12 Jan Adelaide – good times ahead? + The NSW spots to watch + Brisbane units a ‘bloodbath’ + More pain for Perth
Highlights from this week:
- Beware the ‘Zombie Apocalypse zone’
- Don’t put all your eggs into the ‘Badgery’s Creek’ basket
- Reap the benefits of the ‘Mr Fluffy’ saga in Canberra.
- Perth is on the watch list for purchasing opportunities – but when?
Indicators point to growth – Miriam Sandkuhler
Kevin: As we continue to have a look at what’s likely to be ahead for the property market in 2018, it’s always good to look back at 2017. Miriam Sandkuhler from Property Mavens joins me to do that.
Miriam, thanks very much for your time.
Miriam: You’re welcome, Kevin.
Kevin: I’m looking forward to your input into this chat. What lessons did you learn out of 2017?
Miriam: Gosh, there were so many. Certainly supply and demand are really the strongest drivers of price escalation in a number of cities around the country. That’s really been evidenced by the fact that Victoria’s capital growth ended up at the end of November around 10% for the year, Sydney’s was double that and second only to Hobart, which had 11.5%.
Kevin: Do you see the growth in Sydney and Melbourne continuing into 2018?
Miriam: Certainly, if I talk [0:53 inaudible] Melbourne, I absolutely can, and that’s largely driven by the fact that we’re having approximately 100,000 people migrating to the state every year, and we have done for a number of years. So, there’s no sign of that slowing down.
Kevin: What are clearance rates at auctions? How much of an indicator are they going to be for what’s happening in 2018?
Miriam: They’re definitely something to watch. Clearance rates have been dropping towards the end of last year, and things did start slowing down a little. Interestingly enough, there were a lot of agents who weren’t reporting auction results, which was skewing the results probably a little bit higher than what they probably should have been in reality, because of course, every agent wants it to look like there’s a continuing boom that’s never going to slow down.
So, it’s definitely something to keep an eye on, but it’s also important to understand that not every state… Certainly in Victoria, it’s not compulsory for agents to report auctions, so there’s always a percentage of agents who don’t, and so we never get 100% of what’s going on in the marketplace.
Kevin: Yes. One of the things that I picked up out of 2017 was that affordability was a key driver for a lot of people in many, many areas – not only investors but homebuyers, as well. Do you see that having an influence on the types of houses that people will be choosing? Townhouses and units as an example?
Miriam: Absolutely. Overall, townhouses and villa units will continue to be in strong demand this year, and that’s due to the price point. And particularly properties that have been built 10 to 12 years ago, that are a little bit older. They have more space and they’re generally better built than what’s more recent, and so they’ll very much be attractive to homebuyers and investors alike.
And certainly pricing, as well. They’re a critical market-drivers for first-home buyers and first-home upgraders, and so anywhere in the middle to outer ring suburbs where you can buy for $1 million or less – especially houses – will continue to perform due to demand from these buyers.
Kevin: In the event that we do see a bit of a slowdown in some parts of Australia, what do you think will be the triggers for that?
Miriam: Certainly interest rates going up will always have an influence, and depending on how many interest rates go up – I’m hearing projections of at least one to two across the year. Unemployment rates, depending on where they’re at. We also, I think, have record years of little to no increase in wages growth, so that’s something that could start pinching a bit more in terms of people spending, as well. So, it could be a combination of any one of those individual things.
Kevin: Miriam, we’ve already identified that last year, affordability was a big driver of the market. Is that going to be another driver this year? And if so, how important do you think it’s going to be?
Miriam: Affordability is always going to be an important driver, particularly for people trying to get into the market for the first time. What I am seeing more and more of, however, is where we get first-home buyers who can’t get into the areas they want to be in for the budget that they have, I’m actually seeing a lot more rentvesting coming into play. So, they’re renting where they want to live, they’re buying where they can afford to live, just to ensure they have their foot in the door.
Affordability is very much – and will always continue to be – a very strong driver.
Kevin: And negative gearing, of course, raising its ugly head again, or talk against negative gearing. What’s your view on that?
Miriam: It’s interesting. Interestingly enough, I was speaking to one of the Labor backbenchers yesterday about this exact issue, and we had an interesting conversation, because if they start fiddling around with negative gearing… And we talk about first-home buyers trying to get into the market where they can’t buy their own home and they look to rentvesting as an option, well, if they suddenly have those gearing benefits removed, that could have a substantial impact on them and may actually prevent them getting into the market at all.
