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The year 2012 is moving into the rear view mirror.
With only five auction weekends to go this year, the necessity for good negotiation becomes paramount. With another 69% clearance rate from 733 auctions that were listed by the REIV and over 3,000 auctions listed for the next three weekends, vendors and purchasers will be frantic to do deals.
If clearance rates continue around 60% then in the next three weeks 40% of 3,000 properties will still be sitting on the market in the run-up to Christmas. Some 1,200 vendors will want to have their properties sold before relaxing through the Christmas hiatus. And it is up to the selling agents to assist the vendors to make this happen.
But too many agents are still massively overquoting vendors then low-quoting to prospective purchasers. It is not too difficult for professional buying agents to work out property values and have a very good idea where the auction will finish up. It really doesn’t matter to us where the agent quotes because we can use comparable sales data to get a very good idea of where the bidding will end up. We have heard from some selling agents that reserves should be published prior to auction. This is all well and good if they are accurate to what the final outcome of the auction will be. We have heard from plenty of selling agents who say that low quoting is necessary to bring plenty of people to the auction. But this usually annoys the inexperienced or those who are not getting professional counsel from a buying agent.
Neither of these situations is of any real issue if the vendor is selling at a realistic price. The single biggest problem in the Melbourne Real estate market is when agents let vendors dictate reserve. I know the vendor has the right to sell at whatever price they want and I know they can withdraw the property from market if they wish, but when prospective purchasers expend money on legal, building and pest inspections when the vendor wants 10% over market value and the selling agent does not advertise this, it is grossly unfair.
 
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When excellent comparable sales data indicates the price point of a property as around $700,000 give or take $25,000, even if the agent quotes in the $600,000 range it doesn’t usually matter too much. Come auction if it is a good property it will have multiple interest and the bidding should get into the high $600,000s or low $700,000s and well within the target range of value for the vendor.
The problem occurs when the vendor wants $800,000 for the property.
This means the vendor either has extremely bad counsel from the selling agent, the selling agent has overquoted the property’s value in order to get the listing or the vendor was not really serious about selling their property. Unfortunately, it is usually one of the first two reasons.
Consumer Affairs should step in to protect both the vendor and buyer. If the agents’ appraisal is more than 10% from the vendor’s reserve either publish the reserve at the beginning of the campaign or if the property does not sell at auction reimburse prospective purchasers for their time and expenditure on purchasing the property. Most professional real estate agents who are competent will know what a property is genuinely worth. There will always be a little low-quoting, but value is value and if the vendor wants well above the market value the agent should have a responsibility to let every prospective purchaser know before they expend time and money on due diligence.
Over the next five weeks we will see more and more of this issue and it will be exaggerated as we get closer to the Christmas slowdown. Agents who are desperate for listings may have been “buying the listing” (telling vendors they will get more for their home than it is truly worth), and when the agent comes up short at the auction, they should be held accountable. After the auction, there is no reason why the compulsory appraisal that the agent did for the vendor should not be published for all passed-in properties. If the reserve set by the vendor is more than 10% above this number then this should be seen as unreasonable for prospective purchasers. The prospective purchasers should be able to make a claim against the agent or vendor marketing the property.
Ian James is director of <a target="_blank" title="JPP" href="https://www.jpp.com.au">JPP Buyer Advocates</a> – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiate more than $100 million worth of property each year for clients.
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Unrealistic vendor hopes the single biggest problem in Melbourne real estate market: Ian James

