What’s more important in buying a home – the deal or the feel? In this market most buyers are focused on the deal. But if I can give the guys out there one piece of advice more profound that any Tibetan wisdom and more important than a receipt at tax time – there is a way to have your cake and it too – you can have the deal, and the feel, and it is through: Strengths, Environment and X-factor

While you need to buy a home that will see your family’s wealth grow, the feel of a home and how it fits in with your life partner’s scheme of things is a real factor in your home happiness and ultimately that of all your family. Which is the basis for those wise words: “happy wife, happy life”.

In Winter 2011 in $M+ Inner Melbourne what gives a home the right feel and the right deal is no different to Winter 2009, 2005 nor 2015. Just because your focus may have turned more to the deal – as you fear that jobs are becoming a little tighter, and the budget is not quite as flexible – feel is still just as important as the deal in 2011.

So what makes up a home’s S.E.X appeal – something that can appeal to both the feel and the deal?

Strengths – Land content first and foremost. We keep reading about how apartments are becoming the home of choice – that’s poppycock. Saying apartments are becoming the home of choice is like saying being a miner in a Pilbara country town is the job of choice: for many it’s not the job of choice, it’s the only job. If you are 30, planning to have kids and you have more than $800,000 to spend, then at least consider plain ol’ boring land content ahead of the glitz and glam of an off-the-plan apartment. Trust me, when those ankle-biters arrive you will want space. You’ll want it even more as they grow up. Land content is a major Strength to maximise the deal. They don’t fight wars over apartments or other buildings, they fight them over the land. There will always be long term demand for land, much more so than for a building. And long term demand is what determines the quality of the deal.

Environment – Where is the property situated? Position, position, position. Train, shops, parks, proximity to schools, security, neighbours, noise. This is far more important than the deal i.e. whether you bought the property on a pass-in, with a deadline offer, or whether you screwed the agent (or think you did) to get a big discount. Far more important than price, is whether you match your family to the position. We have read about diesel pollution and its possible health effects in some suburbs, but is the money more important than the road noise issue for you? Is driving 30 minutes to school and 30 minutes back and repeating that in the afternoon and whenever you forget their lunch a bigger deal than the $137,000 you saved by moving further out? And finishing on the environmental issue – the aboriginals have it so right about relating to their land – is your block your spiritual home? Do you feel a connection with that piece of dirt? The environment affects both the feel and the deal.

X-factor – You feel better when your home works, when things are where they are meant to be. Floorplan is important. Parents want to be able to keep an eye on the kids in the backyard, teens want to be able to escape from our view. Light is important. The warmth from a northern aspect is as longed for as open fire come winter in Melbourne, and is arguably worth $1,910,000,  compared to say $1,770,000 for a home south facing rear.

So if you’ve got the feel and the deal through land content that is making you money, in an area which has a real feeling of community and the home is a bit special and has warmth and light – then don’t you think you will have a better family life than if you just settled the deal of four ordinary walls, even if you got a 15% discount?

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

With the autumn property season over and the end of the headlines about record prices and huge crowds, the winter property season brings a new set of challenges for buyers and sellers. Yes, it’s a more subdued time but winter can still throw up some surprises – and some opportunities. Even in winter people still need to sell their homes. And plenty of people are still out there looking for homes to live in.

In fact on good homes the interest can actually intensify due to lack of supply, and prices can go up on certain offerings. We’ve noticed in the past couple of chilly weeks, our demand indicator Bidderman has risen to an average of 1.5 bidders per auction – up from just over 1 bidder per auction in early May.

So, the buyers are still out there, but they may be a different crowd than the ones you’ve been bidding against during the spring and autumn property seasons.

You won’t see much of the WOW buyers, for instance, the ones who like the glitz and glam and were ‘sort of looking’ but not that hard. The footy is on, it’s too cold. They can’t be bothered. So you won’t have to worry about competing against this lot.

The Desperate Buyers are still there though, the ones that really need a home now because the wife is threatening divorce, the kids are whinging, and they’re sick of trawling through the internet listings every week.

The Measured Buyers never went away. These are the ones who don’t care whether it’s summer or winter, a buyers’ or a sellers’ market, freezing cold, roasting hot. They are out there even now looking for a quality family home that has good land content and represents good value close to schools for their kids. Their finances are in place and they see the depths of winter as good a time as any if the right home presents itself.

Measured Buyers are the ones who accept that it may be a little tougher to sell their existing home, and realise they may need to discount their asking price a little for safety – but also that they’ll probably be able to buy something bigger and better at a better price. These are the ones who are only buying if the three Ps line up: Property, Position and of course Price.

Then there are the Opportune Buyers or Investors. A bit of frost on the local oval isn’t going to stop them looking.  They’ve got their eye on the pass-ins on a Monday. In fact they’ve probably been keeping records of pass-ins for the last few months, and eventually a phone call will unearth a good home that didn’t sell for one reason: it was overpriced. And that after one or two price drops may well be ripe for a cheeky offer.

So which one are you and how can you best play this market? Winter brings out the wet trackers in horse racing – the show ponies have a spell and the old reliable you have seen for many years becomes a lot more visible. So it is in real estate. You will see a number of auctioneers take extended breaks, returning on the occasional weekend when a group of auction homes have been bunched together. In the meantime the quality sales agent are playing a far greater role within the company.

But it’s also worth realising that while a few auctions are still around, over the next few months more homes will be sold over the phone or in a coffee shop than on the pavement. When you’re buying via private sale, expression of interest or off market that requires different skills. It’s not just about turning up at an auction, watching to see what others do and then putting your hand up. For all the issues connected with auctions they are still far more transparent than the most common types of deals you will see (or rather, not see) between now and the footy finals.

So this winter, like any market, has opportunities for the buyer. Especially for the Measured and Opportune Buyer. Maybe not so much for the WOW buyer. And there are some traps for the Inexperienced or Desperate Buyer – but nothing a cool head can’t avoid.

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

With March auction clearance rates on Melbourne’s million dollar plus properties down in the 50s we seem now to be firmly in the grip of an early winter chill. The average number of bidders per auction is down at around 1.5, and the number of ‘volcano’ auctions with four or more bidders having dropped  from 64 per cent  this time last year to 16 per cent now.

There is now also a significant overhang of unsold stock. Of 26 $1 million plus properties we monitored as passing in at auction in March, only five had sold by the end of the month. That overhang will only add to the further supply of stock coming on to market up until Easter.

For those who can look beyond this frosty spell – and we believe that the factors behind the current lack of enthusiasm may be only temporary – the high pre Easter stock supply is creating great opportunities to buy prestige properties at lower prices or buy a better quality home than they may have expected.

Right now then, buyers’ minds have shifted from panicking about finding a home, to thinking how they can cut the best deal.

But what is the best deal? Is it always about getting a home at a bargain price?

A home should serve two purposes: emotional – shelter and comfort and investment – money maker over the long term.  Cutting the best deal involves understanding what goes into both of those components.

The best deal for a buyer varies according to their own specific circumstances. Your specific circumstances and needs may result in a very different outcome than for me or somebody else.

So our first advice to clients wanting to get the best outcome is to clearly know what they want.

Saving $250,000 off the asking price on a home you don’t like makes even less sense than paying $250,000 more than you have to because you can’t withstand the pressure applied by a selling agent.

Secondly, before you enter negotiations on price, you need to understand what risks you are prepared to take for what rewards.

On a scale of one to ten – with one being lowest price and ten being dream home at any cost – what is your main aim in negotiations:  to buy a specific price or to buy the home? Most buyers end somewhere between 3 and 7 on the scale and that is what we call the individual’s risk v reward scenario.

Thirdly it’s important to remember that saving money is not always the best way to make money in the long run. In this current market it can be relatively easy to knock $50,000 off an overpriced long term unsold (stale). But that price saving may also be an indication of a probable low future price growth on that property. You might be better off in a hot auction, bidding hard against three or more other bidders (proven demand) to buy a home with good land content (which indicates a supply restriction going forward).

Even in a supposedly weaker market some homes can still fly. A mid-week auction on a property at 19 Huntingfield Toorak saw three bidders push the on-the-market price of $6.7 million to a final result of $7.06 million – making for land value at $5000 per square metre. No market weakness there.