I also use that philosophy or that attitude in terms of, say, single-parent families, so where you have a divorce, people are ending up with a lot less money or equity than what they had. A lot of those people are rentvesting.
Kevin: Yes. I guess the point that’s lost in a lot of cases when we talk about negative gearing is that they’re not wealthy investors who are using negative gearing; it’s mom-and-dad investors.
Miriam: Absolutely. I’m seeing people who only have the capacity to spend $350,000, and they want to be in the market. Most of them can only afford to be in the market as a rentvester, and they’re heavily dependent on any negative gearing benefits they can get.
So, while this attitude is perpetually that it’s rich people investing all the time, it just simply isn’t. It absolutely is mom-and-dad investors, it’s single parents who are divorced who can’t buy their own home but they still want their foot in the market.
It’s a lot of single women over the age of 50 where they have certainly inadequate superannuation, so more and more women are trying to get into the market through rentvesting and investing to compensate for the fact that on average, they’re retiring with $173,000 less than the average male.
Kevin: Miriam, I started our chat off today by asking you your thoughts on the lessons out of 2017. Fast-forward now 12 months, and I ask you the same question about 2018. What do you think you’ll be telling me?
Miriam: If only I had a crystal ball, Kevin. Nice try, though.
Kevin: You’re not going to tell me?
Miriam: I can tell you now if I had that information, I wouldn’t be sharing it; I’d be going out and doing it and telling you in 12 months’ time.
Kevin: I think we’ll leave it on that note. Miriam, thank you so much for your time. Miriam Sandkuhler from Property Mavens.
You can’t win them all, but you can’t blame me for asking, can you?
Miriam: Absolutely not.
Kevin: Good on you.
Miriam: Nice try, though. Thanks, Kevin.
Kevin: Miriam Sandkuhler there from Property Mavens. Thanks for your time, Miriam.
Miriam: Okay. Bye.
The costly shortcuts – Rafe Berding
Kevin: As the market continues to grow, to continue to improve, you’d think that many people being confronted with the prospect of entering the market – not necessarily for the first time, I have to say – they would do a lot of research. Well, that is not the case. That’s according to Australia’s legal professionals.
There was a survey done by a company called GlobalX that revealed that 63% of conveyancers say that people are not doing enough due diligence, therefore falling for a lot of traps and getting themselves into a lot of hot water.
So how do you avoid it? Joining me to talk about this and to give us the results of this survey, Rafe Berding, who is the head of marketing and brand at GlobalX.
From what your research showed you, can you tell me what are the biggest mistakes that people make when they do rush in like this?
Rafe: Yes, a pleasure to be with you, Kevin. First and foremost, the biggest thing the research has highlighted is that homebuyers are really failing to grasp an understanding of the local area in which they’re purchasing. What we would recommend is that homebuyers should thoroughly research the property they’re contemplating to invest in by conducting the local government and area checks before actually purchasing the property.
Kevin: Yes, there are many commentators we talk to who say you don’t even need to get your feet on the ground; you can actually do it by remote. That can be very dangerous, Rafe, can’t it?
Rafe: That’s correct. There are a lot of considerations when purchasing a property outside of building and pest, and also outside of finance, a lot of things that property buyers should consider and understand in the research and due diligence stage. Is there any future development planned for the area? What are the local council zoning restrictions? These things really affect the future development or renovation of a property.
Other considerations also include what is the flood modeling? Is the property in a bushfire zone? Is there a history of subsidence? The outcome of these searches can really affect how you build, your insurance premiums, and the overall security of the property.
Kevin: I mentioned buying remotely, and quite often when you do that, you have to take advice from people. Is there anyone you would recommend people should not listen to?
Rafe: There are a lot of people out there in the market who offer very sound advice. For example, property buyers are a great aspect if you are buying remotely or interstate or internationally, but we really advise that you seek legal professionals as well as also property buyers.
Kevin: I guess you have to be very weary of anyone who’s recommending a particular property to you.
Is this only with first-home buyers? Is that what your research showed, or is it fairly broad?
Rafe: No, our research was broad. First and foremost, property buyers weren’t conducting local government checks. Secondly, they weren’t conducting building and pests. And thirdly, they weren’t gaining the finance beforehand. So, it’s across the board, and what we would encourage all buyers – regardless of their experience – to do is do the background checks before making a decision that’s legally binding.
