McCann of Bennison Mackinnon; John Bongiorno, James Tostevin and Heather Elder of Marshall White) are saying a bit of the gloss of late last year and early this year has come off in the last fortnight. This they feel is in part due to vendors getting ahead of themselves and/or buyers refusing to continue the climb the increasingly dizzy heights on homes regarded as less than the best. We agree with this assessment.

Next week is looming as the big test in our minds. There is a lot of stock to be bought and as we have reported a fair proportion is good quality; so if the clearance rate and Bidderman is strong (over 70% clearance rate and say 2 for Bidderman) then this last week or two is more an aberration (influenced by stock quality) than a trend. However a lower clearance rate and/or dropping Bidderman and we will be forced to consider the possibility of a market mood change or a turning trend for the Top End.

Quoting to Buyers

Most results are being reported - except from time to time Kay and Burton’s and RT Edgar’s in South Yarra and Toorak – the Top, Top End. Fair enough if it’s tactics, but it’s good to know when looking at market trends – you don’t have all the results. Maybe things are a bit light on as this very public quoting war continues. Personally our dealings with both these agencies have been very good in recent times and we have been given accurate information and advice particularly by Kay and Burton for a long time. An increasing number of buyers are saying the quote on the phone is very different to the quote at the inspection; which is different again to the opening vendor bid and then different again to the reserve on a non buy. Hope you can reach a truce soon.

And please we are not just singling these agencies out; our company has a high level of respect for Boroondara agents; Marshall White, Jellis Craig and Fletchers and others but in a number of instances they still quote (in our opinion) inappropriately to buyers; notwithstanding they are working for sellers and the market has been hot and not always easy to predict. Why not explain in more detail the vagaries of the current market when you quote a figure to a buyer and what that figure you are quoting may represent.

Where are they getting quoting right? We think most Bayside agents have got it right at present and in particular, Hocking Stuart across the board, seems in our opinion to be making a fairly consistent effort to quote helpfully to buyers. We still strongly support Benmac’s reserve within the quote and most of the public information we have seen Buxton and Hodges put out corresponds with what we would, as buyer agents, say is generally helpful quoting.

Not easy at present and you cannot expect a perfect record in quoting – at times as buyer agents we get it “very wrong” in this type of market. All you can ask for and should expect from professionals is best efforts; not less than best efforts. An old record but a goodie and I digress.

Just another simple $3 million auction. Why would I need a buyer advocate?

As we said above the $3m market was strong this week in terms of numbers bought and sold. Specifically in the last week around this $3 million mark we bought:

• an off-market property, in the Diamond K of Brighton, for just below $3 million;
• a new home, also in Bayside, bought pre-auction, for just below $3 million; and
• a Boroondara home, bought in a boardroom auction before auction, for just over $3 million.

People often say “It’s just another simple auction. Why would I need a buyer advocate?” Well, let me share with you some of the frenetic 17-hour period that led up to a purchase of the Boroondara home yesterday, which will show you that an auction can be anything but simple and just how much planning and effort is needed to bring off a successful purchase.

Thursday, 9pm: A text message informed us that another party had put in an aggressive, but acceptable, offer for the property and it would be sold.

10.15pm: We quickly got the ball rolling, with conference calls between our clients, our architect, managing advocate and myself. Two calls to the agent (interrupting his viewing of The Footy Show), contact with a pest and building company, and emails to lawyers asking for urgent reviews.

Friday, 5.30am: A late night led into an early morning checking emails confirming pest and building and plans for all key advocates.

7.30am: On-site meeting at the property after we informed the selling agent there was a high likelihood we would compete. At the property, we confirmed land size  (we cannot understand why so many people do not measure up before purchase – the occurrence of major differences between represented amounts and actual bought land is common), looked at renovation options, rechecked our comments and ratings and talked with our clients.

8.30am: Adam Woledge prepared rough drawings of potential renovations. Adam is a very useful man to involve in short time-frame decisions because he is an architect, a licensed buyer agent and still actively involved in the processes of building and renovating – eg in 2009 he oversaw million-dollar rebuilds, new builds and renovations on behalf of our clients in suburbs as far apart as Canterbury, Brighton East and Glen Iris. Questions Adam and the clients discussed included whether there was a good chance the renovation plans would  get through council, and how heritage overlays could affect the build, setbacks and ballpark costings. These are all tough questions that need realistic advice before purchase, not post-purchase.

While talking through possible alternatives with our clients, we were also making sure that the decision (theirs) was definitely what they wanted to do and that overall it was a good decision, emotionally and financially for them to make. At this stage, very little of the talk was about money.

9.30am: Over coffee, eggs and gluten-free toast, we reached consensus with our clients that we would do battle (for want of a better word) today.

We knew this was going to be a tough fight, as the acceptable offer was strong (above the quote) and above what we would have offered pre-auction without proven competition.

10am: That consensus meant pest and building inspections (which were on standby) were completed.

11am: Last-minute preparations included legal checks; contact with council re known building applications for neighbours; opinions from other selling agents; negotiations of extended settlement terms; and the organisation of deposits, cheques, somebody to sign etc.

10.30am to 12.30pm: Our senior advocates discussed possible bidding strategies. As both clients worked full-time, we could only reach them over the phone to discuss and agree on strategies.

11am to 2.15 pm: Our lead advocate set about trying to get a handle on timing and process, both of which changed three times in as many hours.

I personally don’t know how buyers without assistance can keep focus and make good decisions while full of emotion and adrenaline. I have to bite my lip quite often and keep focussed and I’m little more than a bit player with minimal emotional involvement.

2.15pm: For whatever reason determined by the vendor or vendor’s agent, we were informed a boardroom auction would take place at 2.45pm (that’s 30 minutes time!!!) in the agent’s offices. Our client and advocates, who were in the city, Brighton and Williamstown, urgently dropped their other business and made it in time.

2.45pm: After a slightly prickly start, the auction was conducted within the stated rules; a specific strategy was applied against an aggressive, but fair, opposition and our clients were lucky and brave enough to be the purchasers.

4pm: Signatures, a champagne, a welfare check phone call and we all slipped back into our family lives. Our clients have interesting times ahead.

The point of this example is not to say we will always buy if you hire us (we don’t – the opposition may have well-prepared buyer agents representing them, or our clients don’t have, or choose to have, the firepower needed to buy). The point is to show you that there is so much more involved in a supposedly “simple auction process” than people believe.

The property mentioned was meant to be sold in a “simple auction” in a week’s time but events quickly moved ahead of that plan.

In conclusion: None of these around $3 million purchases we made this week were “simple auctions”. It’s our boring, often repeated but true, statistic: of the 68 homes we bought last year in this price bracket less than 1 in 7 were bought under the hammer within 20 per cent of the initial agent’s guide price.

Facts are facts – will you think about engaging a buyer agent afterwards or before you buy?

Buy well

Mal

Who is James Bidderman?

Each week we attend and report on a wide range of $million plus auctions from all around inner Melbourne. As part of our auction coverage, we collect valuable information and use it to form opinions on the state of the property market. You might like to think of them as Key Performance Indicators. We use these and other patented indicators when we assess property for our clients.

One of our trademarked demand indicators is James Bidderman. He carries a score which indicates the strength of the market in each of the councils we cover. This score is an average number of bidders per auction. We have James Bidderman scores for each council individually and also inner Melbourne as a whole.

Eaglemont, 31 Hopetoun: Not everyone went to the races as Stewart Oldmeadow of Miles pushes five bidders to a very solid and sold $1.51 million.

It is 6pm Saturday and the James Auction Clearance Rate on the 20 $1 million-plus properties we attended and reported on today was 55 per cent. If you exclude the three sold befores, then, at auction, we saw a 23 per cent clearance rate under the hammer. Wormie the Price Worm is to the right and Bidderman today was at two.

Today the market was subdued, which was to be expected after the frenetic activity of October, the lower quality of today’s offerings, the break for the Melbourne Cup and the forthcoming big choice million-dollar-plus Super Saturdays of 21 and 28 November. However, it was not expected to be this subdued and only time (eg next 48-hour mop-up) will tell if this is a blip (probably is) or a trending change.

Melbourne Cup weekend was a welcome break for many in the industry and allowed some reading and thinking time, the combination of which became the catalyst for this week’s Market News.

When buying properties 25 years ago, I may have thought differently, but, in the past 10 years, buying family homes has become a peaceful and enjoyable process in all but a few instances. As you get older, you hopefully get wiser, and I really do believe that buying a home is one of the most important decisions an individual, couple or family makes.

If you can get this decision right, both emotionally and financially, then you are a long way towards a happy life. If you get it wrong or, more importantly, continually get it wrong, you have given your life happiness a bigger handicap than any Melbourne Cup topweight ever had (my one and only gratuitous reference to our unusual holiday). Yes, financially you need to get the cashflow, risk and growth issues right but let’s put that to one side to revisit another day.

Let’s look instead at the human, spiritual, personal, feng shui, lifestyle side of buying – call it what you like. We have always called it the emotional side of buying a home.

How do you buy a home well EMOTIONALLY? How do you get in touch with what is really important?

How do you be, or become, an ENLIGHTENED BUYER?