So if you’re really keen on a particular property you need to know how much it is realistically worth to others in today’s market. That involves true research (hard work). It means understanding today’s market values on land in the area, what are the replacement building costs, what are the true comparable sales not just the “Red Hot” results.

Yes this is a buyers’ market and there are some great homes to be bought right now. But you can’t start a quality negotiation and cut the best deal for you if your foundations are based on guesswork, inexperience and rumour rather than a plan, preparation and some perspiration.

And remember that this current chill may be just a window – not a trend. It is likely that after Easter some sellers simply won’t put their homes on the market, creating a shortage of stock that may push prices back up.

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

CAMBERWELL, 8 Stanhope Grove: James Tostevin (Marshall White) is a picture of concentration. Bought under the hammer, $2,400,000, two bidders

We mainly focus on the better quality homes, however 10 from 10 was still a surprise. This stat varies dramatically from our overall monitored auctions stat of just over 50% – similar to last week.

It was a Super Saturday in Boroondara with over 50 auctions at $M+ and over 30 sales reported as being above a million dollars.

So what was bought and what wasn’t

Bought

• Hawthorn 51 Berkeley St with Tim Blackett Kay and Burton: North of $7,000,000 on Scotch Hill for a good home that needs some reworking and a tennis court – Expressions of Interest Campaign.
• While still in Hawthorn Mr Nice Guy and Very Effective Tim Picken of Jellis Craig got away the quinella with 25 Mary St (Modern in Grace Park) being bought for a credible $4,300,000 and 1 Hilda (period in Grace Park) for $2,800,000. Both a little down on ambitious asks but nonetheless solid prices for what they were. Both Private Sales.
• But wait there’s more and was it us who cried out the death of the Balwyn formula- new build, small block, overpriced. Well on a technicality were are still credible as it’s neighbouring Kew; but with 21 Macartney (Walter Dodich of Marshall White) and 5 Mawson (Peter Dixon of Jellis Craig) both selling at auction today for $4 million’ish, the death of this market maybe a little exaggerated. However please it is only two sales, but they were biggies. Both at auction.
• The news doesn’t stop for sellers there with period home successes at 50 Wattle Valley Canterbury (Duane Wolowiec and James Tostevin) selling under the hammer for a strong $3,465,000 and 13 Rubens Grove Canterbury with Fletcher’s Jeremy Desmier bought before for over $3,000,000.

Passed-In – the difficult ones

• 16 Glenroy Hawthorn Passed in $3,000,000 on a vendor bid. – Difficult for see how to reno easily?
• 16 Burton Hawthorn Passed in $3,150,000 on a vendor bid. – Price versus land content?
• 256 Riversdale Hawthorn $2,020,000 – Difficult position?
• 44 Harcourt Hawthorn East $2,000,000 – Family home but no real backyard?
• Plenty of homes passed in just below a million in that $900,000 range – $million is still a real mental barrier for many buyers?

Agent Q & A : How does current pricing compare with the same time last year?

Tim Heavyside, Fletchers, Canterbury: “Property prices were slightly higher back then than now.”

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

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

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

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

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

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

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

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

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

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

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

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

Camberwell, 37 Bringa Ave, James Tostevin (Marshall White); Bought under the hammer, $1,960,000, 5 bidders

Key Points:

• Clearance Rate this week on the almost 50 auctions over $1 million we monitored was 58%. Not the usual we would expect in this area, but a lot better than last week.
• Stock quality on offer was below average, so this weekend represented a bit of a bounceback. Only three properties priced at more than $2 million dollars sold.
• A total of 24 bidders across the auctions we attended – so buyers are still there
• Minimal activity mid week outside auctions

Trend Buyer Info Graphs: Are now to the right of this article

Off Market and $3m+:
Some activity in off markets but precious little sold that was priced over $3 million. 4 Snowden, Canterbury with Duane Woloweic and James Tostevin was the exception.

Biggest Sale: Camberwell,  3 Gilbert Pde, Scott Patterson (Jellis Craig); Under the hammer, $2,031,000, 2 bidders
“Scott Patterson was, as always, in good spiritis as he kicked off proceedings with a vendor bid of $1,750,000. Two bidders joined in the action and the property was quickly on the market at $1,980,000. Bought under the hammer for $2,031,000.” (Adam Woledge)

Biggest Pass In: Hawthorn East, 3 Buley St, Glen Coutinho ( Hocking Stuart); Passed in $3,500,000, 0 bidders
“As the weather was overcast, auctioneer Glen Coutinho decided to hold the auction inside so that he could keep the crowd warm and focused on making bids. There may not have been any lightning outside, but there sure was inside – as Mr Coutinho wrapped up the auction in a flash. After his introduction he put in a vendor bid of $3,500,000 and then passed it in when he saw there was no interest from the crowd.” (Joshua Bong)

Bidderbuzz Auction: Glen Iris, 17 Walerna Rd, Doug McLauchlan (Marshall White); Under the Hammer, $1,640,000, 6 bidders
“The wet weather brought this auction indoors, but the rain did nothing to dampen the enthusiasm and excitement that followed. Auctioneer Doug McLauchlan led proceedings in the warm family room in front of a crowd of around 60 people. He didn’t have to wait long for an opening bid, which came from the crowd at $1,350,000. Soon there were two bidders, then three, four, five and six. Rapid-fire bidding between the first and last bidders saw the property on the market at $1,520,000 and the hammer came down shortly after at $1,640,000. A fantastic, entertaining auction that had it all – 6 bidders, fast bidding and a good, appreciative crowd.” (Jen Milligan)

Agent Q & A: How much value do you put on land? How much on the building? And finally, how much is to do with emotion?
Tim Fletcher, Fletchers, Canterbury: “The value of land is – and always will be – fundamental to the success of your investment. But where you buy is of utmost importance.  This is particularly evident now that the market is more realistic, as demand always wanes first in second and third choice areas – but continues to flourish, or at least remains stable, in suburbs closer to the city that provides excellent infrastructure.  In fact, many recent results show some units and apartments in great areas are selling for outstanding prices, reflecting that position is more important than land! There is a great misunderstanding about the value of improvements (buildings) in a very high land content area.  In many cases it is not a matter of how much they add to the land but how much they detract, so it is a misnomer to determine the value of a comparable lot and add a number for the improvements, even though the buildings may be sound and appropriate at the time of construction, in time they may come to undercapitalise the land. Emotions certainly play a major (though not easily defined) role in determining value.  Naturally, it depends on whose point of view you consider.  A vendor has more of an emotional investment in a property, although a builder would not.  Certainly if the property is an outstanding Victorian property that can be renovated, emotions will come into play for purchasers as well.”

Results:

We only buy homes

Investing in your family home means you can avoid, perfectly legally, the tax the government wants you to pay on an investment property.

“Why not live in your money?” one wily auctioneer suggested at a crisp winter morning auction in Melbourne recently.

Why not indeed?

As a buyers’ agent of million-dollar-plus homes in Melbourne, I see people buying and selling some very nice homes in some very nice suburbs.

One thing I often wonder is why, when someone has made money out of one of those very nice family homes, either by design or by accident, their first thought is often to draw on that money to invest in something completely different.

Why would you invest $400,000 in a house in Seaford or an off-the plan apartment on Queensland’s Sunshine Coast when you have made your money in a $2 million home in Eaglemont or Hawthorn?

The family home can be put to work to store and to create wealth. Photo: Justin McManus

Why would you put money you made buying land in inner Melbourne into oil futures or Russian uranium?

Family homes can be the cornerstones for wealth creation and wealth storage.

Suburbs such as Toorak, Port Melbourne, Albert Park, Balwyn and Kew offer plenty of proof that family homes bought in good suburbs can create and store wealth.

Following this logic, then why not invest in something that works – why not think about trading up on your current home as your next investment strategy instead of pulling out $400,000 and buying another investment with very different characteristics from the one that made you good money in the first place?

Why not put some of your superannuation ideas or your new Porsche research effort into something you and your whole family can actually enjoy right now and for a long time to come?

Why not think laterally about what the tax office calls your principal place of residence – your home?

