Some of our buyer prayers have been answered

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

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

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

This Week’s Highlights:

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

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

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

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

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

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

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

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

Special Report on the $3m Market

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

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

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

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

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

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

Agent Comments on the current $3m+ market

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

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

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

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

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

Reported Results:

Mark Earle (Buxton) intent on selling 11 Comport Street, Beaumaris. Two bidders and a sale price of $1,204,000.

Key Points:

• Very little on offer at auction today
• It was the second largest new stock week since March – note our new stock graph below.
• A property of 1800sqm in Heath St Sandringham failed to attract a bidder, in fact neither did much of Sandringham.
• A quiet $3m+ sale at 31 Black St Brighton, as reported by JP Dixon
• Who said we are not affected by the election in Bayside? – see below graph

Agent Comments on $3M+ market

John Clarkson, Hocking Stuart: “Things are tight over $3m; stock is out there but some vendors are listening to buyers and some are in the stratosphere. There are still buyers but not the frenetic activity we saw earlier this year. There are still buyers willing to pay that sort of money for the right property in the market.”

Halli Moore, Buxton: “The market over $3m is a bit delicate at the moment. Low stock levels, and buyers seem to be waiting for the influx of spring stock for more choice.Vendors seem to be waiting for the election, which is affecting stock levels.”

Mark Earle and agent Adam Gillon, both from Buxton: Mr Earle said that people are more realistic with value and if it’s good value they’ll buy.  He went on to explain that it is a much easier buying market  at present.

Stock Levels
The Bayside Market in general is facing a real challenge (in terms of price and sales) with this area already having the biggest number of overhangs (unsolds from Winter) and now facing its second biggest week of new stock since March. Buyers: if you don’t recognise opportunity now then really …..

Clearance Rates & Monitor Table
Too small a number this weekend for meaningful clearance rate

Buying Activity
Minimal buying during the week. Quiet $3m+ sale at 31 Black St Brighton reported by JP Dixon

36 Villeroy St, Hampton. A big crowd of 90 braves the winter winds to watch Rod Richardson at work. Passed in at $1,500,000. Hocking Stuart.

Kew, 61-63 Alfred Street: Huge crowd to this Marshall White auction. Six bidders and sold for $4.85 million.

It’s 6pm Saturday and the James Clearance Rate stands at 59 per cent on the 27 auctions we attended. Yes, a drop-off from past weeks, but there should be a mop-up over the next week and, if there is, then it’s more of the same in a warming market.

Please note James Market News is now translated into Chinese by Su who now works with us and can be viewed by clicking button to the right of this column.

We think the issue of the moment is agent quoting, as highlighted in our Sunday Reflections article in last week’s Market News. Agent quoting is a perennial issue but it will become a bigger issue if the market continues to warm up.

Agent quoting is an issue that excites strong feelings but, without getting too emotional about it, let’s look at the issues and try to help you, as a buyer, understand why it is happening and how you can manage it.

Underquoting usually occurs at auctions because many agents believe that the old adage of “Quote ‘em high, watch ‘em die and quote ‘em low, watch ‘em go” is the most effective way to protect their vendor and get a deal done.

Overquoting in private sales occurs almost exclusively because the seller wants too much for their home and that occurs because the agent has highballed the owner to get the business or the vendor has got to a highwater mark all by themselves.

Some agents are now listing ranges for private sale, eg $1.3 million to $1.45 million. I’m not sure how that works when it’s not actually for sale if you offer $1.3 million.

A new quoting minefield is Expressions of Interest. Some agents feel it’s technically not misleading if you don’t write the quote out but whisper it under your breath.

Accurate quoting occurs when you have a genuine vendor and an experienced ethical agent who, for a private sale, lists a realistic sale price, possibly around 5 per cent above the mark that he or she might get from a keen buyer and/or allows for some negotiation if a buyer is close to the asking price. Accurate quoting in auctions occurs when the vendor’s reserve is within (not 10 per cent above) the quote range and that quote range reflects buyer interest.

So what is an agent quote? That, my friends, is the $64 question. Nobody knows for sure. Read through the Consumer Affair Victoria guidelines, which are well intentioned but have more loopholes than Grandma’s crochet, and you are no clearer. Is an agent quote:

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

Truth is, nobody knows, as it can be any, and all, of these.

You can have a vendor who wants $2 million, will take $1.6 million on auction day because the banks are pushing them, has refused a buyer offer in the first week at $1.75 million and somebody saying they may pay $1.9 million. In this situation, what does the selling agent quote?

Indeed, why quote at all? Well, it’s human nature to ask “How much?” and a selling agent who won’t say looks mighty stupid, so most nominate a figure. Many agents do say a figure to guide, others say a figure to deceive and some say a figure simply to appease. Please many selling agents are well intentioned but their mindset is to quote conservatively.

Should we even worry about accurate quoting? Good question!