Kevin: It’s always good advice to take advice. At what point do you do that? Is that after you sign the contract if you have conditions on it, or is this before you sign the contract, Rafe?
Rafe: Before you sign the contract, it’s important that you undertake your necessary research and due diligence – so what is the local area you’re buying into, what are the certain restrictions whether it be zoning or future development – before you actually sign that contract. Then your legal professionals will come in and undertake that for you and conduct the actual transfer of that property.
Kevin: Which of those detailed searches are actually done by the conveyancer or by the legal person you would engage?
Rafe: The predominant amount of them are done by the conveyancer, but this is usually after signing of the contract. Importantly in the research and due diligence phase, most of this information is freely available online, be it through your local government authority or publicly shared information on a suburb. We would recommend that you get in touch with your relevant government authority.
Kevin: Okay. Give us your final tips just to close off here, Rafe. What are your tips for someone who is looking at buying to make sure they don’t make these mistakes?
Rafe: Great question. Do your homework. Undertake your research and due diligence thoroughly. Don’t rush; there’s always going to be another property. And ensure that the property meets your expectations. Whether you’re a first-home buyer or an investor, that’s integral to your purchase.
Kevin: If you do miss out, just make sure you don’t give up, too, because quite often, hunting for a house can be quite difficult. So, don’t give up after the first or second time. And I think that piece of advice you gave – that there’s always another property – is a particularly good one, easy to remember.
My guest has been Rafe Berding from GlobalX. Rafe, thank you for your time and for your advice.
Rafe: Thank you, Kevin. You’re welcome.
LVR’s are on the move – Andrew Mirams
Kevin: What’s changed? How has the lending environment changed? Particularly, let’s have a look at self-managed superannuation funds, loan-to-value ratios, what’s happening, and how the banks are feeling about that. To bring us up to date on that, Andrew Mirams from Intuitive Finance.
Good day, Andrew. Welcome back into the show. Happy New Year to you, too, mate!
Andrew: Good day, Kevin. Happy New Year to you. Thank you very much. Happy New Year to all the listeners out there.
Kevin: I did have a question on this point. Firstly, the question relates to a bare trust. Can you tell me what a bare trust is?
Andrew: There have been a lot of uses for them, but now they basically work in conjunction with a self-managed super fund. A self-managed super fund is what we call a limited resource borrowing arrangement. What that means is that if a property is purchased in your super fund, it needs to have an independent owner, and that’s what the bare trust is.
If you bought a property for $200,000 and had a loan for $160,000, let’s say, and for some reason, you had to sell the property for $100,000 – the property had crashed – and there was a deficit, the banks can’t go after the balance of the superannuation fund because that’s the limited resource borrowing. It’s just solely against that property and against that. So, the bare trust actually insulates or isolates the balance of the superannuation fund from the property and the actual borrowing.
Kevin: Given that it’s protecting the value of that property, is it possible to have more than one property in a bare trust?
Andrew: No. You can have numerous properties in a self-managed super fund, but one bare trust owns each property because each one is individually isolated from the other transactions.
Kevin: Yes, that answers my next question. You can have multiple properties in a self-managed super fund but each one has to have its own trust.
Andrew: Its own bare trust, because it’s the bare trust that actually secures that limited resource borrowing arrangement.
Kevin: Okay. How difficult is a bare trust to set up?
Andrew: It’s pretty simple. It becomes part of it when you set up your self-managed super fund. Your financial planners, accountants, solicitors can set them up with minimum of fuss. It’s quite easy to do.
Kevin: How do the banks look at the lending in a bare trust like that?
Andrew: It’s still they’re lending to the super fund; the bare trust is just the beneficial owner of it. The bare trust is a trustee for the super fund. So, that bare trust still owns the property on behalf of the superfund.
Kevin: What’s happening with loan-to-value ratios? How much money do you need to set one of these up?
Andrew: With self-managed super funds, we’ve seen over the course of the last year the LVRs reduce. The majority… I think everyone now is 70% loan-to-value ratio, down from 80% in times past. There’s also another little factor with that. The super funds must now also be able to prove a 10% liquidity over and above that. So, you’re almost now talking about a 60% loan-to-value ratio.
As with all the investor rates and things like that, there’s now a premium if you want interest-only, so generally your principal-and-interest rates will be cheaper. They don’t really define on the loan-to-value ratios, but 70% is about the rule of thumb nowadays, Kevin.