Yes, negative gearing gives you a tax deduction, but by investing in your family home, you can avoid, perfectly legally, the land and capital gains tax the government wants you to pay on an investment property.

And you get to improve your own lifestyle at the same time instead of letting a tenant and an investment scheme salesman enjoy your investment while you live in a less than satisfactory home.

The obvious question is, what to do when you need extra money for things such as school fees or holidays? You can’t live off the income from your family home, but you can borrow against it and down the track you can downsize, and pay the whole lot off, thus getting the school and holidays and interest paid for by others.

So how do you make sure you’ve bought well? Clearly not every family home is a good investment. When investing in anything, what you are looking for is a good financial outcome, which has three parts: growth, cash flow and risk.

How does a family home measure up?

■ Growth: Price increases come from demand and supply, and we can fairly safely assume that there will be ongoing demand for good homes in good suburbs, and that the supply of land in those suburbs is limited.

■ Cash flow: You need to be able to service the investment and minimise your expenses; your income needs to be able to service the interest on your family home. You may be better off upgrading rather than spending too much on renovations.

■ Risk: There is no replacement for homes with a backyard near a train station and shop. I don’t think shelter is on the way out as a human necessity.

Your home as your main investment is only a good idea if it has the right investment characteristics – the three P’s.

■ Position – inner city, near a central business district with an international airport, and near infrastructure.

■ Property – good land content; a land-to-value ratio of more than 66 per cent is ideal for an investment. Remember, land appreciates, while buildings depreciate. The building itself should have a good floor plan requiring minimal renovation.

■ Price – affordable within its market or better and with the right risk characteristics.

There are some great books around that expand on these points.

Try any Jan Somers book (a great Australian property writer), or The Millionaire Next Door by Thomas Stanley and William Danko. Or approach reputable selling agents.

Why not invest in your family home and, as that wily auctioneer said, live in your money? Why not indeed!

We have held over to next week the start of  9 part series on Negotiation which includes a week on Backward Bidding – A New Negotiation Technique : Look for on a Tuesday at James Buyer Opinion from next week.

This article was written in The Age, Business Day section 26^th July 2010. Author Mal James http://www.theage.com.au/business/property/the-castle-as-a-bank-vault-20100725-10qjq.html

Brighton 14 Edmanson: The miserable weather made for a challenging auction. Surrounded by an umbrella-laden crowd of 25, David Hart of Buxton forged ahead with determination. The auction commenced with a vendor bid of $950,000 and with no bidders on the day, the property was passed in by Mr Hart at this same figure.

Bayside this week had a clearance rate of 7 from the 11 monitored properties this week – or 63%. This was up on the 40% to 50% of the last few weeks in May, but it was on a smaller turnover.

Bidderman, our demand indicator, was 1.3 bidders per auction – which is still lowish if we are in an improving market.

Having said,  turnover is now getting back to levels each week where we can gauge meaningful levels.

For instance: the 4th week in May 2010 produced 23 reported private, post auction and auction sales in Bayside. This the 4^th week in July we are looking at 14 reported sales – or about 60% of the corresponding week in May. However, overall we are well done on month to date comparable sales; this is seasonally normal and expected.

Agent Comments:

Stephen Tickell of Hocking Stuart: Prices only drop when vendors say so – i.e. when they accept the reduced prices – and that was happening in May. The market made the adjustment and now we are back to, well Mal where we always are every week, supply and demand. Supply is the main guider of the market of the market at present and there is not a lot for buyers in the $1million range in Sandringham and Hampton.

Julian Augustini of Hodges: There are two markets at the moment in Bayside. Median Bayside around $1 million going well. Double Median such as $3.5 million in Brighton and say $2.5 million in Hampton is struggling a little due to minimal demand for what is on offer and there is a reasonable depth of offering. Price is the key here.

Sturt Hinton of Kay and Burton: Good clearing of stock level. It’s been a good two months with quiet sales both private and off market ranging between $2 million and $6.5 million. We are seeing quieter stock numbers coming on now.

Of the 14 reported $M+ sales for the week the highlight was:

23 Murphy St Brighton – James Home Rating 767 out of 1000
James Home Rating: Great street and this property is appealing from the outside. Excellent land content here and a west facing rear is great for afternoon light. Some may have question marks about the floor plan – while the main bedroom suite is very good the separation to other bedrooms is not ideal and the kitchen and stair placement could be better. The cellar is one of the best I have seen and another big plus is a self contained unit at the rear. A good all round family home.

James Auction Report: In cold, drizzly conditions Nick Johnstone of JP Dixon worked hard to bring the bidders out from under their umbrellas. The result was rapid-fire bidding, culminating in a sale price of $3,350,000 in less than 15 minutes. 2 bidders.

James Post Auction Analysis: Strong but not completely unexpected result.

All other reported sales were in the $1m to $2m range.

Land sales

17 Hornby Beaumaris (towards the Black Rock area) with Peter Hickey of Buxton was at $1450 per sq metre for a larger block of land over 900 sq metres.

27 Plantation Ave Brighton East – certainly in Brighton East’s top five streets, again with Nick Johnstone of JP Dixon. 640 sq metres of land achieved $1,326,000 (see our auction report) or just over $2000 per sq metre.

And finishing off with a couple of smart little single level townhouses for the downsizers:

16 Lynch St Brighton (Sabrina Merrick of Hodges) $1,370,000 at auction (see report) for 452 sqm of land or just over $3000 per square metre

The little gem of the week was 16 Collins St Brighton (Chris Carrington of Buxton) – a single level townhouse in need of a reno in central Brighton. It surprisingly sold beforehand for $1,450,000. That was a rare opportunity and well done to whoever bought it.

This coming week we are monitoring 19 auctions.

We only buy homes

23 Murphy St Brighton: Solid result though Nick Johnstone of $3,350,000. See report above. 2 bidders

As we are now firmly into a new market, we thought it time to have a stab at one of the most perplexing concepts confronting inexperienced buyers in high-end real estate  - the “Learning Fee”.

The “Learning” Fee is the amount you as a Do-It-Yourself buyer can end up paying extra for the home you buy, simply because buying a house is not something you do every day. We all pay some form of learning fee every time we buy – for the inexperienced it is an ‘unknown unknown’,  for the more experienced it is just a question of amount.

As buyer agents at James Buyer Advocates, each of us in the office have paid significant learning fees buying property in our personal lives. Let me tell you how many mistakes I made in my personal property life early on. But I’m 50 and have banged my head against the wall enough times for the message to sink in. And now each time I buy personally and professionally, my learning fees are lower.

Learning fees come in a number of shapes and sizes. Here are just some examples we have come across. (To keep the maths simple we’re using $2million scenarios)