Well, first, we have found that there are misreads, false gods and traps for young players that lead to many buyers getting it wrong. And getting it wrong emotionally can be a huge burden to an individual or a family.

Examples of getting it wrong:

• Buying on a busy road because it seemed a nice home, only to find you are sensitive to noise. In time, that noise starts to eat away at your sanity – it’s always there in the background.
• Buying a lifestyle home in the country when the kids are young, only to find that, as they get older, they need schooling options not available or you need better access to medical facilities, and a return to suburban life is now not possible, as the market has moved well past your available resources because your lifestyle home has not kept pace with inner-city prices.
• Buying a home as a stop-gap, only to find that it has mentally shifted your focus and, all of a sudden, the five-year-old is now 13 and, before you know it, of voting age and the dream family home timeframe has passed you by.
• Buying an investment property on a whim that becomes nothing more than a millstone around your sagging neck and the lifestyle it was meant to create was instead emasculated by the purchase. A double mistake – bad financially and emotionally.
• Buying a home that feels good, only to find six months later that it doesn’t anymore and now you, as a couple, are losing confidence in your abilities to make the right homebuying decisions going forward – meaning you are not clear why you bought and you are not clear why you don’t feel comfortable in it and you are becoming more confused as to what will actually be a good buy for you.

Emotional feelings about homes are so powerful because they are instinctual – they are the same for us as our ancestors, even the prehistoric ones: security, shelter from the elements, privacy, nesting and so on.

Getting these decisions right is not a matter of a mortgage check from your bank manager whose name you never know or analysing the market until you do actually notice that your navel could benefit from a waxing treatment. Getting these decisions right is about so much more than this.

We take our clients through what we call our CAN process – Clarity, Assess and Negotiate. It covers what you could call the Six Stages of Enlightened Buying:

1. Connection with oneself.
2. Connection with the family.
3. Connection with home.
4. Information assessment process.
5. Make quick decisions slowly and slow decisions quickly.
6. Negotiation without being ruled by the fear of loss.

Clarity

1. Connection with oneself

In a busy world, one day you’re 30, the next 40 and a week later you are 50 years of age – or so it seems. You don’t seem to have the time or you’re stressed or you’re focused on the day-to-day matters of family survival. Some married poorly and the rest of us got lucky. You’ve got a “to do” list longer than …………… When was the last time you meditated, sat down and took a deep breath, or just thought about when you were six and walking home from school hoping that the Sunny Boy you were madly sucking on was going to reveal a free one? What makes you happy – are you listening to yourself – do you know how to?

2. Connection with the family

If there is one thing that annoys me about our industry, it is the ability of our job to become all-powerful in the minds of all of us who work within it. It is such a brilliant job that, at times, it can become the master and, if you are not careful, it can fracture the most delicate of relationships – those with your family. I am sure it is the same in many other important professions. What do your family and your children really want and what is best for them? They might want more time with you. which means less time at work, which means the ability to only service a lower mortgage and therefore a different position or property.

3. Connection with the home

Happy Wife = Happy Life; the woman has 97 per cent of the vote; it’s got to feel right. These are truths, absolutes, facts. It’s not marketing dogma. And it is not kitchens with granite benchtops that provides that long-term happiness. It is your sense of community; your attachment to the area; amenity, space, light, flow and, OK, a shed that has the greatest influence on your longer-term happiness. The fabric of what you buy and the mosaic of where you live are so, so important.

Assess

4. Information assessment process

This is where many monks, nuns, priests and the rest of us falter in the homebuying process. We’ve become new age, we’ve connected with our inner self, bought a Prius, enrolled in yoga classes and subscribed to the grassroots magazines. We’ve connected – no probs.

But, first day out, we looked at 10 homes, met 12 agents, collected 41 pieces of paper with 358 individual facts on them and we are now not interested in a home with four bedrooms for us and the three kids. The new priorities are hydronic heating, room for a third ensuite and the Tideway precinct because that has better growth than the streets between High and Hill Roads – well, that is what we read in the paper, heard from the agents and saw when we went through the two best homes of today.

We’ve lost focus on our plans and dreams at the first hurdle. Next week, next month, even next year for some, you may have very different homebuying priorities from now and, while it is natural and sensible to modify plans, dreams etc as more information comes to hand, it is also critical that you follow a path to the promised land and you don’t get stuck in a swamp along the way.

The Ratings process is what we use but you could use a simple plan and  checklist. The big questions to which all information should be pinned to are: is this good, right, best for you, your partner and your family NOW and will it also be that way in five or 10 years? Or, in five or 10 years, will this purchase give me good options if my circumstances have changed?

5. Make quick decisions slowly and slow decisions quickly

Huh? Part of our role is to get ALL the relevant information to you, the buyer, in a timely manner so you can have as much time as is needed to make good decisions. You can make good decisions in a week if you have been through the right processes and have ALL the information and some peace and quiet and a good mental framework. As time goes on, and your experience builds, or you hire in some help, you can make better decisions within 24 hours. One day becomes ample time to make the right decisions slowly but in quick time; and, finally, if the support network for you and your family is a good one, you can make the right decision, not a lucky decision, in several minutes and still have the feeling of having had ample time to reach it.

We are big believers in Slow – very big believers in Slow – very, very, very big believers in S-L-O-W. It’s just that sometimes you have to do it quickly and it has to be right. You need to put the time into the decision while others whom you trust are helping you to gather the information and prepare comments on your options. For all that we say about there always being another home or another girl, sometimes your only opportunity was at that dance in that dance hall on that night and you needed to have given it your best effort when asking her out.

Negotiate

6. Negotiation without being ruled by the fear of loss

This is something I have come to really understand in the past few years when working for clients with far greater wealth than myself. These people are Price Buyers. Now, by price buyers, I don’t mean stupid people or chisellers who continually are bridesmaids or snatch defeat from the jaws of victory by losing a deal or could get a deal at X but then spend the next however long it takes to lose the deal by trying to get it at X minus $5000.

And I don’t mean buyers who only look at “cheap” – you know the 40-per-cent-off-sticker-price guys who find out that their “cheap” was in fact crap and that crap five years later has turned out to be very expensive indeed as their cheap buy has grown 3 per cent (whoops, of course, with a tax loss) while others have seen their purchases grow 75 per cent and they are living in them as well.

No, a quality price buyer is not a chiseller per se, not a discount-to-sticker man or woman. No, a quality price buyer is one who can understand their needs, assess the information and make a decision. That decision for a price buyer involves a clear statement of good value, acceptable value and poor value. It’s a clinical decision and usually a very firm one. From that solid platform, an enlightened  price buyer assesses risk v reward strategies – eg the lower you offer, the higher the reward if successful but the greater the risk of failure to purchase and so on.

These price buyers have clear stop prices and while their “faults” are
(1) occasionally caught up in the minutiae of the deal and
(2) occasionally emotional blindsiding and
(3) lack of tact,
they do seem to be able, more often than not, to negotiate better than many “emotional buyers”.

While they want to buy it and, in some cases, really want to buy it, price buyers are not scared to walk away when it gets stupid and they are prepared to take sensible calculated risks knowing that if not this one then, in all likelihood, there will be another. This attitude has a certain karma about it and, in my opinion, is an enlightened one.

Their attitude is, sure ask the girl out at the dance and offer to buy her dinner but, hey, if she is not going halves on the petrol then there will be another girl at another dance next time.

Enjoy today, be happy, have some green tea and

Buy Well

Mal

Bentleigh: 22 Yawla. Nick Renna - Mr Dynamo firing up a huge crowd of 100 to a 4 bidder final result of $1,065,000.

It’s 6pm Saturday and the James Clearance Rate for million-dollar-plus auctions is 68 per cent on the 19 auctions we attended today.

In this week’s Market Wraps, we are most appreciative of the time and effort Scott Patterson of Jellis Craig (Boroondara), Iain Carmichael of Bennison Mackinnon (Stonnington) and David Hart of Buxton (Bayside) put into answering our Market Wrap questions. As this weekend is a quieter weekend, with weaker homes and land sales and smaller turnover, we thought the focus should be on a Q&A with quality, key agents on what to expect between now and Christmas.

Please note Chinese translation pdf to the right of this article.

But onto our Market Insight. Buyers – a time to perhaps keep your head?

We think the hot topic of today is definitely buyer panic. You can see it at auctions, you can hear it in buyer voices at opens and you can feel selling agents are thinking we are back to 2007 buyer mindsets.

As a buyer, you can panic if you wish; that is your prerogative, but there is no need to do it and there is no value add for you, the buyer, while you are in that state of mind.

Yes, the market has moved and, yes, it is still rising and, yes, it is hot. Many credible agents have been advising for some time that “now” was a good time to buy – that “now” was last year and early this year – that “now” was five years ago. We are at another “now” – now. So is it a good time to buy or should we throw up our arms and say it’s all too hard?

Look, why not throw up your arms and give up? Or why not just go and buy something – anything – just something to get off the treadmill of inspections, bid and miss.

Why not? Because such a decision could lead to a lesser, unhappier life for you and your family.