Kevin: Is that worsening over time? Is there a requirement for you to put more money into these bare trusts?
Andrew: I think probably we’ve had some buoyant markets. I think we’ve seen the banks and the regulators want to just restrict and make sure you don’t over because of the limited resource, so they can only actually ever go back after that; probably they can’t pursue the balance of the fund or the directors.
So, I think what we’ve seen is in the heady times, we were doing 80% loan-to-value ratios. It’s now restricted just to protect probably the lenders and also the funds to make sure they’re not over-committing themselves to get into the market.
Kevin: That 70% LVR, is that the lowest it’s been, or have there been lower?
Andrew: There are a couple lenders that are at 60%, but most lenders will still do 70% now. That’s come off. The 80% was the maximum we were able to do, so that’s come down from there. That’s about where it sits at the minute now – 60% to 70% – plus normally that 10% liquidity requirement as well.
Kevin: As always, we’ll just round this chat out, to make sure you get some independent legal advice and also independent financial advice for your own situation, you could do certainly no better than going to Andrew Mirams and the team at Intuitive Finance. You can contact them on any one of the buttons on Real Estate Talk.
Thanks for your time, Andrew. We’ll talk to you again soon.
Andrew: Pleasure, Kevin. All the best.
A valuer looks ahead at 2018 – Anna Porter
Kevin: Let’s have a really good look at what the property market is likely to be doing in 2018. Joining me to talk about that, Anna Porter. Anna is the principal of Suburbanite, a former valuer, and her opinions are well sought right around the country.
Anna, thank you very much for your time. I appreciate the ability to be able to talk to you. Thanks in advance telling us what you think is going to happen in the property market. How are you?
Anna: Well, thanks, and thanks for having me.
Kevin: Very good. Let’s have a look. We’ll pick up on a couple of points you’ve made in a recent release. We’ll work our way through it. The Adelaide market has been a bit of a cot case in recent times. Do you see some green shoots there?
Anna: Yes, we certainly do. Adelaide has been pretty well slammed over the last few years as the manufacturing industry was closing down, and it’s had a lot of heat in that market from looking outside in. But there’s a lot of really good stuff coming to Adelaide, and I don’t think it gets highlighted enough, to be honest.
What we’re seeing is the major world-class hospital project – the $2.4 billion project – which has just finished completing the build, which is bringing in a lot of jobs not only in the hospital but the supply chain. If you own a coffee company or a florist or a catering company, a cleaning company, nearby, this is a really good thing for you. You have your submarines, frigate fleets, and corvettes, which is a military boat project.
So, throughout these projects and a number of other things, we’re seeing billions of dollars in infrastructure spent and thousands and thousands of jobs being created throughout Adelaide. These things are a really big uptick for the economy and the property market.
Kevin: We can see that there’s some evidence of that, too, aren’t there? I noticed you’ve made comment in your article about all the numbers starting to align – low vacancy rates and so on. These are all very good indicators about what’s happening in each individual market, Anna, isn’t it?
Anna: It is. The stats that come out that do show those low vacancy rates, but then on the ground in real-time, what we’re seeing is properties are going up for rent, and if they’re in the right pocket, there are applications coming through from tenants – and lots of them – even before they get to view the property.
Now, this is reminiscent of Sydney or Melbourne two or three years ago. This is when you really start to get excited about what’s happening in that market because that demand is starting to really creep in in a big way.
Kevin: A good sign for Adelaide, too – you’ve mentioned it there – is the construction of the new hospital, but it’s very close to the university, which is going to offer good opportunities for investors – I think – looking for that student market, Anna.
Anna: Certainly. There’s already a really big student market in Adelaide. Adelaide University already has a very good medical sector and business sector as well. But, this is only going to ramp it up to a point where it should be one of the leading courses and leading universities in the world if they have access to facilities and the training and research the hospital can provide.
Kevin: Not everything is rosy, though, in the South Australian state. You mentioned – and I want you to explain to me what it is – the zombie apocalypse.
Anna: Yes. That’s a term that floats around our office. The team call parts of Adelaide – and there are also a few little pockets in Melbourne that do get called, in a jovial way, the zombie apocalypse. It’s areas where not only do you not want to invest but you walk down the street and you want to hold your handbag a bit tighter and you lock the doors on the car. There’s a real low socio-economic demographic.