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There was a significant change to Victorian law that came into force on March 1. In Victoria, buyers of property who sign a contract of sale have three clear business days with which to withdraw from the contract for any reason they choose. There were a few exceptions to this rule, the main two as far as the average buyer was concerned were: if you signed the contract of sale within three business days either before or after a publically advertised auction or if you had received advice from a legal practitioner before signing the contract. The latter no longer is in force.
You can now receive legal advice prior to signing the contract and you still have your cooling-off period. Even though I only work for buyers, this change to the law doesn’t necessarily help us. It removes the possibility of finality. It makes it impossible to offer a good deal that gives the vendor surety. We have made many deals happen specifically because of this. The three-day cooling-off period was designed to allow those purchasers who signed a contract without legal advice time to get someone to look over the deal they had made. It is now designed to allow people to change their minds.
There is one benefit that I can see for the prospective purchaser. Many times we have decided to buy with a condition subject to pest and building inspection and to soften the condition we agree to get the inspections within the three-day cooling-off period. To do this means we couldn’t in the past get legal advice prior to signing the contract: now we can.
This has significantly changed the negotiation landscape for buying property. If a selling agent wanted to do a deal before an auction, he or she would normally only take an offer if the purchaser had received legal advice. In other words, the offer was unconditional. That means they could call around to other interested parties and say, “We have received an offer that will buy the property prior to auction. If you wish to purchase the property please have your offer in by 5pm today.” They would normally give a fairly close indication as to the offer, in order to push up anyone else. They knew if they didn’t get any better offers they had the property sold regardless. This scenario is similar to a “boardroom auction”
With the change to the law on March 1st this year, this is no longer an option for selling agents. Boardroom auctions are no longer viable as they are not final (the offer would have a three-day cooling-off period). Sale by set date, tender and expressions-of-interest campaigns will no longer work as they were intended. These offers usually state that the purchaser must have attained legal advice prior to submitting an offer, thereby making all offers received unconditional. This is now no longer the case.
Even offers within the auction campaign will prove difficult. For example, an agent is given a very good offer on the Tuesday before a Saturday auction. If he takes it and lets all other interested parties know he has an offer that dramatically exceeds the range and will be accepted by the vendor if no better offer is received, he runs the risk of scaring off all the other contenders, albeit at a lower number, while he has to wait until Friday night to see if the purchaser cools off. If he doesn’t take the offer and this purchaser does not attend the auction, he may have made a substantial error for his client.
I can’t wait for someone to challenge the definition of a publically advertised auction. Can a publically advertised auction be “advertised” on the internet for today at 4? I am unsure of what the length of time needs to be before an auction is deemed “publically advertised”. If there is no time frame, can an agent who knows he is going to get an offer at 2.30pm advertise the property on the internet at 1pm that the property will be for public auction at 5pm on the same day and therefore avoid the cooling-off period?
The most interesting issue in this change and would probably come under the rule of unintended consequences is the fact that real estate agents now have an advantage over all others who put offers on properties outside the auction period. There offers will be unconditional and therefore if the numbers and terms are the same, better than someone else who has a three-day cooling-off period.
Ian James is director of <a target="_blank" title="JPP" href="https://www.jpp.com.au">JPP Buyer Advocates</a> – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiate more than $100 million worth of property each year for clients.
 
 
 
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New Victorian cooling-off rules could hurt vendors and agents

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I was listening to the radio on my way home on Saturday evening and heard a presenter and a town planner talking about real estate in Melbourne. A caller had asked a question of the two regarding what the “plus” meant when an advertised property was quoted $490,000 plus. The caller was looking at a property in Mitcham, on about 750 square metres, and was thinking about buying it in order to subdivide and develop. 

The town planner talked about due diligence, which was all good and well. He gave advice similar to: Talk to the council to work out whether the area can be developed, and into what. Is it an area that will allow for high density, etc. All very good advice! He did eventually get around to talking about the “plus” as being up to or more than 20%, however he also said he didn’t put too much stock in what the agent said. It was really worth what others will pay. 

There are four main parts to buying property in Victoria: working out what your needs are, searching and identifying possible properties, assessing target properties accurately and finally successfully negotiating the sale. 

Today we will talk about assessment, which is really what the caller was asking the town planner to do without even seeing the property. There are many options when it comes to assessing a property for sale. 