When the pressure’s on, when – to use sporting parlance – you are in the premiership quarter or, if you are a golfer, when you are on the back nine on Sunday, or, if you run marathons, when you hit the wall at the 36km mark, when the real pressure is on, do you achieve anything by giving up? No. The “winners” are those that can keep their head and make good decisions under pressure.

And there is no doubt that buyers in the $1 million to $4 million range in Inner Melbourne are under considerable pressure right now.

So let’s look at the pressures. Let’s examine what is happening in the market and then let’s look at some practical solutions.

Pressure No 1: Overseas Demand: Scott Patterson from Jellis Craig (the full interview, full of interesting insights, is in our Boroondara Wrap below) pointed out broadcaster Neil Mitchell’s article in the Herald Sun examining our population increase as reported by the Bureau of Statistics. (It was a good article: http://www.heraldsun.com.au/opinion/how-many-is-too-many/story-e6frfhqf-1225780951508). But let’s move on from the article’s point as to whether we should be encouraging population increases. The fact is that we are actually having migration increases, have been having them for a long time and, from all reports, we will continue to do so for decades. Population is the key to Demand and Migration is the key to major price shifts (new ideas, new money, new price levels). So what evidence can we see of this in the market? The clearest evidence is at auctions (if you attend them) and statements from Marshall White and Jellis Craig that 25 per cent of their sales over a million dollars in Boroondara (Hawthorn, Kew, Canterbury) are to Chinese or Asian buyers.

Pressure No 1a: Local Demand: We are experiencing a mini baby boom, more family homes now, and, in 20 years’ time and beyond. That will put more pressure into the housing market. But, right here and now, local demand is very strong and that is best evidenced by the fact that, despite the world being in the greatest recession/depression since the last depression/recession, there is genuine talk of interest rate rises in Australia from Glenn Stevens of the Reserve Bank. This, in our opinion, proves that people are feeling good, acting on it and this is shown locally in, say, Bayside (Brighton) where there are some overseas buyers but nowhere near the same extent as in Boroondara (Kew, Balwyn etc); however the Bayside market is buoyant and also rising steadily and, while not at the same level as Inner Eastern, is fast approaching the 2007 price peaks and will, in all likelihood, surpass them before Christmas. Bayside demand is still largely driven by local buyers.

Pressure No 2: Supply: While right here and now in early October 2009 we are seeing some good supply, this, according to the best advice from selling agents, is a small window created by the Melbourne sporting and religious calendar. In Spring, there are three key weeks for stock: the first week in September (to get it sold before Grand Final), the first week in October, after Grand Final (to get it sold before Melbourne Cup), and the first week in November, after Melbourne Cup (to get it sold before December and Christmas). This week, we have experienced the second of the three one-week bursts and there were literally hundreds of homes brought onto the market in the past week. However, there will not be that number next week or the week after. We are in an overall low stock environment right now and that is confirmed by figures such as from Scott Patterson of Jellis Craig: year to date Jellis Craig in 2007 – 909 auctions; YTD in 2008 – 794 auctions and YTD in 2009 – 700 auctions. Marshall White, the other dominant Boroondara agent, reports similar drops in activity. It is the same in Stonnington (Toorak, Malvern etc) and Bayside (Brighton to Albert Park).

Why is this happening?

Three key reasons:

1. Overseas buyers find it easier to buy than last year and do not have another home to onsell. Increased demand and reduced supply.
2. Local buyers are buying homes for their future generations. Increased demand and reduced supply.
3. We are an increasingly wealthy society and homes are seen as a store of wealth and many can afford to hold multiple homes as investments. Increased demand and reduced supply.

As an aside, reasons one and three are actually encouraged by government through FIRB changes and the negative gearing tax regime.

Adam Smith, in his book Wealth of Nations back in the 1700s, said, and we, as agents, witness this every day; when demand goes up and supply goes down, then price, without artificial interference, will also go up and the stronger the demand and the weaker the supply, then the greater the price increases across the board.

So, for buyers, the pressures are very real. But you know that.

On top of these pressures, buyers who read and listen may also be influenced by commentary, some of which is not necessarily well informed. These comments, while well meaning, can also spook “panicked” buyers into changing course.

Remember the doomsayers of last year? Well, the world didn’t end.

Equally worrying can be seemingly well-informed commentary such as an article I read recently by Tim Lawless from the respected RPData. It stated “That capital growth apartments are virtually on par with detached houses … This puts to bed the myth that houses appreciate at a faster rate than units.” (See http://www.realestate.com.au/doc/Resources/News/tim-lawless-units-versus-houses.htm).

While by some statistical twist this may appear true, in practical terms we strongly disagree that this is a helpful or relevant comment in Inner Melbourne. And these sorts of statements may encourage the wrong buying action.

Across the board in Inner Melbourne, the above statement is not true and, in fairness to Tim, he may not have meant it to be read in such context. Also in fairness when you look at the reported $15m paid for the Melburnian Penthouse this week through Ross Savas of Kay and Burton, or you just look at the incredible growth in some bottom rung 1 and 2 bedroom apartments in say Hawthorn recently, you may correctly argue that some apartments are money spinners. And finally it is fair to say that a small number of investors dealing in multiple apartment purchases with very sophisticated purchase and “flip-on” or purchase and hold strategies have made excellent returns. But overall if the article was meant to imply that apartment buying was the almost the same as home buying in terms of capital growth ceteris paribus (with other factors being equal) then we find the article not helpful and therefore we feel these sort of blanket comments, around one selected statistic should be qualified a lot more than what they are.

Labouring the point a little, yes it is true that there are some well performing apartments (yes, we buy apartments) particularly in the suburbs, particularly low rise and particularly brilliantly located ones. So, yes, some apartments have performed very well BUT there are vast numbers of apartments out there that have been investment dogs (for all except the developer) and, if these sorts of articles encourage younger people (who can afford to buy either land or apartments) to buy apartments instead of well-located land as their new family home, then it is doing a great disservice to those people if longer term financial outcomes are important in their considerations. I will leave this for another day, but I ask the question: what about resales v new apartments in the RPData figures? What about Docklands, St Kilda Road, half of Port Melbourne (eg the big blocks not on the beach)? What about suburb by suburb comparisons, such as below?

Government – Valuer General Median Prices:

Hawthorn

2003 Homes $662,250; 2003 Apartments $313,700

2008 Homes $1,292,500; 2008 Apartments $372,000

Five-year increase homes – 95%.

Five year increase in apartments – 18%.

Toorak

2003 Homes $1,450,000; 2003 Apartments $430,000

2008 Homes $2,600,000; 2008 Apartments $560,000

Five-year increase homes -  79%.

Five year increase in apartments – 30%.

Brighton

2003 Homes $886,000; 2003 Apartments $475,000

2008 Homes $1,550,000; 2008 Apartments $590,000

Five-year increase homes -75%.

Five year increase in apartments – 24%.

Port Melbourne

2003 Homes $560,000; 2003 Apartments $475,000

2008 Homes $775,000; 2008 Apartments $478,500

Five-year increase homes – 38%.

Five year increase in apartments -1%.

Do these figures prove we are right and Tim is wrong? No, we respect the work of RPData, and we use their stats. What this proves is that figures can be made to say anything. Practically speaking, and all things being equal, we would encourage all young buyers to think position first, land second and building (apartments) third. Of course, with spousal approval being even more important than position. If your buy is more than emotional, consider land before apartments, if you can afford it.

Wars are not fought over apartments; they are fought over land. And finally with any data analysis (including ours), if you throw enough ingredients into every different soup, then they all taste the same.

Please don’t panic and change course or just react to a headline because you are under pressure!

But I digress. Continuing with Buyer Pressures which are real and increasing. Do you give up or make poor decisions? Is your case hopeless?

Practically, let’s look at a sample of what we have bought in the past month of September. These homes are worth a million dollars or more.

Northcote (Jellis Craig): couple who wished to move from Outer Melbourne, considered Kew etc and then decided the Fairfield area was more affordable. Great purchase at auction: a lovely renovated period home, with good land content, near shops and Fairfield station. Over a million.

Toorak (Marshall White): Over $2 million, this home had been sitting around for months and months with several agents as well. With $300,000 spent on cosmetic renovations, this home will be simply stunning and will have made up for any market movement in the six months it took to find. Land content more than 70 per cent of the price. We love quality stale properties when the market meets the asking price.

Sandringham (Biggin and Scott): Lovely family home bought at the second attempt to buy for around a million dollars. Good position, street, land content and north-facing rear.

Brighton (Kay and Burton): Family home twice offered, bought after four weeks of negotiations for a fair price to both buyer and seller. Good selling agent work. Over $2million.

Canterbury (Marshall White): More than $3 million. Block of land in Canterbury’s Golden Mile bought after two previous attempts for this client. Great land.

Balaclava (Beller): Off-market: Great initiative by buyer who found the home with a letterbox drop and then asked us to negotiate with the appointed selling agents. Robust but pleasant negotiations and a fair price to both parties. Great land and well done to buyers who did something different but then were smart, not cute, when it came to doing a deal. More than a million dollars.

Hawthorn (Jellis Craig): Off-market: Boardroom auction. Flexible buyers who had tried with us to buy three homes before – kept their nerve – adjusted their PPP (Price, Property and Position) and still bought in a good location with a reduced budget and it’s still a good solution for an expanding family. Over a million.