So, whilst you might have a joke about that and say it’s an area that you want to be careful walking down the street, there’s a reality there for investors. We see that around areas in Adelaide around Elizabeth, where the old Holden plant has closed down and that sort of thing, where the demographic puts you in a position as an investor where you’re going to have real problems with tenant selection.
There are a lot of applications we see go through where tenants don’t have jobs, where tenants are on government benefits, where there’s rental arrears, where there’s previous property damage. This is the kind of thing that we don’t want our investors to have to worry about, so we do tend to avoid those markets where we see that being really prevalent.
Kevin: Of course, Adelaide is not the only market like that. Can we move across to Melbourne and Victoria? A bit of concern there about an over-supply of units. Anna?
Anna: Yes, it sure is. That’s not a new story; that’s been going on for eight or nine years now. I remember one of my team members, Gareth, used to work in Melbourne as a valuer for a number of years about eight or nine years ago and even back then, they were saying, “The supply will get picked up. It will be all right. It’ll get absorbed.” And you know what? We’re still having that conversation now eight years down the track.
The problem is they’re still building them, and they’re still building inappropriate unit supply. They’re building too many one-bedroom, two-bedroom units when you’re starting to see the emerging demographic being families of four and things like that. It’s just not catering to what the market needs, and there’s just too much of it.
Kevin: Yes. The established housing market or even the secondhand housing market is looking pretty good, though, in Victoria.
Anna: It certainly is, and it’s notably been one of the best performers over the last 12 months. Melbourne has got a lot going for it at the moment. It’s already performing really strongly. It’s seeing some of the strongest migration, and it’s predicted to see – coming out of the most recent QBE report –some of the strongest migration into the next year or two, as well. These all fare well for what’s happening in the property market.
The challenge for investors there – and buyers trying to buy their own home – is you’ve missed a lot of that growth. So, buying into Melbourne metro right now, prices are high, competition is high, rental yields are very low – some of the lowest yields in the country, down around 3% is what we typically see as a gross rental yield, which is quite low. That puts you in a position where you’re paying a lot to buy and you’re not getting a big return, so your holding costs and your shortfall can be quite crippling.
You need to push out of that city area a little bit and look at areas like Geelong and down around Frankston, Southeast Melbourne, where it’s still a major commercial hub and there’s been a lot of infrastructure spending in years gone by as well, and it’s just starting for that little uptick from people being pushed out of the city areas because they’re being pushed out.
Kevin: Anna Porter is my guest. Anna is the principal of Suburbanite, giving us a really good overview of the Australian property as we head into 2018.
Let’s have a look at Sydney or New South Wales. You’re suggesting that maybe the time is over for the Sydney market and we should be looking at some of the regional areas, Anna?
Anna: Most certainly. The time is over. What we’re seeing in Sydney… We’ve had double-digit growth year on year on year, which is what happens in a property boom. And don’t get me wrong, when Sydney is performing, it is a market leader. But now, in the last month, in the last quarter, we’re seeing negative growth trends coming through in really good areas, inner west to eastern suburbs. When we see that tipping point, unaffordability has kicked in, rental yields are all-time low, and negative growth is starting to filter through, the year ahead we’re seeing Sydney has got some real pain to push through.
So, if you want to be an investor in New South Wales, then my suggestion would be is get out of New South Wales if you’re investing. Don’t be stuck to the area just because you live there or like it. But if you must be in New South Wales, you probably want to head down as far as Goulburn, because even Wollongong, Newcastle, Central Coast, that’s already been there and done that. We were buying houses in Dapto two years ago for $300,000 and they’re now selling for $600,000.
You’ve missed that boat, but you can replicate that opportunity interstate, though if you do want to stay in New South Wales, you do need to be out of those city areas because it’s done and dusted.
Kevin: Staying in New South Wales for a moment, are there any good opportunities coming on out around Badgerys Creek with the airport?
Anna: That’s a great question, and I must say it’s a question I get probably on a weekly basis: “Should I be investing where the airport is going?” Look, it’s a very speculative approach to investing. Do you know where the flight paths are going to be? Do you know where the industrial areas are going to be, where the main roads are going to be?
Back in the day when people were buying out around the M7 and the M5 before it was built, they could have bought a great little plot of land at the time that was in a nice little area, and suddenly they have an M7 on their doorstep because they didn’t know where the infrastructure was going to go. You’re at risk of that at Badgerys Creek. You don’t know if you’re going to be under a major flight path. So, it’s speculative.