1. Wrong Home DIY Learning Fee: You buy a home, and after a year or two it just doesn’t feel right. With the “happy wife-happy life” jingle firmly in your mind you sell and buy again. Your financial Learning Fee, assuming you bought and sold well in the first place, is: $110,000 in stamp duties $60,000 in agent selling and reselling fees $20,000 in removal costs and another $20,000 in incidentals such as legals, repainting etc. That’s around $210,000 in Learning Fees.
2. Capital Growth Gap DIY Learning Fee: This is where you buy a home with poor capital growth characteristics, and it grows at the rate of say 5% while everything around you grows at 8%. A 3% difference mightn’t seem like much short term. But over the average seven years of home ownership, your decision will add up to a Learning Fee of $493,557. ($3,173,748 – $2,680,191).
3. Missed Opportunity DIY Learning Fee: This is the Learning Fee you discover you’ve paid when you compare yourself with Mr and Mrs Jones who always seem to be on holidays, sending their kids to great schools and not working much. That’s because they were prepared to pay an extra $100,000 a few years ago after  beating off stiff competition from six other bidders for a really good period home with good land content. Since then their home has been outperforming the rest of the property market at 11% a year. Meanwhile the less than average property you settled for (see Capital Growth Gap – above) has been growing at just 5%.  Even accounting for the initial extra $100,000 the Jones’s spent “overpaying” for their great home, your Learning Fee for buying your ordinary home is around $1,000,000; over seven years that’s around $200,000 per annum for EACH of those 7 years, before tax.
4. Renovation DIY Learning Fee: Here we have the case of “the Switzers” who paid $1,700,000 for a home that was in need of a $300,000 reno. As with many renos, not everything went to plan and their renovation ended up costing them $610,000. But they got what they really wanted. Well sort of – the home isn’t as close to the shops and they couldn’t afford the pool or the special Masterchef oven. In fact the Switzers now acknowledge they would have been just as happy to have paid the $2million in the first place and avoid the drama of the renovation, and be within walking distance of Hampton Street’s “Brown Cow” – and have a smaller mortgage. DIY Learning Fee: around $300,000 and then some.
5. The Investment DIY Learning Fee: Here we have Jason and Kylie, a couple of 25 year old hot bods who charge off to one of those investment property seminars which promise you’ll make a million dollars in six months, but instead our bright young things end up knee-deep in cash-flow tables, bank documents and (whoops!) a signed investment home contract that results in their off-the-plan, out of town, so-called whiz bang investment property growing at a miserable 1.3% per annum over the next ten years. It’s not only preventing them building any wealth, but worse, it’s stopped them buying the dream home they wanted to live in, which they could have afforded except the banks won’t back them now they have this off-the-plan out-of-town millstone around their neck restricting their borrowing abilities. Their Learning Fee ends up being their whole life – keeping them in a McMansion in Pakenham when they really wanted to be in a period home in Hawthorn.
6. The Emotional DIY Learning Fee: A real life Eastern suburbs example here where a potential client wanted to put a bid in on a home, with a “take it or leave it” demand. We suggested opening up negotiations with an offer a few hundred thousand dollars lower, telling them that “sometimes it’s not how much you offer but how you present it”. No, they said, “that’s our offer and they can take it or leave it”. Unsurprisingly their offer, and their ultimatum, wasn’t accepted.  Annoyed and fragile, these people walked down the road to another agent and paid $400,000 more for a home that we had passed on 6 months ago when it sold at auction. The home requires a major rebuild – in the millions – that will leave very little rear yard. It may be the right home for these people, who knows, as we never really got to know them, but it’s a very real possibility that a very large learning fee has been paid.
7. The DIY Valuation Learning Fee: If you are told its worth $2.2 and you think it’s worth that but it is in fact worth a lot less…..
8. The DIY Negotiation Learning Fee: If you are told to pay $2.2m and you don’t know how to correctly offer $1.9m …………

Of course another Learning Fee can be the fee you pay to a buyer agent to help you buy. In the past financial year we have bought around 80 homes in that $1m to $5m bracket.

An argument against paying a buyer agent learning fee is that at an auction, under the hammer and on the market it’s the person with the most money who wins, and buyer agent fees are just additional imposts.  This at times is a legitimate concept (especially with inexperienced and incompetent buyer agents).  But in this market, seven out of eight deals are Expressions of  Interest or Pass-Ins or Private Sales or Pre Auction Offers or boardroom dealings …(where there are no rules) not under the hammer public auctions.

A substantial argument for paying a Learning Fee to a buyer agent is that it can significantly reduce your overall Learning Fee on this a most important financial decision, which you may make only once a decade. Alternatively a buyer agent fee can be regarded as an insurance against paying the kind of hefty Learning Fees we saw in the above cases.

A result of paying a Learning Fee to a competent buyer agent could be savings off your mortgage, better capital growth, more money in your personal life and –  the hard to measure  but no less important – better emotional outcomes.

In life we all pay – the question is how much.

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.

Camberwell 26 Alma Road: Bought $1,615,000. Bang! 5 bidders. Richard Jellis. Good to see the 'ol tiger back prowling around.

In contrast to last week, we saw all 9 properties we covered over $1,000,000 today, sell.   Three sold before auction, 3 sold under the hammer and 3 were bought after.  That’s a 100% clearance rate and Bidderman was back up to two.

Five of the nine properties had two or more bidders.  Richard Jellis of Jellis Craig had 5 bidders at 26 Alma Road Camberwell.  3 Bristol Street Surrey Hills (Antony Woodley Marshall White) also had good bidding strength, with three bidders taking the price to tick over $2,000,000.  Steve Burke of Jellis Craig sold  71 Broadway in Camberwell with a strong result just over $3,700,000.  Sure it needed a bit of work, but had very good land content.  12 Lorne Grove  Camberwell (Peter Batrouney and Campbell Ward) next weekend will be interesting.

24 Kingsley Camberwell with Jellis Craig’s  Richard Winneke passed in for  $2,100,000 but sold afterwards for $2,150,000 (resold from late last year when purchased for $2,000,000)..

27 Harcourt Hawthorn East with Rob and Tim Fletcher of Fletchers was bought for $2,300,000 after passing in at $2,125,000.  Both were good blocks about the same land size (700-800 sqm) with a home that needed some work but was livable .  Tim went onto say he thought this market pause was all about the huge stock levels available and claimed his company had sold 13 from 14 today. He did state he felt the market dynamics had changed in 3 weeks.

40 Kinkora Road Hawthorn (Richard Earle Jellis Craig)  was bought after auction for $2,650,000.  This was  similar to number 28 which sold last week but needed work.   The price reflected this.

Marshall White & Jellis Craig both had a good weekend.  Marshall White’s Justin Long said they had 38 auctions and about 80% clearance rate, and Richard Jellis of Jellis Craig advised they had 48 auctions with around 80% as well.

Boroondara Auction Results – 46 monitored – 32 bought – 70% clearance rate

Design Smart

Surrey Hills: 3 Bristol Street: An auction of the year contender for Antony Woodley of Marshall White: 3 bidders and bought for $2,050,000.

Balwyn North: 60 Tuxen Street; Toby Parker of Hocking Stuart trying to see all the bids from a crowd of over 300. The story of the day. Huge crowds. Very strong Bidderman. Bought for $4,300,000

It is 6pm Saturday and the James Million Dollar-Plus Clearance rate for the 39 Auctions we attended today was 77 per cent and we have no late REIV results so could be higher.

Bidderman was well up at 3 bidders per auction and any talk from us of the last two weeks looking a bit soft has been well and truly proven as wishful thinking. 

The market of today is showing no signs of any weakness as proven by Bidderman and the $m+ clearance rate.

As a buying group we had nine auctions/buys on today and in my opinion we had an element of luck to buy the five that we did. 

Market Mood

The market according to Gerald Delany from Kay and Burton was astounding today. Rock solid says John Bongiorno from Marshall White. Scott Patterson from Jellis Craig expanded even further with these facts and comments

Strongest day he has ever seen in his 20 years of real estate with 62 of Jellis Craig’s scheduled 75 auctions selling under the hammer or shortly after. Easily their biggest day in real estate dollar wise – ever. In fact at Jellis Craig 88 million dollars of real estate exchanged hands during the past week including around $7 million for Paterson St Hawthorn (Nick Elmore/Tom Aylward) and 5 Moore St Hawthorn (Paul Keane/Alastair Craig) was bought under the hammer for $6,435,000 with 6 bidders. This is 2007 bidder strength.  I think Scott made another salient point when he said it was local not overseas buying strength today.

We mentioned that the last two weeks were down in terms of Bidderman and that it may have been a turn or it maybe due to stock quality. Today seems to have proved it was stock quality. Today was as strong as the other 2010 Super Saturday (February 27 th), as strong as late last year and as strong as the December 2007 peak. It was all about quality and buyer depth and local not overseas buyers.

For every buyer there were two who missed out. Best evidenced by our  trips in the last fortnight to The Boulevard Aberfeldie for no result. 110 The Boulevard,  on the Maribynong river, was sold last week for $1.77m on a $1.2m+ quote with no recent sales to give any guidance. This week a similar knockdown 118 The Boulevard (Fabian Rosin of Nelson Alexander) which may have sold for a tad less actually had 4 bidders over $2 million to eventually  be bought by a most determined bidder for $2,189,500. 4 bidders over $2 million and 20% or $400,000 more than last week’s benchmark. It re-emphasizes the incredible power and momentum of the market on properties that are considered quality.

Stonnington the same – 16 Mercer Road Armadale (John Bongiorno Marshall White). $6,240,000. 4 bidders.