Hampton (Hodges/JP Dixon): Over $2 million. These clients had been looking for more than two years (with us). Saw it and we bought it pre-auction. In one of Melbourne’s great locations (Hampton Beach, Railway, Shops and Brown Cow). Good land and a brilliantly designed and built home.

South Yarra (Hocking Stuart): Over $1 million. This was the clients’ second attempt with us, but they stayed true to what they wanted and could afford and just shifted suburbs a little. Good land content.

But, please, we are not claiming a perfect strike rate – a sample of where we missed at auctions. Richmond, Camberwell, Surrey Hills, Glen Iris, Mont Albert and Malvern during September in various $1m to $4m price brackets.

Our point is that the successful buyers didn’t give up (not even after two years) and still bought sensible (yes some strongly priced) well located, good land content, workable floor plan properties.

It’s not the price now (within some parameters), it’s the quality of what you buy that will protect you into the future.

Please for young people in particular (if you haven’t nodded off) all of this is to encourage you not to panic, but to stay your course and to not jump at shadows. The market will not be easier in the future; it will be harder – act now (if it makes sense – if not keep looking till it does). When you act do so with streetsmarts. Don’t bury your head or just buy or, worse still, buy crap. Think!

1. Understand clearly what you want emotionally (room for future children?) and financially (growth for your next purchase?) both now and in five to 10 years.
2. Make a plan and, in that plan, understand the value of land content, happy wife and happy life, floor plan flexibility and position.
3. Act on that plan with an accurate assessment of your needs match and values.
4. Negotiate to buy well, not buy poorly or just keep missing out.
5. While understanding that selling agents work for the vendor (always), we would still encourage you to listen to quality selling agents that do tell  truths. We learn more off them than any other group of property professionals.

Finally, we know you are under pressure. While it is almost always better to miss an opportunity than make a mistake, sometimes continually missing good opportunities becomes a mistake.

If all else fails, ring us.  We may be able to help you achieve your dream.

Apologies if it’s sounding like a lecture – we are genuinely trying to help.

Stay cool, buy well and be brave (at the right time).

Mal

PS We all really enjoy the people that come up to us at auctions and open for inspections. It’s good to meet you.

The Not So Old Gun? Tim Fletcher: Are Fletchers becoming the Top End third force in Boroondara? Kew: 10 Vista: 200+ people. Five bidders: Sold $3.936 million.

It’s 6pm Saturday and the James Clearance Rate for million-dollar-plus auctions is 84 per cent on the 25 auctions we attended today.

The market today (Saturday) was again very, very strong. In fact, this is one of our biggest ever clearance rates for $1m+ homes. This, despite stock increasing and interest rate talk. Still two big weekends of auctions to come before Collingwood’s premiership and Bidderman is steady at 2.2 bidders per auction. Supply is up, demand now obviously hasn’t missed a beat and subsequently prices are reflecting that. The stand-out result was Kevin Sheehan’s 10 Irving Road auction – a small sub-500 sqm block had two ferocious bidders fighting it out to more than $3.5m or $7771 per sq metre. Where is this going?

This week we have featured the portrait work of one of our best auctioneer photographers, Julia Atkinson. Most of the bigger pictures are her work today.

A number of buyers and clients now use our James Full Ratings system to help them answer three questions:

1. Is the home right for me?
2. Is this a good home and what does the market think of it?
3. How much?

What have we learnt over the years and what are our thought processes behind the Ratings system?

Introduction

Nobody can predict with complete certainty the behaviour of each individual buyer or seller in a property exchange. However, it is possible to predict with a high level of certainty how large groups of human beings (market) will react to a home.

That is, there is a body of facts or truths that, when systematically analysed, show the operation of general laws with regards to home exchange. It is therefore a science as medicine is but, arguably, not a pure science like mathematics is.

The Science of Property has laws. We have based our Ratings system and CAN process on those laws.

These are those laws as we see them.

Law One – Outcomes

Home Ownership or control has two Human Outcomes:

• Emotional - a place of belonging.
• Financial - a store of wealth.

Law Two – Characteristics

A home has three main characteristics. The 3Ps are:

1. Property (eg building, land size).
2. Position (eg near CBD, street).
3. Price that is asked or paid.

Law Three – Position

Position is the single most important characteristic in determining financial and emotional outcomes

Law Four – Property

• Building and land characteristics can have a major effect on an owner’s emotional outcomes through light, space and flow.
• Financially, the building characteristics are an integral part of cash flow, as the land characteristics are the key to growth. Building and land can be diametrically opposed in terms of longer-term value.

Law Five – Price

Unless the transaction is a major distortion from the wider group (market), then price, while thought to be the most important, can be the least important characteristic in a longer time frame with regards to maximising financial and emotional outcomes.

Price is a reflection of two opinions: the buyer and the seller matching expressed opinions at a particular point in time. They are often (but not always) influenced by a wider group of opinions (the market).

A buyer has flexibility of choice on all three property characteristics; a seller only has flexibility on one characteristic – Price.

Law Six – Emotion Outcomes

The nesting instinct/comfort felt by the owner(s) in the home’s characteristics is the key to long-term outcomes.

Law Seven – Financial Outcomes

Price growth, through its compounding effect, is the key determinant of financial outcomes.

Cash flow and risk are the riders.

Law Eight – Relationships

There is an interrelationship between owner’s outcomes and property’s characteristics.

They are different for each property and owner combination. However, across large populations and over long periods of time, owner outcomes matched with property characteristics fall into predictable patterns.

Law Nine – Control

People who “control” or own properties generally have better emotional and financial outcomes than those who do not.

This is true of individuals, as well as of whole societies.

Law Ten – Time

Time does not create equal financial and emotional outcomes for all.

Time magnifies the quality of the owner’s decision (good or bad) in relation to the property’s characteristics (good or bad) and therefore, ultimately, the owner’s outcomes (good or bad).

This we call the Gap Law.

Law Eleven – Demand and Supply

Across a wider market, home prices will rise (unless artificial controls are in place) if buyer demand exceeds seller supply, and home prices will fall if seller supply exceeds buyer demand.

Law Twelve – Migration Demand

Overall population is the key determinant of demand and migrants have the greatest influence on change.

With new migration comes new opinions and those opinions are reflected in price, which ultimately establish new market price levels and requirements.

Law Thirteen – Land Supply

The most consistent long-term determinant of supply is land content; that is, the combination of the land’s characteristics: size, position and allowable use.

Land’s improved value, eg buildings, and available money supply are other supply determinants but they do not have the level of long-term effect that land content has.

Law Fourteen – Risk

Risk (things not happening as planned) is increased with poor property characteristics; however, it is not isolated to the 3Ps.

It also rests with the owner’s characteristics (cash flow, debt, family and physical etc).

Risk and outcomes are determined at the matching of the property’s 3Ps and the owner’s characteristics.

Process

To best match an owner’s outcomes (financial and emotional) to a home’s characteristics (price, property and position), we have found that the following process works. You may, of course, have no process or a different one.

The CAN process:

1. Clarity
2. Assess
3. Negotiate

And  the Tools we use:

• My Home Score
• Home Ratings
• Control Price

We do appreciate people coming up to us at auctions and, yes, we do enjoy putting this together and the input we receive from the public and our clients. If you think the above rules makes some sense, we missed something or is a load of old codswallop, then we are always happy to hear from you.

We can forget happy wife, happy life for one day – happy father’s day tomorrow.

Mal, Adam, Kris, Grant, Eddie and Melinda

Hawthorn, 10 Hawthorn Grove: Auctioneer Jeremy Fox in action probably claiming he was not here for his looks, so why not bid? Opened with a vendor bid of $2.1 million but was unable to entice any interest from the crowd and the property was passed in at t

Camberwell, 17 Doonkuna: David Gilham conducted this auction in front of around 80 people (inside). Opened at $1.3 million, on the market at $1.5 million and sold above this amount for an undisclosed price. Five bidders.

312 and 314 Cotham Kew: a big parcel of land sold through Walter Dodich of Marshall White for $3.42 million or $1800 per sq metre on just over 1900 sq metres, which does appear to show that, in this case, on Cotham Road you get a significant discount per sq metre for land on a main road. Marshall White also sold 61-63 Alfred St Kew (just behind and 2,256 sq metres) back in May at $2174 a sq metre. The discount argument works if we assume the buyers placed no value in the period home on 61-63 Alfred St Kew then and we think that was close to the mark (even though it had a beautiful façade, you could bulldoze it) as $2200 to $2500 was/is the going land value for the Sackville Road Kew precinct.

This, initially, in our mind emphasised the very strong result last week at 103 Mont Albert Road Canterbury with Peter Smith of Jellis Craig, which seemed to be at $2400 per sq metre. Why? We think that part of Canterbury and Balwyn is regarded by the market as similar to the Sackville Road precinct. However, with further examination, this means two things: Mont Albert Road, which borders the Reid Estate and is maybe 2km away, is leafy green but still carries a lot of traffic, is regarded as a far less offensive main road than Cotham Road Kew; also that we may have underrated the value of the 103 Mont Albert Road home at say $400,000. If we say the home value of 103 Mont Albert Road was worth $800,000 last week, then that brings land on Mont Albert Road back to say $2100 per sq metre, which makes a bit more sense, as good land seems to be worth up to $2500 per sq metre in the area, except, for say, Golden Mile streets (not main road) such as Monomeath and, therefore, Mont Albert Road land is at a discount.