My best advice is if you want to leverage the opportunity of the Badgerys Creek infrastructure, go into the major commercial hubs around it that we already know how they look and feel and they will benefit from it. So, Parramatta, Liverpool are your real go-tos to leverage that without putting yourself in a speculative position.
But, remember, it’s still a long way off. You’re not going to buy there today and your property is going to perform in the next two years while everything else is going down. That market cycle and market timing will overrule it. You are setting yourself up for the next boom, which is still six, seven, or eight years away. Be mindful it’s a long-term view.
Kevin: Let’s round this report out with a quick look at the Brisbane market. You made a very strong statement about if you own an investment unit in Brisbane, your advice is to get out, to sell up now.
Anna: Yes. If you own a unit in Brisbane and you can get out without losing money, I would suggest you very, very seriously consider it. It’s going to be a blood bath. It’s reminiscent of what we just spoke about with Melbourne over the last decade.
Too many units have been built. Too many units are being build, and a lot of them are being purchased by interstate investors who have has not enough knowledge of that market and have either paid too much, have been conned by a spruiker into paying overs and not being able to get tenants, buying off the plan.
We’ve spoken to some of the credit people in it, some of the big lenders, and they’re saying they’re knocking back finance on these properties again and again and again because they’re approaching settlement, getting close to settlement, 90 days out when finance comes together on the off-the-plan purchase, and the value isn’t there. They’re valuing up $50,000 and $100,000 under what people paid a year or two ago.
And then we’re seeing people who are managing to scrape their way through settlement by finding additional funds, they’re looking to sell it, and the agents are telling them they will lose $50,000 or $100,000. We’re seeing people doing things like offering free iPads to get tenants because the property has been vacant for four or five months.
So, if you’re in a position where you can get out without getting scathed too much, I would suggest you do it. If you’re in a position where you’ve already taken that big loss, you’re going to have to look at what your options are because it’s only going to get worse.
Kevin: Just before I let you go, could I just get a comment from you about the Gold Cost, maybe even the Sunshine Coast, but the Gold Coast particularly with the Games coming up this year?
Anna: Yes, I do want to be clear that it’s not just all negative news for Brisbane; there is some great stuff happening. The Games are on the agenda, and we’ve seen the Gold Coast market performing nice and consistently in the lead-up to that.
Then couple that with the Queen’s Wharf project, which is a major multi-billion dollar project coming to Brisbane as well that’s going to be rolling out over the next few years. There are thousands and thousands of jobs coming through both of these projects, so this is just the start of the good news story for Brisbane.
If you don’t own a unit… It’s a bit of the same story on the Gold Coast; the unit market is quite oversupplied, but if you’re in a house, townhouse, villa, something that’s not in that unit sector, it’s just the start of a good news story. So, don’t be too disillusioned by that unit market because there’s a lot of good stuff to come over the next three to five years in Brisbane.
Kevin: Always good talking to you, Anna Porter. Anna is the principal of Suburbanite. Anna, thank you so much for your time.
Anna: You are more than welcome. Have a great day.
When agents sit on offers – Brett Warren
Kevin: Brett Warren is my guest.
Brett, I’m keen to ask you, in your time as a buyer’s agent, you obviously have to work through seller’s agents. These are agents who’ve listed a property for sale. That’s largely how you come across a lot of your stock. How do you stop a seller or a seller’s agent from sitting on an offer when you make an offer?
Let me paint the picture here. You make an offer and then you don’t hear back from the seller – or in this case, the seller’s agent – for some time, because they’re probably sitting on your offer and may be shopping it around, or that’s a suspicion you may have.
Brett: Yes, absolutely. Selling agents are experts at this. We have to remember they’re actually working for the seller, so they want to try to draw that process out. Particularly in a rising market, all it takes is another offer and the game changes.
As a buyer’s agent, they’re the conduit to the seller, so you obviously have to treat them with respect and build strong relationships with them, be upfront, be honest, even though they may not be the same for you all the time. But if you’re upfront and honest, it makes things a lot easier when they communicate with the seller. And rather than them sitting on that offer, you want to try to create a little bit of urgency.
Kevin: How do you go about doing that?
Brett: There are a number of ways. Inserting clauses or deadlines and things like that into the contract. You may be looking at other properties on the weekend. If we’re offering on properties midweek, we’ll always say we want an answer within 24 or 48 hours – that way, if we’re successful, great; if we’re not, then we’ll go and look at other properties – so they get the idea that we’re not going to hang around for three or four days through the weekend, through two other open homes, for them to make up their mind what they want to do.
