30 Jun The choices we have to make because of unaffordability + Regions vs Cities + Interest only – the good, bad and ugly
Highlights from this week:
- The good points about interest-only borrowing
- The downsides and should there be a combination of interest only and P & I
- The most expensive country in the world to get a property on the internet is Australia
- Are auction results a real barometer of the market?
- Dr Andrew Wilson checks the pulse of the market
- What is really happening in the regions
- The choices being made because of unaffordability
- What Michael Yardney would do differently
- When to market a property and when to sell ‘off market’
What we can learn from asking prices – Dr Andrew Wilson
Kevin: My guest is Dr. Andrew Wilson from the Domain Group.
Andrew, let’s talk about asking prices nationally. What are we learning from the asking prices?
Andrew: Interesting; we had some press last week with some sales price data that was released, which was a little perplexing at a number of levels because it showed that prices had actually fallen over May.
Kevin: Is the gap between the list and the sale price increasing?
Andrew: It can. According to the cycle, of course, or reflecting the cycle, it can move, but the relativities actually remain the same. There’s no doubt, of course, that asking prices are always higher than sale prices, because why would you ask something, unless you’re in a trough of a market?
Kevin: It’s an indicator if it’s the other way around. Then you know you’re in a booming market.
Andrew: That’s right, but asking prices… And of course, these are properties that are listed for private treaty, so they’re part of them, and for most capital city markets, that’s the vast majority. Even in Melbourne, which has 30% of its marketed properties under the hammer, you still have 70% that are listed for private treaty.
Kevin: There’s an interesting point I want to pick up on, because we so often look at the auction market and talk about clearance rates and how the market is going, but in one of the biggest auction markets in Australia, it only represents 30% of the market.
Andrew: Three out of ten sales, Kevin, and in Sydney it’s two and a half sales out of ten, and that’s up from 15% of the market. And in Brisbane, it’s only 7%.
Kevin: Why aren’t we tracking clearance rates on private treaty sales, and also days on market? Because you look at days on market at an auction, it’s going to be around about 30 days, give or take a few days, because that’s an auction campaign. Days on market for private treaty are sometimes up to 45 days, and 45 days is a fairly normal market.
Andrew: Yes, and the point with days on market is you have to have a sale. But with listings data, it’s here and now. Nothing changes, because this is properties that are for sale. And people don’t make mistakes, because we can get mistakes in some of the official sales data.
Kevin: It depends. Garbage in, garbage out.
Andrew: Yes, that’s right. But listings people make sure they’re not advertising the wrong price.
Kevin: Well, they’re publicly listed.
Andrew: Yes, that’s exactly right. And the point is it’s here and now, it’s not relying upon a sale, so it’s real-time data. I’m now focusing more and more now on asking price data as being a robust insight for the market. As you said, Kevin, it does reflect the vast majority of activity…
Kevin: More so than auctions, and we try to determine where the market is going by the auction numbers.
Andrew: We can’t. Not necessarily a pass in; I don’t think it’s the same.
Kevin: But it’s part of the sales cycle.
Andrew: That’s right. There’s not the same sort of impetus to sell under the hammer as there is down south. It can, in fact, be an entry point into the sale. So, those 50% clearance rates – which is typically what you do see in Brisbane – in Melbourne or Sydney, you’d be saying that’s definitely a buyer’s market. But no, not in Brisbane, because it’s just a very small snapshot, and not really a reflective snapshot of what’s happening in the wider market, because the wider market is basically 95% of the market.
Kevin: I used to think that it was a reflection on agents, that agents in Queensland were not as good at the auction market. But I don’t think it is. I think it is a culture and I think in the southern market, Sydney and Melbourne, people are used to buying at auctions. They’re a lot more aggressive about their offers, they try to secure before, they go to an auction with a clear intent to buy.
Whereas in Queensland, you probably go to an auction to try and find out what the market is doing – whether or not it’s going to sell, what the values are.
Andrew: The auction scenario typically favors inner-suburban high-price properties, and in Melbourne and Sydney, there’s plenty of competition for that sort of property. You have to have competition to make an auction work, because that’s the whole basis. You want lots of people standing on the front lawn.
Kevin: Hammering it out.
Andrew: Yes. Blood on the dirt, and all that sort of stuff.
But asking prices, as we said, are robust. We certainly had Melbourne leading the charge up by 4.9% over May. Big boom up there in Melbourne continuing. Canberra up 4.1%. The rest just sort of trailed along. Sydney up 1.1. Brisbane was relatively flat over May, down by just 0.7%.
Kevin: Sum it up for me, mate. Where is the market headed?
Andrew: The winter market, which is a quieter period for property particularly down south, and the Brisbane market picks up. Always, Brisbane tends to be second half of the year market. Down south, they have a pause until the spring selling season starts.
And the markets have been easing backwards in both Sydney and Melbourne. We had auction clearance rates down over May in Sydney and down over May in Melbourne as well, but still strong results. Melbourne has got a clearance rate over the four months of 75% and Sydney 71.6%.
So, still strong conditions for sellers. Volumes have been at near-record levels this year, Kevin. We have auction numbers up by 30% in Sydney over the first five months of this year compared to last year, and up by 15% in Melbourne, so plenty of confidence from sellers.