But before you say “You idiots, of course the house at 103 Mont Albert was worth more and land less”, then technically we could say then that 61-63 Alfred St Kew had a home worth say $1 million. In the past, there has been more inherent value in period (61-63 Alfred) than dated recent homes (103 Mont Albert). If that was the case, then back in May, 61-63 Alfred St Kew sold for $4.83 million, less $1 million for building, and that leaves the 2256 sq metres valued at $1700 per sq metre.

The market was really starting to move in May, so maybe the Cotham Road land sale of this week of 1900 sq metres was at just a 10 per cent discount to the Alfred St sale and maybe the 103 Mont Albert Road sale was at a slight discount to the area land values. Certainly, the land in Mont Albert Road is regarded as being significantly better than on Cotham Road. This is a relief, because we always thought that was a given, but now we are being forced to put more value onto basic buildings with a changing Boroondara market.

If you accept the argument that there was a lot of value in Alfred St’s building in May, then the land at 61-63 Alfred St Kew was incredibly cheap against other Sackville Precinct sales (eg Ross St Kew at $2500 per sqm); or was it at a discount because of its size – another historical trend – bigger the land, fewer bidders, lower prices. (Although there were six bidders at Alfred St.)

No, personally, I think the Alfred St land sold around $2000+ per sq metre then and that means the home value was $0 to $400,000 max (it needed a huge amount of work and I think the value was limited because of the scope of work needed rather than it had a lot of building value because it was beautiful). So Cotham Road with tram line did sell at a significant discount, which is what we have come to know over the years.

What we are reassessing are dated home building values and I don’t know if any of us have got it exactly right yet. Prior to this year, the market placed little value in these sorts of homes; although our company was always keen to buy them because the clients (eg young families) were getting an OK floorplan and a free home (buying at land value – 90%+ land to content value ratio).

Now things are different in Boroondara and this does make some sense, as the Boroondara market has substantially changed this year with money from mainland China, and Chinese buyers view land and buildings through different eyes and are forcing market changes to values of not only land but now possibly buildings.

If Chinese money is a long-term thing, then those in this market will need to look at values in a different light. You don’t have to like the offerings, it’s just you will need to understand what they are worth. It’s similar to a cassette being worth something in 1980 but now nothing, then a CD was all the rage and now its value has declined with MP3 coming in.

If Chinese money is short-term, you need to be careful you are not overpaying for something that may drop in value in a few years. Eg we had a lot of money come from Japan into Queensland in past decades which changed values, especially of, say, golf courses, dramatically.

Finally, on this matter, we are not just looking at these isolated sales above. We are using them as a highlight and they had multiple bidders. We really wanted to know why four people bid so strongly on Mont Albert Road last week and other similar homes (this has been going for a little while), as it is our job to try and interpret the market nuances so as our clients can plan better in their future dealings. If you read anything into the above words as saying we are moving away from the real value is in the land, you are incorrect. We are trying to show that pricing and values are living breathing things that change all the time and 1960s to 1980s building values may, just may, be on the rise. Your auntie may be right when she told you it’s not just the flares and orange tiles of the 1970s that would come back into favour.

106 Church St Hawthorn with Steve Burke and Richard Earle of Jellis Craig sold at auction for an undisclosed price believed to be in excess of $3.5 million. It was really a $5 million buy after reno but I love these sort of homes and the view from the tower was a highlight of my week last week. http://www.106churchsthawthorn.com/ Well done on pricing – I thought Steve Burke was spot on and didn’t seem scared to talk about what might happen and the difficulties in maybe being spot on with price. This was a pleasant change from the rubbish or non-talk that is going on in Boroondara with some agents seemingly incapable of rendering any sort of meaningful price estimate.

7 Bowley Bawlyn with Jellis Craig. Now this is an interesting one. We rated it more than 800 but some of my colleagues thought a mid-700s rating was more appropriate. I went back again and I can see their points but I followed the ratings book and still got more than 800. Anyway, to date, it went to auction and didn’t get a buyer bid at $2.4 million and I thought it was put back up for private sale around $2.6 million. I now see that it hasn’t sold, so they have put the price up to $2.8 million. That’s different, or did I miss something?

6 Carronshore St Balwyn didn’t sell and I think I know why but Peter Smith of Jellis Craig has proved me wrong many a time. Good home but it has no real street frontage and land size is deceptive with a fair bit of it in the driveway, which the market has not put much value on in the past. It will be interesting to see what numbers it does eventually add up to.

Bit of a Mont Albert Road Area focus this week.

Stock levels are up, so good hunting.

Richmond, 2 Gipps: I'm Chris Murphy and don't mess with me (please). Three bidders did not, buying at $1.878 million under the hammer. Good quote at $1.7 to $1.8 million. Good result. Good agent.

It’s 6pm Saturday and the James Clearance Rate for million-dollar-plus auctions is 60 per cent on the 20 auctions we attended but that may change by Sunday.

The market today (Saturday) was again strong across the board but crowd numbers continue to drop and there was a 40 per cent pass-in rate at auctions we attended (and higher if you remove the bought befores) – this is obviously related to the number of homes on offer. The jury is out as to whether this will lead to a price leveling, because today says quite clearly it is strong and steady as she goes, despite big stock increases. It was a shocker of a day weather-wise; well done to our photographers on getting a few good snaps and thank you to the auctioneers for allowing us to take those snaps inside.

Sunday note: The Sunday James clearance rate is now 70 per cent clearance and the norm and we’re not seeing any stat today that says the market may be leveling. Auction stock levels have increased dramatically and our Bidderman (bidders per auction) actually moved upwards. There are three big weekends of auctions to go until the footy is over and this is the real test of market depth and strength. If sellers get through this unscathed, then it may be next year or another GFC before we see any meaningful price leveling. The past few weeks may have been no more than a lull. But let’s wait and see, as a month is a long time in this market.

Markets

How do we know what is happening in the market and what do we think the market is doing? Why are markets  important to read?

We, as buyer agents, need to read markets because our clients expect us to be able to offer information on expected price, reasonable value, expected competition, negotiation strategy and so on.

To be able to read markets reliably, we have found that, for us, Bidder Depth or Bidderman is the most reliable market reader. It is, in fact, the market’s DNA. It shows healthy and unhealthy, rising and falling, strong and weak markets. And, in our opinion, it does it better than clearance rates – although we still like this a lot as a measure.

The Bidderman measure is better than how you went against agent quote or median price or other measures that are either artificially manipulated or well out of date.

Our pre-auction offers and post-auction offers rely on Bidderman data also. We keep Bidderman records on agents. Some agents have lots of bidders because they communicate well and others have smaller numbers. We also keep records on types of homes – eg Bidderman is strong and alive for family homes in Hawthorn but has gone missing on high-end apartments.

We are finding the media are now starting to talk about a very strong rising market. That was true from February to July, when people were reporting doom and gloom. We are now not so sure that the market is in a strong rising phase. Our bidder depth per property is dropping (except today) and this may be telling us that the market may be in a leveling phase, price wise. But it is still too early to call and, of course, may change direction again anytime soon.

So, just repeating: we are not saying that the market is falling in price or will fall soon, and we are not even convinced that it is leveling, but the price increase incline could be flattening after an incredibly steep rise in the past six months of anything between 10 and 20 per cent. In the case of Boroonadara, that represents a return to the peak; in Stonnington, a return to near the peak; and, in Bayside, a return towards the peak but nowhere near as strong as in Boroondara.

As stock levels increase – and they have dramatically in the past two weeks, as sellers seem to need to get their home auctioned  before the Grand Final, when all Melbourne stops to witness a Collingwood victory. Whoops! Got sidetracked – sorry! Stock level increases in the past few weeks are, in our opinion, the biggest this year, and this is having a significant effect on crowd numbers per property. We have recently been below (but above today) two bidders per auction on our 20 Auction Basket we review each Saturday. In July, we were above three bidders per auction average. By way of comparison, in late 2008, we were below one bidder per auction on average.

We need to see how the increased stock levels are taken up before the Grand Final (the last Saturday in September) and what happens immediately afterwards before we can say the market has altered course (if indeed it has). We may be just having a slight breather in bidder numbers as bidders assess the lay of the land and they may return to average more than three per auction, thus pushing up prices.

It was bidder depth that first alerted our clients to a possible market change in February 2009 and it was a significant increase in bidder depth that led us to push harder for our clients in May. It became clear the market was about to explode and it did.

There are two slides in The Million Dollar Price Worm to the right of this article that hopefully explain bidder depth a bit more of, as we say, Market DNA.

The first slide shows where we think the market has gone most recently. The gyration at the pointy end in August is meant to represent a possibly changing market. It may also represent a false point, as there is so much stock on the market and buyers are there, but are more neutral in their actions at present because they can see more stock coming on. However, they may go back to stronger bidding once stock levels are clear, take up all that stock and then demand more.