Bayside and Port Phillip was no different. Buy after buy. $2mllion, $3 million. 3 or 4 bidders.

Easter Reflections: You’re young and you maybe panicking. Please don’t give up!

Now that the Easter break is upon us, and the temporary madness of two Super Saturdays (wedged between Australia Day and Good Friday) is abating, it it a good time to have a quiet moment and reflect where you, as a buyer, are at. Even the most balanced and resolute buyers can be thrown off-track by the highs and lows of this year’s property market: it’s overwhelming (when lots of new stock comes onto the market); it’s intense (Super Saturday auctions on February 27 and March 27); and it’s emotional (especially the let-down feeling if you miss out at auction).

This piece aims to (to use the word of the moment) “recalibrate” your thinking back to where, for many, it perhaps should be. In particular I have focused on the young.

I want a home with solar heating – I want a home with no renos – I want a home with a courtyard – I want a home with a nice kitchen and pine floorboards. I want a home next to my latte shop. Fair enough.

But if I can shake your thoughts up a bit, that’s small beer and perhaps overly focused on a narrow set that may lead to a short-term fix but a longer-term problem or it may, in fact, lead to nothing at all – meaning, in this current market, you don’t buy.

Our question to our clients is the same on each property. It’s the same at the start of the process and it doesn’t change as we work through every one of our  pre-auction  and private sale meetings. That question is: what will make you and your family truly happy now and also truly happy in the longer term? What financial and emotional outcomes do you want to achieve when buying a home?

Since Christmas, we have had at least 10 families come and see us to help their kids get a leg into the housing market. Housing is the new private school fees; the new club membership that you introduce your child to. For many, if you don’t help your child into home ownership, then they ain’t getting into it anything short of Bairnsdale East and 2025. And please don’t sit there and say “I did it, why can’t they?” The current state of your wealth – most of it in your home – is one of the reasons you are wealthy but it’s also the main reason your children can’t easily get into the housing market without help.  But I digress. 

Buying any home at any level is PPP: Price, Property and Position. They are the three choice levers you, as a buyer, have some control over. How much, type of home and where? Price, Property, Position. 

You buy a home for emotional and financial happiness. Whether you think through it consciously or not, all your outcomes relate back to financial or emotional happiness. 

What should you buy? What makes you truly happy. It’s the Christian, Buddha, Muslim home philosophy all rolled into one. What really makes you truly happy now and in the future?

When buying a home, two things make you truly happy: good decisions and land.

Good decisions come from luck and goals (financially and emotionally). Bad decisions come from the same places: luck (lack of) and goals (or lack of).

You’re in your late 20′s and early 30′s and you need a home. Relationship pressures are usually the spur – your parents may be helping a bit and you have a good job.

Your name is Freddy and you are sitting down for a coffee with me, because your dad told you to.  

Freddy: I’ve got $500,000 and I want to buy a home in Hawthorn.

Mal: Nice meeting you, Freddy. Waiter. Bill, please.

Freddy: What are you doing?

Mal: I’m leaving because I can’t help you.

Freddy: I could buy an apartment

Mal: But you are getting married and said you wanted some kids. Space, Freddy, space!

Freddy: OK, what about going further out?

Mal: What to Officer or Coolaroo or Tecoma? Freddy, you don’t even know how to use your sat nav.

Freddy: You’re a snob and a very rude man, Mal. My father was right.

Mal: Freddy, homebuying is not about me, it’s about you. Today in 2010 you need to find $900,000. Sell your car; get your wife to get a second job; hold back on the kids and get that big-noting dad of yours to throw in a few bucks and show me the money. Freddy, your life is in Hawthorn or inner Melbourne; your friends are here, you’re happy here and, if you move out to Pakenham, then I’m afraid you may never come back. And I’m also afraid that is not where you want to be. Freddy, I’m telling you what you need to do. You need to fight, scrounge, cajole, weasel and push, push, push with all your might and you need to get as much money as you can manage together and you need to do it now.

Freddy: You’re an old fart, Mal. I don’t want those pressures. I don’t want to encroach on my lifestyle. I would rather be among the trees and without the pressures of an all-consuming mortgage.

Mal: Then, Freddy, that’s fine. If that is truly what you want, then, as Nick Renna says at all his auctions: I respect that and good for you.

Freddy: Who’s Nick Renna?

Mal: Don’t worry. Hey, Freddy. Does your wife Christine want to live in Upper Ferntree Gully among the trees? It’s a beautiful place.

Freddy: No, she wants to live in the inner city and she is applying the pressure to me big time. She wants kids, she wants culture and she wants Hawthorn. The only thing I’m not sure she wants is me! I hate this pressure.

Mal: This is good.

Freddy: Good? – are you a sadist as well, Mal?

Mal: It’s good because it shows you are getting some clarity on what you want and what your family wants. Now we need to be smart. Do you really want to live in Outer Melbourne?

Freddy: Not really and not because I don’t like the areas. It’s just it’s a long way out from work and it’s away from my friends and family and it’s not where Christine feels comfortable.

Mal: OK, well, we have one P worked out and that is Position (sort of). Only I think it’s not going to be Hawthorn, initially,  because we agree an apartment is not a goer with kids on the horizon and we don’t have the cash for land and a home there. What is important for now and your future is that we look for as much land in an area we can afford.

Freddy: What, like a knockdown?

Mal: Well, not really, because quite often that can be overcapitalising financially. Have a look at this diagram – you should have bought either of the renovated ones for a little bit more.

Freddy: So we go for big land?

Mal: No, it’s quality land – size isn’t everything, Freddy. See good land in Albert Park can be 180 sqm and conversely bad land in Swan Hill can be 1500 sqm. Quality land is about the combination of position and size.

Freddy: But in Hawthorn a good block costs $1.6 million and I’ve only got $500,000.

Mal: Actually, right now it is more but, in time, if Hawthorn, Grace Park, the Urquhart Estate or Scotch Hill is what you want then you will be able to get it, but you need to start right. Let’s look at Alphington – only 10 minutes from Hawthorn (outside peak); you said Christine’s favourite sister lives there; it has a really good cosmopolitan feel and has a number of period homes that have that good land content. 

Freddy: I get what you said about land quality but not land content. What do you mean by land content?

Mal: See this chart. All three of these homes have land but only the period home on the right has good land content. Land (the capital growth driver) is a lot less in new homes than older homes and even less in apartments – this example assumes you buy at market value all at the same price of say $900,000. But it’s also true at $2,000,000 even $5,000,000.

Freddy: And as you keep saying, they don’t fight wars over homes, they fight wars over land.

Mal: True. Land goes up and buildings go down.  It’s all about demand and supply. That is where growth comes from and another real pointer to show where demand is, is the Chinese.

Freddy: The Chinese!

Mal: When the FIRB rules restricted overseas buyers to new apartments, they bought new apartments as they had no choice. Now last year with the FIRB rules changing and Chinese nationals having choices as to what they can buy in Australia, many are choosing land over apartments and that is evidenced by apartment prices remaining lackluster and land prices, especially in your Hawthorn area, going through the roof. The price increases must surely be giving many people a message. Quality Land is a world language.

Freddy: So I’m getting the second P (Property) worked out. Type of home? Should have as much land content as possible.  What about the final P? Price. I’ve only got $500,000. That’s all the banks will lend and you reckon I need a million.

Mal: Freddy. You can do it. Make the lifestyle changes; get Dad and Mum to lend you some. Talk to the bank about a restructure and let’s see if we can’t find something a bit under a million and you put some sweat into the property – not a major reno but you fix it up a bit. I do think you can make $900,000 work if you want to.

Freddy: It’s a big ask. I want to go on holidays and my new Merc and ……..

Mal: You have choices. The choices you make now are what sets you up in your life. A new car and a holiday and its Frankston South or Aspendale and granite benchtops or none of these; hard yards and Alphington. One of these two has proven financial growth and for you emotional happiness, which you need for choices going forward eg better home, near better schools, a culture you prefer and seem comfortable with and the ol chestnut a happy wife = a happy life – the other has a two strikes policy.

Freddy: Two strikes?

