oc | Thursday 23rd January

Markets, talking price and late bids.

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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


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


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


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


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

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

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

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

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

Late, Disputed and Non-Bidding

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

Buy Well and Make Good Decisions


Subscribe to our Market News Newsletter

Tags: , , , , , , , , , , , , , , , , ,

Be with James

Would you like to talk to us about finding or negotiating on your next home?
We buy 100 homes for our clients every year.
We buy Inner East and Bayside over $2m.
View more MasterClass Articles

Inside James Market News