Slide 2 shows the MARKET DNA. This example is our Saturday Key Auction basket (the 20 auctions that we report on each weekend). A stronger market’s DNA in July 2009 is at the top and a weaker market’s DNA in November 2008 is below. What does this tell us? It tells the trained observer plenty and selling agents also keep records on numbers through opens, contracts sent out, second inspections etc. All are pointers as to whether to take an early offer, to run to auction, to adjust price etc. Similarly, accurate bidder depth number on markets, on specific parts of markets – eg Kew land or Malvern period homes or inner city apartments – and on agencies really help cement negotiation strategies going forward. But this information needs to be up to the minute. The line, in our opinion, is market balance. It’s very approximate but when we average between one and two, or around 30 bidders per 20 auctions, we think the market will remain even over the next short period. Above the line of, say, more than two bidders, the market is strengthening and prices should go up. Below the line, on average, the market seems to be weakening and prices should ease.

PRICE INCREASE

When there is good bidder depth, the market is strong because, if one or two bidders drop out, then the bidding is taken up by others and almost all homes sell and some sell well above market.

PRICE VOLATILITY

When the bidder depth starts to wane, there are spasmodic results as some homes simply do not have the bidder depth to push the top bidder higher or, in fact, get a deal done but some homes still sell incredibly well even with one bidder because that one bidder didn’t know the market is changing or had changed and they were the only bidder – a good selling agent was also involved.

PRICE DECREASE

And, finally, the market starts to fall across the board when everybody knows the bidder depth is simply not there.

Quoting

The heat has gone out of the issue of quoting. Why? Because there are properties to buy and lots of them – buyers have more important things to do! We acknowledge that we have changed our views during this debate. We no longer support mandatory declared reserves, just as we would not support mandatory declared maximum buyer offers (it was Iain Carmichael and Jeremy Desmier who turned us on this issue). But we are seeing a few publicly declared reserves now and we definitely think that voluntarily declared reserves is a plus. We acknowledge that there is a selling agent mindset of conservatism, which we still find hard to fathom. Why can’t an agent say something along the following: the land size of this home is 720 sqm and land goes for around $2300 per sq metre, so that says around $1.6 to $1.7 million for the land. We think this building is worth around $400,000, because people do keep these buildings, and it would cost around $600,000 to renovate to bring it up to a million-dollar building. There are renovated homes (building + land) selling in this area for $2.6 to $3 million and therefore we think that $2 to $2.2 million is a good basis to start your thinking on this particular home if you are going to renovate this building.

But, with a bit of tongue in cheek and hopefully some humour, here is a representation of what some buyers are hearing more of lately. It is a compilation of things and I have exaggerated it a little to get a point across, but it is not without some validity:

Set the scene at 12 Great Street Canterbury: picture yourself walking in the front door at a quiet midweek open-for-inspection a few weeks into the campaign and being greeted at the door by an impeccably groomed and badged agent. Below is all the agent speaking – like in a Bob Newhart or Monty Python skit.

“Hello, my name is John from agents Conti and Bostock. Can I take your name and number? Thank you, here is a brochure. Sooorry I didn’t hear the question. You want to know pppprice? Mmmm, that’s a tough question. It is company policy to not declare that. Sorry, what was that? You’d like to buy and you want to know the price? Yes, well, we are not allowed to say price. You want to offer. Are you sure? You don’t want to go away and think about it, talk to another agent? Oh, you want to offer now? Oh, great. $1,630,000 – that’s your offer? No, it’s too low. Yep, too low. You’re telling me you would like to know what offer would be satisfactory? Can’t tell you that – I don’t know it. Sorry, you want to know how I can refuse the offer of $1,630,000 if I don’t know what is an acceptable offer? Sorry, I mean I do know the price and that offer is too low – it’s just that I can’t tell you. Madam, this is unfair to ask me these tough questions. After all, I’m just the agent selling the home. I have other people to hand out brochures to and calls to make. Look, I’ll be honest, lady, this is how it is. I don’t know the price and, even if I did, I can’t tell you and that is why your offer is not enough. I’m sorry, I can’t talk to you anymore. You’re a buyer and I’m just not authorised to discuss price or buying this home with buyers. Now, next person. Hi, my name is John, here is a brochure, can I take your phone number …”

It’s like going to a coffee shop but you can’t get a coffee as the barista only makes sandwiches. The uproar was not that agents quoted – no, buyers want agents to quote – it’s just buyers would like agents to quote professionally. And, yes, buyers need to understand that selling agents represent sellers and that price is a a living, breathing thing and price quoting, even with experts who are genuine, is not an exact science. Let’s continue to ask questions of those that have gone missing, that have become so estranged from dealmaking that they can’t TALK PRICE TO A BUYER (PROFESSIONALLY).

Late, Disputed and Non-Bidding

In our Negotiation Section below, we have an interesting discussion on late and no auction bidding with expert auctioneer Phil de Fegely. This topic has had some ongoing interest, especially with Marika Dobbin’s page 3 article mid-week in The Age and I got the “interesting Market Insight Mal” comment  from Peter Bennison of JP Dixon when I was through one of his opens recently. I didn’t read this as a compliment. I read it as code for “You’re wrong on late bidding, Mal”. So I thought I’d better investigate further and, while it’s not that common at auctions (perhaps one or two deals out of 1000 have late bidding), we thought it would be good to hear the issues from an expert. Phil de Fegely coaches a number of Melbourne’s best auctioneers, as well as those who are up-and-coming. Yep, that’s right, auctioneers have coaches, go to training sessions and do courses, and yet many buyers still think they can just rock up at auction and they are taking on somebody akin to a first-day cab driver. Occasionally you are, but if it is an auctioneer from Marshall White or Kay and Burton or Jellis Craig or Bennison Mackinnon or a Phil de Fegely-trained auctioneer, you are taking on somebody akin to a skilled league footballer (granted, with a physical fitness cloud). But we digress. Phil’s Q&A and audio is below in Negotiation Corner.

Buy Well and Make Good Decisions

Mal

Hawthorn: 27 Pine Street. Maurice Di Marzio and Lewien Gallus of Jellis Craig looking for bidders but none were found. Passed in for $1 million.

It’s 6pm Saturday and the James Clearance Rate for million-dollar-plus auctions is 66 per cent on the 18 auctions we attended.

The market is gyrating and still full of some incredibly strong sellers’ results but we feel it could be turning, or at least altering the incline of its recent ascent. Why? Stock levels are definitely increasing; the interest rate talk by Glenn Stevens is having the desired effect and buyers are definitely speaking to us in a more rational tone than even a few weeks ago. Bidders and crowd numbers per auction are down. Today, Bidderman was at 1.88 bidders per auction, having peaked at 3.2 a few months ago.

Wormy (James Anecdotal Price Graph) is moving again, also we have a Chinese translation, both to the right of this article.

Are we saying the market is going downhill? No, there is no evidence of that. But there is evidence of more stock, fewer numbers and fewer bidders per auction and, if that trend continues, there will be more pass-ins and, in time, lower prices. So spring may bring some joy to buyers, with more options and less frenzied buying. Here’s hoping it does and, as we said previously, here’s also hoping this is not just a blip or wishful thinking on our part. The market does need some balance. Stay tuned.

This week, we are going to look at bidding. At the outset, it’s worth restating this truism: you need to bid to buy.

You might think this is obvious but we’ve seen some interesting occurrences in bidding at auctions in the past week and we’re trying to work through the logic or strategy behind them. Perhaps there’s a new bidding strategy that we’re not aware of?

For example, we witnessed one borderline late bid and heard about another; the one we witnessed was at 2 Cole St Brighton. Then, last weekend, there were no bids at the auction of 26 Lambeth Avenue Armadale, yet it sold post-auction after three parties became involved in a private three-way post-auction contest.

We don’t understand the thought process behind these “strategies”. As four of the six bidders in the above examples were unsuccessful in purchasing, we’re not sure if any selling agents, other buying agents or seasoned observers understand it as well.

Let’s look in a little more detail at 26 Lambeth Avenue Armadale, which was sold by Kay and Burton (Ross Savas and Andrew Sahhar). Kay and Burton have a very successful style of quoting, or pre-auction price framing, in that they don’t quote or talk specific prices. They refer instead to buyer interest and move buyer interest levels towards their target, and do it very successfully. The “quoting” most times sounds credible and we find that they make most buyers feel comfortable with their consistency and patience.

But we don’t believe “quoting” was the issue at 26 Lambeth. In our opinion, Kay and Burton would have “educated” most buyers to around $2.5 million – they would have discussed the sale of 40 Lambeth earlier this year for $2.8 million and said that was a possibility but unlikely, as there were exceptional circumstances involved; and they would have gently moved serious buyers away from thinking low $2 millions was a goer, unless the world changed as Kay and Burton knew it.

So, when auctioneer Gerald Delany opened the bidding at $2.25 million, we would have thought that most buyers who had any contact with Kay and Burton would have thought that price was fair.

Why did nobody bid? Well, to know for sure, you would have to ask the bidders themselves.

