Are we starting to see more distressed vendors than may have been reported? Australia wide, the delinquency rate has climbed from around 1.4 per cent to 1.79 per cent. It may be low in comparison to Europe and America, however it’s a figure the reserve bank should be paying close heed to because it seems there may well be other distressed vendors flying under the radar and perhaps trying to bail out before they get to the delinquency stage.
The average time Australian’s stay in their homes is 7.5 years (RPData), however in the established suburbs of Melbourne – close to the water and city – it’s 9.1 years. Therefore when you see vendor’s selling prime real estate after only 1 or 2 years of residence – and in many cases struggling to sell with days on market stretching into months as they try to achieve their ‘wish price’ in a flat market – it seems there are growing numbers who purchased when interest rates were low, and now find themselves laboring to make the repayments! However, if the vendor doesn’t meet potential buyers half way – prepared to negotiate at a reasonable level – the property just isn’t going to sell (as you’ll see from some of this weekend’s auctions highlighted below)
Investment in real estate is long term game plan, so trying to get a return on price 1 or 2 years down the line is a gamble no one should make.
More importantly, although buyers are in the market – with year to date turnover holding at a fairly steady rate in comparison to previous years, they are certainly being careful how deep they dig, and rightly so. In a flat market with the promise of rising interest rates brimming on the horizon, paying the right price and insuring that decision with purchasing the right property that will attract attention in a weak market, is ever important!
In a flat market, with the possibility of interest rate rises looming, paying the right price for the right property becomes not only sensible but ultimately crucial.
If you’re a current buyer who has little experience negotiating and find yourself judging a property’s value based on the quoted range, or ‘reserve’ price, rather than a solid base of experience, you may well become of those vendor’s trying bail out & suffering ‘buyer’s remorse’ .
Take for instance 37 Lansell Rd, Toorak (last purchased in 2006)
The property was listed for auction with Bennison & MacKinnon on the 19th of March this year. The campaign was not successful and it passed in on a vendor bid of 2.8 Mil with the ‘wish price’ well over 3 Mil – (as the post auction advertised price of $3,300,000 proved!)
A change of agent and a few months later, vendor expectation had ‘met the market’. It went to auction today opening on a genuine bid of 2.5 Mil. With four bidders and a reasonable reserve, it was announced on market at 2.82Mil and successfully sold for $2.86 Mil. (However that’s a drop in 480K from the Vendor’s wish price earlier this year)
(Passed in VB)
Not so successful was 13 Kalang Rd, Camberwell a beautiful house on over 900 sqm, and purchased only 2 years ago in September 2008 (when interest rates were at their lowest). However a few rate rises later the house was back on the market in November 2009 during which it passed in at auction for 1.95 Mil. The ‘wish price’ at that time was well over 2 Mil (as the post auction advertised price of 2.5 Mil proved)
Unfortunately for the vendors, it passed in again today with no bids at $1.9 Mil. This time the asking price is 2.1 Mil – a little lower than last time – however I can only assume the vendors are not in a position to wait until the market starts to gain pace to get a return on their initial investment of 1.8Mil – and unless they’re willing to drop expectation, in this flat market it’s another property that could hang around for a while.
And what about 2/22 Russell St, Camberwell? Another property purchased when interest rates were at their lowest in September 2008. Less than 3 years later and it’s up for sale again! Quoting 850K-930K there were 30 people at the auction. However despite the unit being the perfect property for a downsizer, with the train station and shops just a whisper away, it passed in on a vendor bid of 850K with the reserve set at 930K.
(Passed in an negotiated post auction)
However it wasn’t a totally ‘distressing’ story at today’s auctions. I attended an auction in Bentleigh East at 11/27-51 Charles St. The property had been quoted 520-570K, and being in the McKinnon school zone, it attracted a fairly sizeable crowd. The auctioneer opened with a vendor bid of 570K, however for a long long period of time it seemed no-one was there for any other reason than to ‘window shop’. Throwing in another vendor bid of 580K, he eventually managed to squeeze a bid out of a reluctant buyer at 590K. Climbing slowly in 5 and 10K increments, 3 bidders showed enough interest to raise a hand, however at 625K – still not on the market – it passed in. I heard an exasperated buyer on the phone post auction complaining about the price quote. He’d turned up expecting it to be on the market sooner, and was bitterly disappointed he hadn’t been in with a hint of a chance within the quoted range. Thankfully my buyer was aware of the ‘real’ price – but I do feel for buyers who are lost in the universe of ‘low’ quotes. The property sold via negotiation for the passed in price of 625K. The vendor’s ‘met’ the market.
(Flew – selling under the hammer)
And there’s always one that ‘bucks’ the trend. Meet the worst house on the best street in Kew at 18 Rockingham St. Attracting a crowd of around 100 onlookers, the current vendor’s had managed to stay put for just over 8 years. Quoted at 1.6-1.7Mil (another ‘low’ ball quote range), the auction opened with a vendor bid of 1.750 Mil. 3 buyers jumped in, and the auction took off in a boom style flurry. At 1.855 Mil it was announced on market, but that wasn’t going to slow the pace. 2 bidders fought it out to a price well in excess of the reserve almost causing the auctioneer to expire in excitement as he struggled to keep up with the pace. I can’t disclose the price – however both vendor and purchaser were very happy with the end result – and the crowd had been thoroughly entertained!
All in all the team witnessed 9 auctions today – 5 passed in – 2 passed in and were negotiated post action, and 2 sold under the hammer.
(Post auction negotiation)
Other notable results included 2/1 Horsley St, Bentleigh a smart 2 bedroom unit ideally located next to the train station and shopping strip. Opening on a vendor bid of 500K, interest was not in any way robust. After a little encouragement however, a buyer started the ball rolling with a 10K bid, but competing only with marginal competition from 2 other parties, it passed in shortly after at 535K. Being a fair way from reserve, negotiation was the key to a successful result for the vendor, at $607,500.
119 Cremorne St, Richmond. Richmond is a popular suburb with buyers; however at well over 2 Mil this property was not attracting them in force. Opening in traditional fashion on a vendor bid of 2.5 Mil. One buyer was willing to raise a hand – but only to throw in another 10K. Passing in with no further interest at 2.51 Mil, it was negotiated post auction for an undisclosed amount.