In Victoria, the laws for homebuyers are incredibly weak, despite a house being the largest asset most people will buy in their lifetime. Consider this:

• if Myer advertised fridges at $1500 to $1700 but in fact only had fridges for sale at $2100, what would Channel Nine’s A Current Affair say?
• if you buy an apple full of worms from a fruit shop, in most circumstances you will have more recourse to fix that problem than if you buy a home full of termites.
• if you buy a second-hand TV at the advertised price and it fails to turn on, we think you have the Trade Practices Act and the Small Claims Tribunal to help you fix the problem, yet, as a buyer, if the roof caves in the day after you move into your newly purchased 10-year-old home, there’s not much you can do except pay to fix the roof.

So, in Victoria, unlike almost anywhere else in the world – except, say, an Afghani bazaar – it’s caveat emptor (buyer beware). And this lack of protection for buyers extends all the way to Agent Quoting. Although you may think there are laws to protect buyers from bad quoting, they are also, like grandma, toothless. Each Saturday, there will be breaches of the government guidelines and there probably won’t even be a letter of warning to an agent, let alone a prosecution. For example, the CAV guidelines specifically prohibit quoting such as “600+”, but grab a copy of The Age and count how many times you see such examples.

Here is an example of how flexible the quoting laws are when applied to a real-life situation.

27 Oak St Hawthorn, auctioned by RT Edgar’s Jeremy Fox. Jeremy is a good agent, we do like him and he gets deals done. Jeremy’s quoting is, in some instances, courageous and, in other instances, challenging. Many sellers hire him – they want him to sell their property for the maximum price. 27 Oak St Hawthorn, which we had an interest in, bid on and didn’t buy (absolutely fair enough – it’s all part of the auction game), had a pre-auction quote of $1.8 million to $2 million and, in fact, this quote was repeated at the auction when Jeremy called for an opening bid. Bidding started at $1.8 million and stopped at $2.11 million. The property was passed in and we were told two days later that the reserve was $2.5 million. Cutting to the chase, this property was sold on the following Wednesday for $2.15 million. So has Jeremy done anything wrong? In his mind, no, and, even though I’m a loser on this one, I would have to agree. Under the rules, it seems he has not.

27 Oak Street had a sale quote around the eventual sale price (within 10 per cent). Comparables of sales of the past few weeks, such as the two Mary St Hawthorn homes and the sale of similar land size property at Blytheswood Kew, prove that the quote was reasonable. Now, if you think a fair price for the property is just over $2 million, then a quote just under $2 million is regarded as within industry standards. What about the vendor reserve at $2.5 million? Are you allowed to quote below the vendor’s reserve? No, but a selling agent seems not compelled to obtain a reserve and a vendor seems not compelled to declare a reserve at any time, even at the auction. So, the reserve was not declared until after the auction, at which point Jeremy conveyed that to the public and so negotiations began.

I might not agree with what happened, and neither might you, but I cannot see a breach of the laws here as they stand now.

Maybe the laws need to change (although this is not our business, as we buy homes for people within the changeable rules that we find on each offering).

Here is an example of a different way of approaching quoting (full details available in our May 2 Market Insight).

“Agent Heather Elder of Marshall White should be congratulated on her management of the quote of 21 Trinian Street Prahran. Buyer value and seller value were miles apart and the temptation to quote $2 million-plus would have been immense when, in fact, the reserve was $2.5 million. Heather stated that buyer interest was at $2 million to $2.2 million and the vendor’s reserve was considerably higher at around $2.5 million. She gave us two figures: buyer interest and the vendor reserve.  I did not see ‘$2m+’ written anywhere and the fact the price ($2.5 million) was achieved proves that a quality agent can manage a very difficult situation without resorting to whatever ……. ”.

Several times through the auction, auctioneer John Bongiorno was asked “is it on the market”. He replied it would be passed in. Eventually when further bidding was refused above $2.42m the owner was asked again for a reserve and it was declared on the market and sold for $2.5m under the hammer. Our understanding is there were no breaches of the CAV guidelines, REIV protocols or Victorian Statute but it was a very difficult situation for our buyer and we assume other buyers at the auction. We find the Marshall White agents we deal with professional, open and honest.

As we stated last week, it is not possible for agents to get quotes right every time. The only perfect quoters are the hindsight guys and they don’t buy a lot. It is possible to get quotes right eight times out of 10 and good agents do.

Marshall White’s Mark Dayman is a good quoter (if you let him tell you the truth) and actually a good bloke and he has some good thoughts.

“We are naturally going to quote conservatively to the market trend – we work for the vendors,” he says, and that is supported by our figures last week showing that 95 per cent of sold results on the auctions we attended exceeded the quote.

“We are learning about the market each week” – that’s agent code for “we are lifting our sights a bit each week”.

“We will just start to get it right and then the Spring influx and probable price drops will make us look bad the other way.” That is Mark’s sense of humour but there is a truth there.

So, as a buyer, how can you best deal with agent quoting?

