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Trading homes: Buying and selling in a difficult market

March 26, 2012 Posted by Ian James

Ian James

For the third time this year we have seen weekly sales of property in the Melbourne metropolitan area exceed 1000 as reported by the REIV. It is now very obvious to all the professional Real Estate agents that the owner occupiers are re-entering the market place. The vast majority of our enquiry now is the person who wants to sell their own home and buy another. Sometimes upsizing: sometimes downsizing.

I have many questions asked of me as a real estate agent. None more so than: “What do I do first, buy or sell?”

The question is easier to answer than you think. The first question to ask is can I afford to hold two properties at once. Ask your banker/finance broker how much it will cost for bridging finance and whether the bank will let you hold both properties for a period of time. If the answer is yes, and the cost is not overwhelming, then I would always buy first and then sell. It means that you will only need to move once and it will be at a time of your choosing.

If the bank says that you can only own one property at a time, then you now have a decision to make. If you sell first, then you will not be in a financial jam, however if you cannot find the house you wish to purchase during settlement, you may have to rent or live with a friend or relative for a short time. In other words you may have to move twice and or store your furniture.

If you are going down this track, you should be looking for a long settlement on your home. 90 to 120 days is not unusually long and sometimes you may get a better price if you offer this length of settlement. The trick question to answer is: What do you do if you get a good offer with a short settlement. You need to work through the numbers.

Before you do anything when trading homes, it is a good idea to get an estimate on your property. This usually consists of three local agents giving an appraisal, or clients of JPP can always ask us for an opinion. You need to have a very good idea of what the market will most likely pay for your current property.

If you would like some advice before starting the process of buying and selling, please do hesitate to contact me for a chat.

Ian James
Director
JPP Buyer Advocates

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Categories: Market Forces

Owner Occupiers are re-entering the Market

March 19, 2012 Posted by Ian James

Ian James

After another big weekend of auctions the REIV clearance rate has dipped just under 60%. But this doesn’t really tell the tale of what is happening in the market place. Four out of five of the auctions we attended on Saturday passed in with only one NOT being purchased after negotiation.

The very high enquiry levels are switching from investors to owner occupiers. In the past four weeks there have been two owner occupier enquiries to every one investor enquiry. There are many people who already own a home and would have been selling and moving up the property ladder to a more expensive home over the past two years that did not. They have been procrastinating. But a time must come where those who need to upsize, or downsize cannot wait any longer. I believe we are reaching that point now. Most procrastinators have been sitting on their hands for nearly two years.

If this trend continues, it will mean an increase of the family homes in the $400 – $700 and potentially the $1M – $1.5M ranges being put on the market. They will be good homes in good locations, and will mean that there will be better choice of family homes which we have certainly had a lack of for the past eighteen months. However, it will also mean there will be an increase in buyers for the next level up as well.

Whilst it will be good to see the increase in choice of property, it will also be good to see more top end properties of each of the suburbs now being put on the market. However, it will become much more difficult to purchase due to the increased competition of cashed up buyers.

I believe this year we will see the return of the traders. Those who have a home and have paid off a good percentage of the mortgage, who are now in a position to sell and repurchase. The market indicators will be very slow to encapsulate this trend as the median price will not change very much. Many of these vendors will be realistic with their values on their own homes but will probably be very aggressive on buying well.

I believe this year we may see a rise in turnover back to averages around 75,000 homes in the metro area being sold but we will not see a huge increase in price that normally accompanies this sort of spike.

2012 will be the year when owner occupiers will lead the charge for purchasing property. If you are one such person, then think setting very specific limits when you buy and sell. If you would like some assistance before taking the plunge, please feel free to call and have a chat with one of our advocates.

Ian James
Director JPP Buyer Advocates

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Categories: Market Forces

The Autumn Selling Season Is Upon Us

March 5, 2012 Posted by Ian James

Ian James

Three day cooling off laws change significantly from 1st March.