We can understand waiting if Gerald opened with a $2.5 million bid. That would have been a high start, implying a challenging vendor reserve, and we would also have waited in those circumstances. Or we could understand hesitation if Gerald bid $2.25 million, a bidder said $2.275 million and then Gerald responded with a vendor bid above that. We also may not have followed above a vendor bid in those circumstances, especially if the vendor bid had a fair gap from our thoughts on “price reality”.

Maybe all three bidders were nervous; maybe all bidders were waiting for a sign. Well, two of them got the sign, after they were unsuccessful post-auction.

We’ll state it again: you need to bid to buy.

Buying the right to negotiate with your bidding is, in our opinion, a sensible thing to do (up to a point, of course). We find that ethical agents respect that exclusive right to deal. We’re not saying agents won’t apply pressure or talk to others, but, if you bid and it’s passed into you, we have found that you will get more of a shake at buying than if you didn’t bid, or tried to be a smart alec. Pass-in is not a dawdle; it will still be a stressful melting pot of emotion and pressure and you should consider professional representation if you are up against a Nick Elmore from Jellis Craig or a Sean Cussell from Marshall White or, indeed, a Ross Savas from Kay and Burton, to name a few. Nonetheless, you are still in the box seat compared to those standing outside.

Late bidding is a different sort of strangeness. 2 Cole St Brighton, which sold for $7.3 million, has received a large amount of publicity for what seemed to my eyes and ears (I was a few metres away from the auctioneer) a clear case of a bid coming a fraction of a second before the auctioneer’s hand hit his other hand and he said “Sold”. It was not auctioneer Julian Augustini’s fault: he called for all bids, warned bidders he was about to shut it down and then attempted to. Because there was clearly a dispute, he had no choice, in my mind, than to reopen bidding, in line with his comments in the pre-auction banter that, in the case of a disputed bid, he would determine the next step. Working for the vendor, believing the bid was unbelievably late but actually just before the word “sold”, he acted in his client’s best interest and, under pressure, achieved a higher amount. But I digress.

Our issue is not with the bidding but the late bidder. Why would you bid so late? At $7.3 million, you are not a first home buyer and, unless you just won Tattslotto, you have some experience with money. What was the logic? Was it impulsive (which is dangerous)? Was it inexperience (then consider engaging a buyer advocate)? Or was it a strategy (unsuccessful, as the late bidder missed out in the end anyway)?

In line with our leap of faith last week, you need to bid to buy and what is wrong with bidding sensibly?

Many people fought hard to get a transparent buying system in 2003 and we have the most, not the least, transparent home-buying system in the world at auctions, so why not participate?

If quoting could be fixed - and hasn’t the heat and anger gone out of the market now that agents have “noticed” this issue – if we could get that right, we would have a brilliant system (if you believe in capitalism). But it’s pretty good anyway, so, bidders, why not bid? Bid and if you haven’t enough, then you can go to another open for inspection early. We’ll be frank again: we are not that good that if it’s on the market and we’ve got $2.5 million and the other party has $3 million that we will be successful. There are ways to have purchased this home, but at the on-the-market stage, under these circumstances it’s too late. Get on with it or get to the footy.

Even if you bid, you can’t get them all. Two weekends ago, we bought two from five. Last weekend, it was three from five, and, next weekend, we have three auctions, so who knows for sure. The market still has plenty of heat, even if it may be changing direction or, at the very least, the angle of ascent.

So, how can you maximise your chances at auction? Do you bid firmly? Bid loudly? Do you wait until the last minute? Do you not bid?

It’s all of these, and none of these. It’s what is best on the day. You do need to have an insight into how things work at auction to avoid major errors and you can get some of that by attending a number of them. Other things like pass-in strategies and bold bidding can also be learnt but it may be very expensive for you to do so, as it really can only be learnt from practical experience (possibly big mistakes).

Like many things in life, which in fact are 10 per cent inspiration and 90 per cent perspiration, bidding at auctions, in our opinion, is no different. It’s 90 per cent perspiration, or preparation, and 10 per cent inspiration, or insight.

You can hire the 10 per cent insight. Get an experienced buyer agent and they can also perform the perspiration bit, or you can do the perspiration yourself and hope the inspiration and insight comes.

Here is an example of how the 90 per cent perspiration/preparation can work for you. We’ve changed details to protect our client’s privacy, but here’s a flavor of what is involved in preparing for auction. This is real and happened last weekend.

The client initially contacted us for some assistance to find good selling agents. I said to my colleague Adam “Put them back a bit until we clear the forthcoming weekend of auctions.” But Adam ignored me, as many people do, and met the person and found that they were also keen to move. While chatting, the discussion moved to a property that we had rated highly but did not have a client on. The person, who then became a client, visited and fell in love with the property. In four days, we had two night meetings; arranged full ratings report and pest and building inspections; had the legals checked and negotiated the removal of two special conditions requested by the vendor’s lawyer; organised a lower deposit to allow the client to bid with surety; arranged for settlement terms outside the advertised terms (to help with the client’s house being sold); spoke to other agents in the area to get pricing opinions (were we mistaken on good buying as our opinion and quote were miles apart?) and explained architectural options for a possible renovation(it is period, there is heritage, it needs a reno and there is a tree and it may cost you…). Sound daunting? It wasn’t over yet. On the morning of the auction, while I’m preparing for bidding with one hour to go, Adam is having coffee with the client, moving that client from, as it turned out, third to first place – which was not that easy, bearing in mind that all these discussions were hypothetical and at a level 50 per cent above the agent quote, and in writing and open for later scrutiny by anybody. We were successful with less than 1 per cent to spare and less than 1 per cent above second place and less than 3 per cent above third place and more than 50 per cent above the quote. It is a great home and a very solid long-term buy.

I repeat that our “strike rate” of the last 10 in two weeks has only been 50 per cent. so this is not a claim of perfection; it is stating, in our opinion, what good auction bidding is all about and that is rarely some tricky move. It is about preparation and experience and you need to prepare (CAN – Clarity, Assess and Negotiate – to make sure it’s right for you), you need to turn up and you need to bid.

You need to bid to buy.

Good decisions and buy well

Mal

PS Sunday Morning: Ran into Hocking Stuart’s Andrew James at the bread shop and asked him about 18 Van Ness Glen Iris. No bids at auction – 4 people approached him afterwards and 2 buyers “went at it” post auction. I’m sorry guys we don’t get it – why not bid at auction (if the price is reasonable) with the transparency and protection and “box seat” it offers – what are we missing?

SOLD: Glen Iris: 20 Viva St: James Tostevin. $2,344,000

It’s Saturday at 6.00 pm and the James Clearance Rate for $m+ auctions is 70% on the 20 auctions we attended. While there were some incredibly strong results, we are still looking to see if there is any relief in sight.

Auction crowd numbers are easing (a smidge). Bidderman in November/December last year was 0.8 per auction; then May and June of this year Bidderman was over 3.2 bidders per auction and today Bidderman was at 2 bidders per auction on million dollar plus properties. Although there were a number of 4 bidder auctions there were also a number of 1 bidder auctions. Granted no surprise pass-ins but it is something to monitor. We think the market is gyrating rather than consistently rising like it was February to July. But this maybe a lull or a blip or we maybe hallucinating ……. We are just watching it as it’s important to be really sure on pre auction and post auction offers that you do actually have competition.

In summary demand is still hot and seemingly staying that way for family homes and classic reno jobs despite the supply side showing more quality stock. It remains to be seen if this increase will level the market. Interest rate talk is now within the market psyche but what part it will play is also yet to be determined.

The leap of faith – Continuing the series on pricing, value and good buying.

It’s easy to become overwhelmed by the constant bombardment of real estate and market talk messages: the market is hot, now it’s cooling off, it’s doom and gloom regarding world economics, but now interest rates may be back on the way up …

With all this information, how do you, as a buyer, act? How do you keep your head? When everyone is busy zigging, how do you know when to zag? How do you understand and act upon what is a good-value buy?

You can’t avoid the situation. Inaction is not the answer, as you will miss out and never get the home of your dreams or you will be 65 and a renter.

In order to buy the house you want, you need to break away from the silent majority – that is the market.  You need to act at a time and level when other buyers won’t.

The market moves in many different ways. At times, the market is slow to turn, like a ship; at other times, it goes in and out and up and down like a tide; or it moves smoothly until someone gets spooked, then someone else and then suddenly everyone is jumping through an imaginary hoop until some calm descends and then we all move onto the next paddock, just like sheep.

The market can be hard to read – and it can be hard to find a solid comforting platform within it.

That said, how do you leap off that platform into the unknown – the abyss.

How do you cease to be part of the market; cease be a member of the silent majority for a split second and pay above the general market view? For that is what you will have to do: if you didn’t, the auction would have ended in a draw, with no victorious buyer. How do you overcome your fear, and take a leap of faith to leave your comfort zone and make a split-second decision to put in a higher bid than everyone else and buy that house?

Well, it may take just a split-second decision at auction, but you should have put in many solid hours doing your due diligence before auction day. This will give you a solid foundation on which to base your decision on what to buy and then what to pay.

Does it really matter how, when and where I take the leap of faith? Well obviously yes or else we would all be living in homes with the same levels of happiness and financial returns.

So if the decision does matter – how do you make a good one when others may not be doing that?