Mal: If you are young and you buy a McMansion as home 1 and then home 2 in an  outer area new estate, then we feel that is where you will live for the rest of your life. Home 1 and Home 2 has to be on the ladder upwards if where you want to get to is where you are dreaming of now.

Freddy: I still think you’re rude and prejudiced but how will I convince the wife of this land content stuff?

Mal: Don’t worry, Freddy, my fourth wife said I was an expert on women and relationships. You start by telling them this …………………

Next market news in 3 weeks (school holidays and Easter)

Buy Well

Mal

Malvern: 39 Horace: Sold under the hammer for $1,670,000. Bidderman 5. Andrew Hayne asking the bidders to speak up over the crowd noise. Solid Result.

Camberwell: 21 Christowel: Alastair Craig knocks it down to the best of 4 bidders for $1,530,000.

We looked at 27 campaigns over a million in Boroondara this week – 27 and of those 22 sold. When talking with James Connell of Marshall White he said of his company’s weekend results in Boroondara and Stonnington, 8 sold before hand; 20 sold at auction and 3 passed in. That is 28 out of 31. Makes our Market Insight argument that buyers are turning away from “non quoted auctions” look untrue and to be fair they have a point this weekend.

Glen Iris: 7 Yeovil: The expressive Paul Williamson: Bought $1,740,000. 2 bidders

Three big sales to report on over $3m. 7 Henty Court Kew with Nick Elmore and Tom Aylward of Jellis Craig which was a quality building on an irregular block – we were obviously harsh with our James Control Price – well so the agent and sole bidder thought.

Secondly 17 Deepdene in Balwyn with Nick Franzmann of Marshall White. We like Nick – he is low profile but he gets the job done – $3,806,000. Almost $4m. Home was $1m tops; even though it was big. So that puts land around $2500 per sq metre. No drop off there even if there appears to be a lessening of Chinese interest.  Very solid result particularly given this last sold for $2.95 million back in April 2007

Thirdly Heather Elder of Marshall White, another highly respected agent, managed several buyers into a boardroom auction on Monday and got 4 Hollingsworth Hawthorn away north of the magical 3m.

45 The Boulevard Hawthorn – Tom Ryan and Nick Smith of Jellis Craig
James Home Rating: 650 out 1000. While the floor plan for this house presents some issues, property has great potential. North facing rear and adjoining to  Scullin Park are the major pluses here.  Ths is a good interim home for a young family but could also work for an older couple. You need to see beyond the kitsch.
James Control Price: Dirt $1,249,500 + House $250,000 = $1.499,500
James Auction Report: Opening bid $1.250m On the market $1.410m last bid and bought for $1.540m. Crowd 60 people with 3 bidders. Auction vibe slow start. Bid came by a new bidder as the paper hit the hand, Too late!!!
James Post Auction Examination: As expected

7 Henty Court Kew:  Nick Elmore and Tom Aylward of Jellis Craig
James Home Rating: 522 out 1000. This home has been built for this block and while well built and well thought out will not appeal to all buyers. Land content, backyard size, the block itself and flow of home are not the norm and while this does not make that a fault means that this home is a specific buyer home and future mass appeal (demand) is hard to judge. Really do like the separate wing for home office, older member or teenager. Garage size is excellent, light comes into the right area and rooms sizes are good. If you really like it, then why not – but understand what you are buying – this is an emotional home!
James Control Price: Dirt $1,393,200 + House $1,200,000 = $2,593,200
James Auction Report: Small crowd of 40 witnessed Richard Earle of Jellis Craig pass it into the lone bidder on his one and only bid of $2.85m. Sold afterwards
James Post Auction Examination: Nick and Tom are good at their job

Some random sample auction reports

BALWYN, 17 Deepdene Road – 2+ Bidders
Reported in by agent Mark Dayman – thanks Mark. Opened at $3.1 million, on the market at $3.68 million and ultimately sold for $3,806 million.
CAMBERWELL, 23 Radnor Street – 2 bidders
James Tostevin of Marshall White entertained a substantial crowd of 90 while two bidders took this home to on the market at $1.38million and sold at $1.46 million.
CAMBERWELL, 21 Christowel Street – 4 bidders
Auctioneer Alastair Craig, Jellis Craig. Opening bid $1.2 Actual. On the market $1.310m. Last bid and sold $1.530m. Crowd 90 people 4 bidders. Fast and furious auction in the end between 2 bidders with the successful bidder having made the original opening bid.
CANTERBURY, 38 Parlington Street – 0 bidders
Crowd of about 80 here – Richard Earle opened proceedings with a vendor bid of $1.7 million, then after no response from the crowd 2 furthewr vendor bids of $1.72 and $1.74 million. Passed in and remains unsold at time of writing.
GLEN IRIS, 7 Yeovil Road – 2 bidders
Paul Williamson got off to a slow start in front of 60 people opening with a vendor bid of $1.5M. Finally got a real bid after returning from the mid break of $1.51 and a second bidder came in with a large jump to $1.65 and it’s on the market, settling at $1.74M. The successful bidder flying in from Sydney this morning, viewing the property and buying it. Apparently the home an exact replica of his place in Sydney.
HAWTHORN, 45 The Boulevard – 3 bidders plus a LATE BIDDER
Opening bid $1.250m On the market $1.410m last bid and bought for $1.540m. Crowd 60 people with 3 bidders. Auction vibe slow start. Bid came by a new bidder as the paper hit the hand, Too late!!!
HAWTHORN EAST, 33 Harold Street – 6 bidders
Auctioneer Andrew Macmillan managed and entertained 6 bidders in a smallish crowd of 60 at one of the longest auctions of the day where bids dropped to a $1,000 and stayed that way for for a long time. On the market $1,200,000. Bought $1,393,000.
KEW, 7 Henty Court – 1 bidder
Small crowd of 40 witnessed Richard Earle of Jellis Craig pass it into the lone bidder on his one and only bid of $2.85m. Sold afterwards.

Design Smart

Armadale: 8 Alleyne: Crowd of 90: 4 bidders; Bought for $1,515,000. Justin Long directing proceedings

Well done, Iain Carmichael. Well done, Richard Mackinnon. Well done to all directors of Bennison Mackinnon Armadale.

Toorak: 9 Millicent: Sold last night for around $4m. Jeremy Fox must be gettng camera shy at auction: Thats 2 pre auction sales in 2 weeks.

Have you noticed a change in the air in Stonnington, have you noticed the new hot Armadale company to sell your home through? Bennison Mackinnon. They have taken a stance on buyer respect and it seems to be paying off in spades. They do seem to have more listings we want to buy.

Early days, I know, and fingers crossed that they do not somehow snatch defeat from the jaws of victory. But they have recognised that buying a home is about win-win. A win for the seller and a win for the buyer.

They have started quoting sensibly and, seemingly on the homes they do provide a written quote for, then the reserve is within the quote range.

Over the past decade, I have found all my dealings with Iain Carmichael, Andrew Macmillan, Elliot Gill, Mark Stobart, Tim Bennison and Andrew McCann to name a few to be straightforward and I now trust them (I hope this does not come back to haunt me) that when they put a written quote on the property on the internet I now actually believe the reserve is within that range, if they confirm it to me when I ring.

Sure, we understand that things change, so we check the internet regularly to see if the quote has changed but there seems to be a genuine attempt to get quoting right or at least better.

We sincerely hope they continue. Of course our company has an agenda – really what is it? We do not receive commissions from Bennison Mackinnon – ever (or from any company for that matter). We cannot ever tell you a time when we found post-auction or private sale negotiations any easier than with Marshall White or Jellis Craig or Kay and Burton.

Here is how their new policy is working practically.

We bought this home yesterday. 2 Beaver St Malvern East.

James Home Rating 703 out of 1000: Classic Gascoigne home with most original features in good order. Good land size and car access to the rear and house has such a wonderful street presence. A fair bit of work ahead here but very hard to go wrong. South-facing rear is a concern in terms of passive solar gain in winter, yet with a smart rear renovation, this issue can be addressed in some way. The other concern is that its close to Tooronga Road. Rated as land only here – could easily rate well into the 800s when renovated.

James Control Price: Dirt ($2,006,000) + House ($400,000) = $2,406,000. Multiple sales in area to show land price eg 25 Central Park Road. Land content 83 per cent.