With summer over, both by date and weather, the Melbourne property market has shown some signs that the autumn season may have some strength to it. The REIV clearance rate again exceeded 60% with just short of 800 auctions. There were also nearly 650 private sales reported throughout the week. These numbers will vary slightly throughout the week as more results come through.

It seems much of the strength is in the sub $1.5M market. Many of the 2nd home buyers seem to be slowly coming back to life after a two year hiatus. This is beginning to increase stock levels in the sub $700k bracket and with investors also breathing life in the lower end; it seems turnover numbers will most likely increase this year.

Next week numbers are well down due to the long weekend, and then we should see a brief frenzy of activity until the Easter slow down. It is what happens after Easter that will really shape this year’s property market.

There was a significant change to the law that came into force on March 1st. 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 so 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 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 prior to 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 5.00pm 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 the 1st March 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 their offer, thereby making all offers received unconditional. This is now no longer the case.

NOBODY CAN WAIVE THE THREE DAY COOLING OFF PERIOD. YOU CANNOT CONTRACT OUT OF A LAW.

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, whilst 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 4.00pm? I am genuinely 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 1.00pm, that the property will be for public auction at 5.00pm on the same day and therefore alleviate the cooling off period?

It will be interesting to see how the next few months negotiations play out in the public arena. If you are interested in purchasing property please do not hesitate to give me call and we will see if we can assist you

Ian James
Director
JPP Buyer Advocates

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Categories: Property Negotiation

The Market will sort itself out over time

February 27, 2012 Posted by Ian James

Ian James

With a clearance rate above 60% and a total number of sales for the past week over 1000 according to the REIV, most media outlets will be talking about the turning of the market. However one week’s results don’t set a trend. Last week with the clearance rate under 60%, some Estate Agents wanted to tell you there wasn’t enough data to set a trend and therefore the result under 60% doesn’t mean anything. And I am sure this week we will be told that there is plenty of evidence to point to the market beginning to rise again.

Of the four auctions I attended on Saturday all sold. The prices ranged from $408k to $1.8M+. Each of the properties had bidding onto the market and sold under the hammer except one. This property passed in and was sold through negotiation. The auction in Bayside started with a vendor bid and finally, after some 3 or 4 minutes in 38 degree heat the auctioneer was relieved to take a genuine bid from the crowd. There were 2 other bidders who reluctantly took the bidding to $1.26M which was $10k over the top of the advertised range. The property was announced on the market and one further bid from the original bidder secured the property under the hammer. This seemed to be a case of one very strong bidder and two who were stretched to breaking point even though we were just above the top of the range.

The market will sort itself out over time. Over the next decade property prices within about 30km’s of the CBD of Melbourne will more than double in value. Will this occur uniformly over time – NO! A very smart man once said, “It is not a matter of timing the market, it is a matter of time in the market” Nothing could be truer. This year we will see more vendors put their homes onto the market and they will be a lot more realistic with their asking prices. Most owner occupiers who have wanted to sell over the past two years but have been able to postpone, probably have. They are waiting for a better market. But time waits for nobody. At some stage people need to sell to move on with their lives. I believe this year will see a lot more turnover in the market.

I also believe most vendors who are trading homes, either upsizing or downsizing, have established that even if they do not get top dollar for their family home, the same is true for when they purchase. Exchanging homes in the same market is not as fraught with danger as most people think. Vendors selling homes need to present their home well, they need to know what their home is worth in this market (realistically worth, not wishful pricing) and they need to hire a professional, experienced agent. This will maximise their sale price.