• Understand what it is, what it represents and, in fact, how useful it is. In some cases, not much, but, with more agents than you may think, it’s still very useful.
• Monitor and record the good agent quoters and the poor agent quoters. But be realistic: nine out of 10 within a 10 per cent range would mean the agent is the Tiger Woods of quoting. The agents can’t get every quote right.
• Don’t get too emotional about it and, unless you want to change the world, move on. Worry about buying the home, not making a complaint.
• It’s your choice but why make a complaint – you’re wasting your breath. If it helps you great. However we recommend spending the time researching the next home.
• Do your own research without being unduly blinded by agent quoting input.
• And, finally, consider hiring a good buyer agent (of course we’d say that) and have multiple plans just in case the selling agent quote or “your” quote, even the buyer agent quote is not spot on - eg strategies to deal with a pass in, vendor bid, weak bid and strong bid.

Thanks again to all the people that come up and say hello, and other nice things, to us at auctions. Yes, we like doing this.

Buy Well

Mal

No market news next week owing to the Queen’s Birthday holiday weekend so we have put in some summaries of the main areas we deal in. See you in 2 weeks.

A big thank you to Sally Zelman from Gary Peer, whose thoughts on Caulfield appear in Another Point of View.

Architect Adam this week has a really good article on the importance of natural light to properties and the advantages of a north-facing back yard.

Finally, thank you to Marshall White’s Andrew Hayne and John Manton for your help today – most appreciated.

Indicative Market Movements

At 5pm Saturday, just two of the 13 auctions we attended today have sold under the hammer, with another two or three expected to be sold overnight.

The market is speaking on two levels – at median Melbourne, the results are weakening slightly but overall the market hasn’t taken anywhere near as big a hit as the top end has.

The diagram above is to show you indicatively where we think the market is going.

It is no exaggeration to state that the million-dollar-plus market is currently experiencing some of the serious woes that the financial sector is also facing. This market did drop 0% to 10% in early 2008; then, around mid-year, there was another easing, as we reported.

The Spring influx of homes for sale has currently not been matched with equivalent buyer interest and consequently we have seen the biggest drop since the early 90s in almost all upper-end bracket homes.

Some exceptions, however: in our opinion, the $1 million to $4 million market is down between 10% and 30% in 2008 from late Spring 2007.

Last month’s, last week’s and today’s results have only confirmed what selling insiders have known for some time: if you don’t get some interest early in the campaign and you have to sell (frankly, if you are on the market today, then you have to sell), then you could be seeing a large price drop from Spring 2007′s expectations.

That is the market that we deal in today.

Some balance. First, we are aware of four $10 million-plus sales this month. This is as good as October 2007. While 25 Cosham St Brighton did not sell (we rated and wrote about it two weeks ago – it’s now on the market for more than $6 million), 14 Grange Road Kew did sell for a figure believed to be well in excess of the $5.5 million quote, which is a good result for Jellis Craig’s selling client.

Some more balance. While many properties did not attract any interest,among the negativity, you can see the results of a well-run campaign, such as that run by Madeline Kennedy and Andrew Hayne of Marshall White, which saw 1 Parslow Malvern flying at auction with a final result well in excess of where we thought a good result (bearing in mind position) would be.

And more balance: even a 20% drop for some properties represents less than half of their 2007 gains and none of their 2006 or 2001 to 2005 gains. So longer term……

Some more positives: if you are a buyer and you can hold your bottle or you are trading up (this is the best time since the late 1990s, as the gap between the rich and the not-so-rich has shrunk), then there are some serious opportunities out there to buy. There will be more opportunities before Christmas and then again in early 2009.

But what to buy? Buy what you really want and please still buy for the long term.

It is still about the quality of your decision – your ability to match your longer-term financial and emotional outcomes with the home you end up purchasing. That is the key to good home buying.

The best buy we made (to date) was a little $400,000 buy in 1994 that was cash-flow-positive from day one and went up five- to six-fold before it was sold in 2005 to fund other property purchases. This is not said for any other reason than to point out that the market you are in can have plusses.

If this market is showing you anything, then, hopefully, it’s showing you the rule is NOT HOW YOU BUY (eg you beat the agent or you bid well) but that the rule is it’s WHAT YOU BUY. Your long-term wealth and happiness will not be created by fancy selling campaigns (at the back end); it will be created by smart buying of quality homes in great positions at under value in the first place. I mean, look at what is selling now and what is on the nose and can’t be given away.

You have opportunities, in fact, we all do – the trick is to recognise them, act on them and avoid the false gifts along the way. We think, as buyers in the million-dollar-plus Melbourne market, that you have at least until March 2009 in this currently declining market (due to supply exceeding demand and reduced buyer confidence). We will make comment on the months after March 2009 as we get closer. For Median Melbourne (eg $500,000 plus), we cannot see the fundamentals pointing to any significant price drops.

Buy well and good hunting.

Mal