Many people will say to look at the papers or buy information online to get sales results. This is fine if all the sales in the area were auctions. In the state of Victoria, resellers of real estate information cannot identify the private listing past street and suburb. Numbers are not supplied. So, if you know that a property sold in Smith Street for $800,000 and another sold for $400,000 you still do not know what the difference is. 

You can do this if you are diligent. You must physically take note of every sale. If you are looking to buy in “Smith Street” then you need to look at every property that is on the market and when it sells and try to identify the property, then it becomes useful. You need to look at every paper, every website and all the online sellers of information. This will still only give you some idea, as historical sales over the last two years will be difficult to gauge without street numbers. But it can be done. It is extremely time-consuming and tedious. But if you have three to six months to build up a local database then it will be useful. 

The actual sales price is only the first step. You need to visit as many of these properties as possible. You need to segregate your data into properties that have valuable houses on them, properties that have recently renovated houses and properties that have houses with renovation options. 

You then need to look at individual land sizes. Is there a development option? Is there an option to rebuild a new home or renovate the existing home while subdividing the block? Is it a corner block that is easier to renovate? What you are trying to do is calculate whether a property was sold for “land value” or whether there was some additional value in the house. 

When there is some additional value in the house you need to look at how many bedrooms and bathrooms, car accommodation, quality of fixtures and fittings, particularly in the bathroom and kitchen. How big are the individual bedrooms, is there a flow to an open-floor plan, or is it a compartmentalised rabbit warren? 

You need to look at these questions with each individual style of property in mind. If we are looking at a Victorian home, we know that the bedrooms will be of good size, at least three metres by three metres. The ceiling heights will vary from three to four metres, and if there has been little renovation the bathroom will be at the back of the house and the kitchen in the middle because this is how they were added over time. 

A structurally renovated Victorian home should have the bedrooms at the front, followed by bathroom and hopefully ensuite, then the kitchen and an open-plan living zone leading directly on to the outdoor entertainment area. 

However, you would not expect a 1970s “estate-style” home to be set up this way. In fact, the main bedroom is usually near the front, with the others to the rear. A big house might have an L-shaped lounge/dining room with a large central kitchen. Unfortunately, these houses usually have limited rear access unless a further rumpus room has been added and then it would be good to see the outdoor entertainment area run off this. 

Finally, you need to put all this together to try and guesstimate what someone else is likely to pay. 

If you do not know what someone else is likely to pay then you will waste almost a month of your time and effort waiting for the auction, waste money getting pest and or building inspections done, waste money getting the contracts checked by a solicitor and then when auction day comes around and the auctioneer is calling for opening bids and you have a figure in mind, you won’t know whether your figure is in the right ballpark. 

You cannot use the agents estimate to work out what a property is worth. The “plus” does not mean 10% or 20%. When a range is quoted it does not mean the reserve is within these numbers. The selling agent does not need to, and actually cannot give you, any assistance that would be seen to be to the detriment of getting the highest possible sale price for his client – the vendor. Some agents will quote high and try to negotiate from this point; others quote low and will try to push up a potential purchaser. Your best negotiation tool is to have an accurate appraisal of what someone else is likely to pay: i.e., your competition. 

When it comes to purchasing a property there are actually three numbers we need to calculate or guesstimate. What is it worth to us? In other words how much are we happy to pay for this particular property. Secondly, what is it worth to someone else? In other words, what is likely to happen on auction day? And thirdly, and by far the most difficult, what does the vendor want! 

Once we have these numbers we can then begin to set up a buying strategy. We will talk about different buying strategies at another time. You can get an accurate assessment of a property from an experienced and licensed buyers’ advocate or a valuer. You need to engage them and pay them in order to guarantee they are working for you. 
Ian James is director of <a target="_blank" title="JPP" href="https://www.jpp.com.au">JPP Buyer Advocates</a> – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiate more than $100 million worth of property each year for clients.
 
 
 
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Ian James

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