Do not think that you will save money selling the property yourself. I had a chat with a gentleman that asked me if I were interested in his property. He was selling it himself and he asked me if I had a client interested. It was not in an area that we were searching in and I asked him why he was trying to sell it himself. He said he wanted to save money!! I offered him some free advice, which he was happy to accept. I explained that if I were interested in the property, I can assess its worth far more accurately than he can. I also have access to all the sales data in the area, I know how the market is trending and I have a very good understanding of the law surrounding the sale of property. I then explained to him that I negotiate property transactions approximately 300 times per year. I asked him how many property negotiations he had done in the past five years, to which he replied “None” I asked him who he thought would have the upper hand and he immediately agreed I would.

In short, I would probably out negotiate him every day of the week. I actually out negotiate quite a few experienced real estate agents. I explained that if he comes up against a highly experienced advocate, he will most likely lose a lot more than the $10,000 it may cost to hire a selling agent.

This is exactly the same when buying a property. Anytime a person with extremely limited experience (less than 50 negotiations per year) comes up against a highly trained, highly experienced Real Estate agent, they are most likely going to pay a lot more than if they had hired an advocate to act on their behalf.

If you are considering purchasing a property please feel free to call us for a no obligation meeting and we will explain how we can save you money.

Ian James
Director
JPP BUYER ADVOCATES

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Categories: Market Wrap

Early Market Trends for 2012

February 20, 2012 Posted by Ian James

Ian James

Saturday marked the first real auction weekend of 2012 and whilst overall numbers of bidders were low there were plenty of onlookers at all the auctions we attended. REIV results have set the clearance rate for the 579 auctions at 59%. There are still about 63 results unknown. I don’t think this result will set precedence for the auction season. It is far too early to make that call. The REIV reports there are 880 auctions gazetted for next week and 870 the following. By around Labour Day weekend we will have a much clearer picture on what is happening in the market place.

More surprising, however, was the fact there were only 488 private sales called in to the REIV. This is very much lower than the same weekend last year. I thought it was also notable that of the four properties we purchased over the weekend, two were purchased prior to the weekend and the other two were negotiated after passing in.

Most open for inspections for properties under $700k were very well patronised. I think there are a lot more people out looking this year. After last year’s drop in turnover, in some market segments the numbers of sales were down as much as 30%, I believe a balance is likely to occur this year. No matter what the market is like, no matter what economic or political issues are prevalent in the papers, people still have to buy and sell a certain number of houses. There will always be births, deaths, marriages, divorces, people moving for jobs, or lack of a job. These people must change their accommodation needs and this means that sales of properties will occur regardless of external forces. This year we should see those people who had put off changing residence last year, making their return to the market this year and this will increase turnover above and beyond what market trends will allow.

Anecdotally there are more people in the market place than last year. If the supply does not grow to well above last years totals, we will see prices rise. This will have nothing to do with economic outlooks, both good and bad, it will be all about supply and demand. If price goes up, more vendors will enter the market and this will cool things off a little. If supply is flooded then prices will ease, however vendors will again withdraw from the market place and we could see prices move accordingly.

This year the market will be overall flat when looking at a macro level. Melbourne statistics and even suburb statistics will not give a full picture of the market. At a micro level I believe prices will be all over the place. The volatility will be at an area level. For example, when talking about Glen Iris and the 4 distinctly differing areas within, price will come down to choice within these quadrants. A lot more so than in the past. I believe there will be a higher level of scrutiny of the properties on the market than ever before. And it will not just be looking at comparable sales; it will be looking at the volume of sales of this type in this quadrant. In other words, if I miss this one, how long will it be before I get another chance at something like this?

Conversely, if there are multiple properties on the market at the same time that are similar, and in the same distinct area, and understanding there is a limited demand, the smart agents will be doing deals before auction. The statistical analysis we are used to seeing in the papers and online will not differentiate this. In fact the clearance rate includes all those properties that are sold before auction.

Overall there may be bargains out there this year, but more than likely if you pay a reasonable price for a good property you will do quite well over the coming years. If you are considering purchasing this year, please feel free to book an appointment. There is no cost, nor obligation at our first meeting.

Ian James
Director
JPP Buyer Advocates

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