Let’s start with information or due diligence. What do I take my information from? Headlines? Agents? Past sales? Lawyers? Aunty Mary? Forecasts?

We recommend you listen to them all and then put them into your value proposition as you see fit.

At James Buyer Advocates, some of our information sources include: going to auctions, studying sale results, reading and listening to long-term credible authors and market watchers, looking at Land to Value Ratios, renovation and building reports and, yes, speaking to credible selling agents.

We find it useful to follow a set process:

• Clarify exactly what it is you want NOW, and what you will more than likely want in five years’ time.
• Clarity – Is this right for me or best for me?
• Clarity on emotional needs – eg Nesting Instinct and 5 Year flexibility and LCVR – Land Content to Value Ratio.
• Assess information and place its level of importance to you into the right box.
• Assess – does this match my needs and is this acceptable value?
• Assess – My Price, Market Price, James Home Ratings, Agent Comments.
• Negotiate – then you try and buy what you want, as well as you can, understanding risk v reward. What is my risk v reward scenario on each action or inaction?

Once we have done our due diligence, we find that decision-making becomes so much easier and we can more readily make good, and avoid bad, decisions. We can or our clients can more readily make that leap of faith or not and do so well and with less stress.

Due Diligence – Strategy – Decision(s) – Action. You can put the adjective “good” or “bad” in front of each. It’s up to you.

The Leap of Faith. We alter with those immortal words of premiership coach John Kennedy where he yelled DON’T THINK – DO. We reckon for home buying it’s THINK-DO.

So regardless of what market messages are being given in the media, build yourself a solid foundation from which to operate on. There are many things to consider when building this foundation, and they shouldn’t be affected by whether the market is hot or cold. They should be affected by Your Needs and Price, Property and Position.

It’s getting heavy out there, but it’s not all bad. There are opportunities and they require some nous and some bravery to act or not to act.

Finally, if you do act and leap from the bosom of the silent majority (the market) into the unknown (and you do it well) then when you land you’ll find that you’ve joined a new silent majority – happy homeowners. Congratulations.

Buy Well

Mal

It’s 6pm and the James Clearance Rate for million-dollar-plus homes is another 70 per cent on the 20 auctions we attended today and will rise overnight. The picture above is of the guiding hand of James Connell from Marshall White as he works the crowd at today’s 2 Selwyn Court Toorak auction. Is that one more bid, sir?

Continuing on the value theme of last week, this week we’ll look at pricing.

Valuing, quoting and pricing in this current market is not the issue that bedevils our industry. On the selling side, there has, until recently, been an increasing lack of care, conservatism (“quote ‘em low, watch ‘em go”) and/or poor training. On the buying side, there’s been a lack of understanding of the market process, a selling agent’s role and how pricing is determined. These are the underlying issues, in our opinion.

Can we say, firmly, that we don’t support selling agents withdrawing from the quoting arena. As professionals, the answer, in our opinion, is not to withdraw from quoting but to get better at it and be clearer in the definitions of the advice given to both buyers and sellers.

You can find homes on the internet, a solicitor can email you the contracts, an auctioneer only needs a microphone … why would a seller pay an agent who can’t talk price? Why not just hire a security guard for open for inspections? If a buyer or a selling agent can’t talk price or demonstrate value in relation to the home’s characteristics, what are they doing?

Buyers and sellers want good quality buying agents to help buyers understand their needs, make good decisions, assess value, find properties, carry out due diligence, negotiate and – wait for it – talk price.

Buyers and sellers also want good quality selling agents and part of a good quality selling agent’s kitbag is to sell the virtues, open the house, direct buyers towards other alternatives (if not suitable), run a transparent auction or private sale process and – wait for it – talk price.

At James Buyer Advocates, we think buying agents and selling agents need to talk price. But those discussions need to be genuine if price talk is to add value to the buyer’s or seller’s decision-making process.

So let’s talk price. When we talk price, we talk many different numbers, which we at James call Price Points. For example:

• Individual Price Points: your price now, your price next week, other buyers’ price, the vendor’s wish price, vendor’s bottom line price, the agent’s quote price and your Uncle Peter’s best advice price.
• Timing Price Points: pre-sale prices, deadline prices, prices just after a negative The Age headline, offers-with-condition prices, auction day prices and post-auction day prices.

And so on…

So how do we know whose price is right?

Nobody is right or wrong. There is no wrong or right price unless you think opinion is a right or wrong thing. The final price is nothing more than a reflection of two agreeing opinions – the buyer and seller – at a point in time.

Is it possible to predict what this price will be?

Yes, in many cases, but not all. Nobody can predict with complete certainty the behavior of each individual buyer or seller in a property exchange; however – and this is where selling agents’ quoting and buyer agents’ estimates come in – it is possible to predict with a high level of certainty how large groups of human beings will react to a property. Taking it one step further, it is possible to get, say, eight out of 10 estimates close to the mark (maybe a bit less in this current volatile market).

No, Mal, you ratbag, tell me the price. You are sounding like a selling agent. Stop “crapping on”. How much is it worth? How much do I have to pay to buy this house?

Please, it is so important that buyers understand this from the outset. There is no magic or set price in many of the sales we are involved in. There is no one price and no way of getting the “price quote” right every time in a fluid market situation where we have a process (auctions, expressions of interest and now many range private sales) that allow for all opinions to be expressed openly.

Price should not be a noun; it should be a verb. Price is a living, breathing thing.

Price differs from one hour to the next; it does not stand still.

Price is a conduit in a process of distilling opinions.

Good selling agents try and influence opinion upwards and, over the years, I’ve found that good buying agents try and find the pricing points, inform the buyer of risks associated at each offer point and follow instructions given after a client’s decision.

As an aside, we find that, when dealing with highly skilled selling agents on good quality homes that are reasonably priced, truth on both sides has been the elixir of many deals.

We at James Buyer Advocates talk to our clients on our initial thoughts on price ONLY after we are sure they understand what price is and what version of it we are talking about. And when selling agents re-enter the market with sensible quotes and more explicit communications, then it will still be up to buyers to understand and manage what they are being told.

At James Buyer Advocates, this is how we work out “price” or work through the price process (and in this order):

• We form an opinion on good value buying – this we call the James Control Price and we base it simply on Land + Building. This gives us a base to begin with.
• Next, we rate the home – James Home Provisional Ratings. This gives us a number out of 1000, some clarity on the characteristics of the home without the influence of a specific PRICE. It is vital to be able to compare quickly and focus on the goodies and “delete” the baddies.
• Next, we send that to our client for their feedback.
• We then visit the home and confirm or adjust the James Home Rating and/or the James Control Price.
• We look at current comparables (history often repeats) in greater depth.
• We look at Bidderman – bidder or buyer depth on similar auctionable, private sale and off-market properties. We keep detailed records of Bidderman. This is why we almost always mention bidders in our auction reports.
• We look at other alternatives on the market.
• We ask our clients their thoughts on other homes and how much they like this one and what they wish to spend on it.
• We consider renovation costs and overcapitalising or undercapitalising.
• We speak at length to the selling agent and other selling agents not in the selling company who may know the home.
• We look at the records we keep on individual agents and agency policies on how they conduct the sales process for this type of home.
• We start forming our opinions on price points (that is all our and valuer’s and agent’s and bank’s numbers represent – somebody’s opinion).
• We put those thoughts in writing to our clients and the numbers may have moved considerably from our initial James Control Price, or they may have not moved at all. Generally speaking, we find we give our clients three price points and help them distill one:
  a) long-term good buying price;
  b) minimum price the vendor will accept; or
  c) hot market price.
• And the price we help our client distill is what price they are prepared to pay in their chosen risk versus reward scenario at that point in time. Eg the higher you go, the lower the risk but the less the reward and, of course, the lower you go, the higher the reward if successful but the greater the risk of missing out.
• Once things are becoming clearer on OUR price, we encourage flexibility and we keep saying to our clients “Are you buying a price or buying a property?” (that’s a naughty trick of ours, but it works).
• We then begin the strategy planning and the processes we will follow, in conjunction with our client’s wishes to achieve the desired result.
• And we either buy the home or we don’t and the seller either gets our price and we get theirs or we/they don’t.

Finally, at James, we honestly don’t care what price our client pays. We have no emotional attachment to a number. It’s not possible for buyers to have this feeling of detachment. What we do care about is our professional obligations to our buying clients in providing the due diligence for our client to assist them in making informed decisions (on pricing among many things) and our emotional outcomes are determined by how well or poorly our clients think we deliver on these obligations. With the processes above and this attitude to price, we have negotiated, bought and missed out on hundreds of million-dollar-plus homes and our business continues to tick along.

So “our final price” is determined at the end of the process, not the beginning, and that process only ends when we lose interest in a property or it’s bought by us or somebody else.

That’s how we do it; that’s how we talk PRICE.

Hope this helps and, if you would like to talk price, give us a ring.

Buy well for the long term.

Mal

Adam’s article this week is on the importance of feel and he uses 5 Hopetoun Road Toorak as his example. We are now starting to see a number of his $1 million-plus builds (renovations and new) for clients we have purchased for. If you would like to see some of his impressive work, please contact our office.