James Auction Report: As expected, given the offering, a good crowd of 70 people saw auctioneer Iain Carmichael open here with a $2 million vendor bid. Two bidders joined in and quick bidding ensured a result. Announced on the market between $2.1 and $2.15 million, this property sold above the reserve and under the hammer. Not an unexpected result: this prime Gascoigne Estate property, ready for renovation, was worth fighting for. Bought for $2.42 million.

James Post-Auction Examination: As expected if there was competition. The quote was $2 to $2.1 million, and the reserve was within the quote. The owner wanted to sell and was straighforward about his needs and he got it sold. For the record 2 Beaver last sold with no improvements at the peak in late 2007 for $2.1m. The sale of today represents a 15% increase during that time.

We did not buy this Benmac home below two weeks ago and it remains unsold:

17 Hunter St Malvern: In this instance, we had two prices, one for on the market and one for pass-in.  We were notified of a signifcant reserve change – we bid – but only up to a level our client indicated as fair. There were other bidders but it was not declared on the market, so no sale. Of course, they may get they price – but one suspects it may be lower than what would have been paid under auction market conditions.

You may think this is some con – fair enough – OK – your business. If quoting gets under control in Stonnington and Boroondara (like it is, last time we bought, with say Nelson Alexander in Carlton or Hodges in Bayside or Hocking Stuart in Bentleigh to name a few) – which it can through the leadership of Bennison Mackinnon and Marshall White, Jellis Craig, Kay and Burton and RT Edgar, then, as James Buyer Advocates, we will lose a percentage of our business from clients who hire us simply because they do not trust agent quotes. What is our secret agenda then please?

Real life yesterday: I was under the pump yesterday: had an auction to go to in Rosanna, a meeting and then the Beaver St auction and then a family commitment. I also had a new client in Malvern that I needed to give some feedback to. Hand on heart, I went to four Bennison Mackinnon properties because I felt I would not be wasting my time, as I knew roughly where the thoughts of the vendor were.

Sellers – more buyers will come to your home when buyers know a sensible guide price for it and they trust the agent. We paid $300,000 more than the reserve yesterday on Beaver St and we were happy, the client was happy, Bennison Mackinnon were happy and the seller was happy.

On some occasions, we have a two price strategy. One price for on the market and one price for pass-ins – guess which price is higher? When you think about listing with an agent, think about an agent who can get more buyers through your door – the agent that will do that will be the one that buyers can trust and have trustworthy price indications. As a buyer, if you have 20 homes to look at on a Saturday and five have known, believable price guides within your range, which five will you look at?

This is not to say that, on some properties in this current market, that no quote is not the right thing. High-end homes; quirky homes; runaway demand homes - no quote is advisable and sensible. I mean look how wrong we are on some homes with James Control Prices. As a vendor, you have the right to have any or no reserve – but, on some homes, to exercise that right, you may be paying a very big price when you do not get qualified buyers to look at your home.

Sellers, we are not saying that across the board Bennison Mackinnon agents are better negotiators than Marshall White or Jellis Craig or Kay and Burton agents. What we are saying is that by putting a quote that represents your price wishes, adjusting it along the way to reflect buyer/agent feedback and advising a reserve prior to will get more buyers through your door than if you did not advertise a credible price reserve (eg. unless your reserve is well above market – which you rarely get and, more often than not, torpedo your selling campaign).

Sellers, can we also add that over the years, despite what you may be told, that many buyers will pay a higher price for surety – eg when buying they know the price they have to pay rather than some wishy washy crap about my vendor has a buying range.

Sellers you have a real choice now – a company like Bennison Mackinnon will put out sensible price guides with your reserve in it if you so desire and we as a buyer agent are going to support that company by directing as many buyers and clients to their homes as we can - and we will actively support any other company within Stonnington, Bayside and Boroondara where they are making a genuine attempt to inform and not mislead. Not expecting perfection just integrity. Of course for our clients we will still look at all homes – it is just Ben Mac homes will be first cabs off the rank if they are the only ones with price guides with integrity. Life is short.

We as a company have the utmost respect for the people at Marshall White and Jellis Craig and Kay and Burton and so on and what we say here may only hurt our relationships with them – please we do not wish to – we really do respect many of the agents that work there. As a whole they are great agencies. But this is too important. If we as an industry can get quoting right and maintain the integrity of the auction system then we will have the best, fairest and MOST RESPECTED (through its transparency) system for selling homes in the world. And that has to be a good thing.

Surely agencies are smart enough to come up with a system that maximises the interests of their clients and buyers. Agents should talk price.

We support our competitor; David Morrell of Morrell and Koren on this issue and his aggressive stance. Low or misleading quoting is counterproductive and very damaging to our industry. Maybe it is not up to the regulators, maybe it is up to our industry to get its house in order.

Bennison Mackinnon seems to be genuine and trying and we trust Iain Carmichael and we are sticking our necks out here to support them so blatantly.

We at James Buyer Advocates have a new policy for Bennison Mackinnon if their reserve is within their quote range - with our clients permission we will adopt a far more transparent bidding modus operandi at Bennison Mackinnon auctions and any others that care to show buyers respect.

Apologies if we are over the top. Buying a home should be an enjoyable meaningful experience (to quote Trudy Biggin) – one that does not have to be full of mistrust – one where you can focus on the home and not the personality of the buying or selling agent.

Like umpires; the less you notice about us (buying and selling agents) and the more your see of the game (homes) the better for you (seller and buyer). It should not be about us.

Thank you directors of Benmac Armadale, a breath of fresh air. Please continue.

Stonnington had a strong weekend with most of the 10+ auction selling before or at auction. The other strong sale was 9 Millicent Toorak with Jeremy Fox of RT Edgar, selling the night before believed to be over $4m and if you said house value was $800,000 then land ended up $3600 per sq metre continuing the strong run of the last few weeks of this area.

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.

Toorak, 78 Clendon Road: $4.35 million. Paul Castran as the buyer would see him!

It’s 7pm on Saturday and our James Clearance Rate is 82 per cent on the 22 auctions we attended and reported on. Need we say any more – the market continues its strength and subsequent price rising, despite being in an increasing stock level environment.

Flashback: our report from 22 November 2008: Today, only two of the 13 auctions we attended sold under the hammer. The weakest market is the $1 million to $4 million market. What a difference a year makes. In September 2009, the strongest segment at present is this same $1 million to $4 million market.

Summary of today’s Market Insight:

1. The James Connell State of the Market Interview.
2. Repeating 2007 and The Chinese Influence.
3. Buyer Stress.
4. Re-think rather than Give Up.
5. Control Price – Neighboring Properties Discount.

James Connell, Managing Director of Marshall White, one of the two dominant selling agencies in Boroondara and Stonnington, talks to Market Insight this week. James has 30 years in real estate (a slow learner) and has co-owned Marshall White, with John Bongiorno, since 1993. The water-cooler talk within our industry is that he has respect among his troops and his support is very hands-on, even when it was a bit tough. He has given our company solid helpful advice over the years and, while buying off Marshall White is never overly easy, we have always found their salesman quality runs to the bottom and this must ultimately be a reflection, in part, of his leadership.

Mal: Where is the Boroondara/Stonnington market going?

James Connell: Under $1 million, I think the market has peaked. The $1 to $4 million market, I think, hasn’t peaked and there is some steam left. Over $4 million, the air is pretty thin and still minimal activity.

Mal: Anything else?

James Connell: Most secondary properties, eg main roads, next to commercial, have, up till recently, taken a pounding; however, they are now gaining momentum again, along with the rest of the market.

What are you saying?

There are times to buy secondary properties – that time has passed. Buy quality – you will need to wait for the next downturn to again buy most secondary properties well.

Anything else?

Period homes in that $1 to $4 million market (which, in your past Market News’ articles, Mal, you have correctly identified as slow last year and hot this year) are very, very strong and, in a natural cyclic movement, we are finding Armadale is going better than Malvern.

What do you expect until the end of the year?

No change in the current strength of the market. Our company’s auctions are 20 per cent down on the 2007 peak (120 to 100) but, looking positively, we are 20 per cent up on last year.