You have to take control of that situation and turn the situation around and put the pressure back on the seller. Just let them know very clearly – whether it’s with a clause or whether it’s through verbal communication – that you’re not going to be hanging around for two or three days waiting for them to make up their mind while the offer is being shopped around and things like that.
Kevin: When we use the term “being shopped around,” it is illegal for an agent to talk to another buyer and say, “Well, I have an offer from this buyer and the offer is this,” and give them all the terms and conditions. That’s gazumping, and that is illegal.
Brett: Absolutely. But what isn’t illegal is the multi-offer scenario. Sometimes all it takes is another person or persons to come into the game. And you have to put your best foot forward. In that situation, you just have to be very comfortable with what you’re going to pay.
In some cases, people can get very carried away with emotion in a rising market if they’ve missed out three or four weeks in a row and things like that and can sometimes pay fairly well over. So, you just have to be very comfortable with your offer and understand that that could happen.
Kevin: I think there’s a great lesson for buyers, too, in understanding that they may have been looking around for some time, a property might have been on the market for quite a long time, and then all of a sudden, it becomes attractive because it may have been overpriced, the market might creep up, and then all of a sudden, it becomes an attractive property for you, bearing in mind that it may also become a very attractive property for someone else, so you’re likely going to be in competition.
Kevin: When you’re told that there’s someone else interested, how do you know that it’s a fact?
Brett: Generally, the agent should provide you with a statement to say, “There’s another offer. Do you understand there’s another offer and you have to put your best foot forward?” A lot of the time, that doesn’t happen, but if you have a strong relationship with an agent – either way – you just have to be very comfortable with what your offer is and understand that this is your final shot, your last chance at getting it. That’s the hard part. Auction is a good thing; you can kind of see people and be $1000 in front, but sometimes you could be $10,000, $15,000, or $20,000 apart. You just don’t know.
Kevin: I guess when an agent does give you a statement – it’s called a multi-offer situation – it’s a declaration, and you can take it as fact that there is another offer on the table. If an agent comes to you and says, “Look, we’ve had someone coming back for a second inspection,” that’s nothing. That’s not a bird in the hand; that’s just a bird in the bush. They may or may not make an offer. So, don’t be threatened by that.
But certainly if you get a multi-offer declaration, that’s something you need to take seriously.
Brett: Yes, absolutely. If you’ve been getting the runaround by an agent and they’ve been doing that to you, and they do say, “Look, there’s another offer,” I probably wouldn’t be putting my best offer in until I actually had that form in my hand.
If you trust the agent, you’ve worked with them before, and they’ve told you there’s a multi-offer, and you went to the open home and there were 20 other people, then chances are there is.
But if you’ve seen the property at some stage and you’re not sure whether the agent is legitimate or not, you can ask them to provide you with a multi-offer form. We’ve done that before. We’ve called them out, and that sometimes hasn’t been forthcoming.
Kevin: You know full well then that there is no other offer.
Brett: That’s it.
Kevin: Another piece of advice, when you do get that form, make sure you read it carefully, because you’re going to find that in that form, you may not have the opportunity to come back. In other words, they’ll ask you to put your best and final offer in. And believe me, if that’s what they ask you to do, that’s what you need to do.
Brett: Absolutely. And like I said before, though, make sure you communicate well with the agent, because we’ve actually been successful in multi-offers before with a lower price point but we’ve understood the seller’s circumstances. They may have wanted a longer settlement to move out, or they may have wanted a shorter settlement or a rent-back period.
We’ve been successful by $10,000 or $15,000 less just by giving them what they want. And that’s important to build that relationship and understand exactly what they want.
Kevin: Having a relationship with the agent so you can actually say, “Look, I know we’re in competition now. What is it that I can do in this offer that will make it more appealing?” Forgetting price for a moment, because it’s not always about price. That’s the point you’ve just made. But when you have that relationship with the agent, you can ask those kinds of questions.
Brett: Yes, definitely. Absolutely. And that’s what you need to understand if you’re buying in those kinds of areas. You need to understand the agents, how they work, and how they communicate.
Kevin: Great. Very good advice, Brett. Thanks for that.
Brett: No problem.
Kevin: Brett Warren, of course, is a buyer’s agent, and he’s with Metropole Properties in Brisbane.