What about bidding? What are you seeing?

Most of the same ol’ same ol’. People who don’t normally do it are taking advice from people who did it once 10 years ago. Giving your company a plug, Mal, and other professional buyer advocates – I really don’t know why people don’t pay your fee and hire some expertise. It is not as easy as people think and, under pressure, people make mistakes. However, the auction system, when run well, is still the most transparent and fair way to buy/sell a home.

What should buyers do if they are going to do it themselves?

Pre-determined figure. Actually bid and then buy it or walk away at a pre-determined figure (or maybe a little bit more).

Both laugh.

What about quoting: I have always thought you guys were wimps not putting some sort of figures out there.

It is not in the vendor’s best interests to do so, Mal. We think quoting puts artificial ceilings on homes. Also, as you well know with your Control Prices, you don’t get it right all the time and, in fact, in this market, we have media lag times for advertising of at least 14 days and things can change a lot during that period.

But you say at the door what the price may be?

That is buyer interest and we can change it and explain it.

Aren’t you alienating some buyers who simply won’t bother if they can’t work out price?

I firmly believe in this market that we are not missing any serious buyer enquiry.

Chinese buyers?

Major, major effect on our market. 25 per cent of our sales in Boroondara and 12 per cent in Stonnington. And I think Chinese money is here to stay. Chinese buyers are not scared to pay what they need to and, with government changes, it looks like this solid migration will continue. Mal, Chinese people have effectively kick-started our economy and underpinned all our housing values in inner Melbourne. We have a lot to be thankful for and I believe their influence on price has been around 10 per cent. Chinese people are buying $1 to $4 million homes, well positioned and good land and, with the FIRB changes, they have moved from buying apartments (which is very quiet – nowhere near 2007) to land.

And what else have you seen in the market?

The complete collapse, due to lack of success,  of Expressions of Interest Campaigns.

Why?

No standard rules, in fact no rules, and agents are just as confused as the public. That is our fault. Also, it’s human nature for people to only offer what they want to, not what they have to.

Please expand.

An expression of interest or auction is only a conduit, not a solution. The solution is good agent work. However, as a conduit, Expressions of Interest is not working and not allowing a good agent solution. Buyers don’t understand it (as many agents don’t) and buyers certainly don’t trust it.

What makes a good auctioneer?

Empathy with crowd – one with the crowd – can settle buyers and raise their excitement at appropriate times.

Premiership?

My team is your team – the Pies and Dane Swan for Brownlow.

Thank you, James.

My pleasure and good luck tomorrow.

(This interview was on Friday)

Continuing on with James Market Insight – Repeating the Past of 2007:

Flashback: October 2007 James Market Insight: …These large increases as per most of the rest of the world are largely confined to inner suburban quality properties. Land itself, meaning land where homes can be pulled down, is particularly well sought after in all Melbourne Bayside and inner eastern suburbs. What is driving the market? It is being driven by overseas buyers, stock market wealthy buyers, buyers who have seen large increases in their own properties and buyers who are confident in their future.

Back to now in September 2009:

The question I get asked the most. Why is our market so strong? It was initiated by demand from Chinese buyers. It started as a trickle in April and now the floodgates are opening, as evidenced by such comments as those from Pat Dennis of Jellis Craig, who, when we were on the phone, said his last 13 sales in Balwyn and Kew had been to Asian/Chinese buyers. Both Jellis Craig and Marshall White – the two dominant Boroondara agents – state that around 25 per cent of all their sales are to Chinese/Asian buyers. The market stock levels are reducing further, as most Chinese buyers do not have homes to sell – or do not wish to put other homes back into the market for sale.

I’m not saying this is a concern; I’m simply saying that this is a fact. It is government policy that is encouraging Chinese people to buy up large amounts of land here. Good on them – in many ways, while there may be some concerns now and in the future re price increases and stock tightening, if it wasn’t for Chinese money earlier this year, we may now be in a far worst state economically than what we seem to be.

However, we are a micro society compared to the wealth of China and maybe some thought needs to be given to the long-term effects of such amounts of money coming into the local housing economy.

Boroondara’s activity has placed price pressures on the nearby Stonnington suburbs of Malvern, Armadale, Toorak and South Yarra and prices have continued a steady rise, as more Chinese buyers buy more properties.

Bayside suburbs have not yet experienced the Chinese influence to the same extent and, consequently, have not had as sharp an increase in housing prices.

The biggest issue out there at the moment is increasing BUYER STRESS or panic or feeling of hopelessness.

If the market continues like this, then you the buyer have PPP adjustments to make or else you will not meet the market on Price, Property or Position.

While we encourage the buying of quality properties only, we don’t encourage paying more and more and more. There comes a time where you can either stop, (we have never found that a successful strategy, as most who stop are often too late restarting and miss the market again) or re-think. What we think works is a re-think. Adjust your Property or Position while still being a bit flexible on Price, but, if you can’t keep up with the market, then firmly focus on Position or Property adjustments. Rule of thumb; it is usually (but not always) preferable (long-term financially and emotionally) to adjust Property (land + building) rather than Position.

In September 2009, if you have $1.5 to $2.5 million in Hawthorn and you are looking for a family home, then prices like Urquhart Street say you have a lot of friends also looking for a home but little to choose from. If you can’t afford the $600,000 jump, then why not consider Eaglemont or Kew or Glen Iris? If that Positional change does not excite you, then why not consider a 1980s home or a period home that is a bit dated rather than a new home now.

Your mortgage levels need to be considered. If interest rates are about to be increased, then bigger mortgages at higher rates will soon take the gloss off your new home joy. Buying rubbish is not a suggested solution either, as we have often talked about the GAP LAW – time does not heal bad buying decisions. And James Connell confirmed above that the time for smart rubbish buying may well have passed.

So, if you can’t stop or get bigger mortgages or buy rubbish and be happy, what can you do?

Why not consider smaller land size and a smaller home (if that is possible)? It still makes sense if you keep Land Content to Value Ratio in the 70-plus percent range - even on some smaller block sizes. Albert Park (block sizes around 150-200 sq metres) as a whole is testament to this. You do have choices rather than give up or kill yourself with a huge mortgage – you can rethink.

In summary, some “rethink” observations:

1. Stopping or panicking usually isn’t a long-term solution.
2. Be careful with major positional rethinks. For example, do you really want to live in that area or have you just found a house you can afford? We feel yes, connect with the PROPERTY, but you still need to connect with the POSITION.
3. In property, it is position first, then go for a home with good bones, even if you can’t afford the “skin” right now.
4. PRICE is important as to paying market and your ongoing affordability.
5. And if all else fails, you can always get a new spouse with more money!

Now, a word on our James Control Price performances. Got a few “right” today and also a few “wrong” Another “wrong” by a million today and this time the agent was right. Happy to politely bag Jeremy Fox at times, but this time he was spot on and I got it very wrong. I used the James Control Price to say land at 6 Kensington should be worth $4500 per sq metre, or around $4 million for the dirt and $1 million for the home = $5 million. Jeremy said I was “on drugs” with that price, as the adjoining flats were hurting this home. He was right. It sold around $4 million. No excuses – he was a lot more on the money than our Control Price.

This neighbouring property discount was further backed up by 78 Clendon Road Toorak, which also had an incredibly dominating block of flats as a neighbour (you can see it in the marketing picture). 1143 sq metres x $4500 per sq metre plus $600,000 for the home (it needed major refurbishment) equals $5.7 million. Today, under the hammer, it sold for $4.35 million. So is the land worth less or do we keep the land the same and apply a negative emotion discount? Either way, just like irregular blocks or main roads, neighbouring properties with serious issues can present significant discounts to the end result.

But, please, I am not saying every block of flats presents an issue. We recently bought a beautiful period home that was next to a block of flats but those flats did not present an overriding privacy issue that it seemed to in both of today’s examples.

Finally, on this matter, as we keep saying, the air is still thin at $5 million, despite the pumping along at $1 to $4 million. Here the buyers do have more choice and they demand “perfection” or they discount or don’t buy.

Lead Photo today was a brilliant one by photographer Tom Wilson.

Buy well and make good decisions

Mal