Is it a rush to market? Maybe a little bit of that energy. I think sellers are wanting to take advantage of the still strong conditions, but the X factor in the market will be those stamp duty concessions that come into play from the 1st of July in New South Wales and Victoria.
Will it release a flood of first-home buyers? Of course, they can buy established properties with that discount, which means that they’ll be activating change-over buyers, and we may see that ripple effect with prices rising.
But no doubt that the Melbourne market is the strongest market in the country at the moment. Sydney is easing, but prices are still growing. I think there’s a relief all around that Sydney’s boom now seems to be behind it. But as I said, the X factor, the first-home buyer surge from the 1st of July.
Kevin: Great having you on the show, mate. Thank you very much for your time.
Andrew: Always great to be here, Kevin.
Interest Only – The good, bad and ugly – Andrew Mirams
Kevin: Borrowers are constantly asking the questions about “Is it a time to be doing interest-only? Maybe I should be splitting my loan up and paying principal and interest.” Let’s get a good look here, a bit of a focus on what the good, the bad, and the ugly, is with interest-only borrowing. Joining me to discuss that, Andrew Mirams from Intuitive Finance.
Andrew, thanks for your time.
Andrew: My pleasure, Kevin. Thank you.
Kevin: What’s the good, the bad, and the ugly? Let’s start with the good. What are the good points about interest-only borrowing?
Andrew: Absolutely. I think with interest-only, obviously one of the benefits is it reduces your cash flow outgoings. When you have your rents coming in and your outgoings going out, not having to pay the principal component reduces your outgoings and that makes it more affordable and easier to hold your properties, especially if you’re growing your portfolio.
Another great point with interest-only is it allows you to prioritize your debt reduction or your debt allocation. You want to be paying off non-deductible debt, especially if you have any personal debt or a home loan, which isn’t deductible. You would be wanting to make your principal or capital reductions to those loans versus allowing the tax-effective debt for your investment sitting there and not having to repay it.
Another thing is you can have an offset account still against the interest-only loan, and that can sit there and obviously then further reduce your outgoings the more you have in your offset account.
And finally, the best thing probably about interest-only lending when you’re doing it for buying investment is the tax effectiveness of it.
Kevin: Some great points there that you make on the upside. What about the downside? There have got to be some bad points to it as well, Andrew.
Andrew: This is where careful consideration of every person’s situation has to be taken into account. Some of the bad things that we’ve seen over the journey is that people get complacent with the lower cash flow requirements and the outgoings and they can then lack the discipline to monitor their spending and put that extra aside in your offset account or something like that.
The knock-on to that is when the interest-only period actually expires, you can then be faced with higher repayments, and if you haven’t got those disciplines and haven’t awoken out of your complacency and you don’t have the upturn in your income to be able to meet that, it can put you at risk.
Another bad thing that people often don’t think about is that by not making any capital right from the outset, it actually makes your loan more expensive over the life of the loan.
Kevin: There are a lot of things to consider. I guess the bottom line here, as always, is make sure that you consult a professional to find out what your personal situation is.
Give us the ugly, the real bad bit.
Andrew: Sadly this happens as well. What if your property hasn’t performed and you haven’t had any capital growth? What if actually then you’ve bought a property… In recent times, we’ve had the mining towns downturn and things like that. What if by paying no capital off, you’re now sitting on some negative equity? What we mean by that is the property is worth less than your actual loan, and now you’re not paying anything off it. It can really put you at risk, I guess, without careful consideration.
The other thing is what if you’re unable to meet your repayments on the expiry of that fixed rate? That can lead to some forced asset sales and things like that if you haven’t been able to monitor your spending and be accountable through the journey of your interest-only period.
Kevin: We say again, make sure you take professional advice, and you’ll certainly get that if you talk to Andrew Mirams and his team at Intuitive Finance. You can contact them through the website, RealEstateTalk.com.au.
Thanks for your time, Andrew. Great talking to you, mate.
Andrew: My pleasure, Kevin. Thank you.
What I would change – Michael Yardney
Kevin: There’s an old saying I love to use, and that is that successful people leave clues. It’s always interesting to ask a successful person what they would do differently if they started over again. Michael Yardney joins me to answer that question.
Michael, if you had your time again, what would you do differently?
Michael: That’s a good question, Kevin. I think in hindsight, I would have spent more time educating myself, so I wouldn’t have to make all those mistakes I made in the first 10 or 15 years of my property investing. I’m actually very fortunate, I built a substantial property portfolio now, but it would have been even bigger – much bigger – if I knew then what I know now.
I think for most people, the first step in the journey is to educate themselves, and that is what I still do today. I know you still do. It’s actually what all successful property investors do.
In my effort to achieve this, many years ago, I discovered that my own learnings, my own experiences really weren’t enough. So, I started reading books, going to teachers, getting mentors, even paying consultants for advice.
And interestingly, Kevin, they all pointed to one direction: you can learn from history. Books recount stories, teachers explained research, mentors taught from experience, consultants cited best practice.
I guess the big learning point, Kevin, was I didn’t have to start from the beginning myself; I could learn from other people’s mistakes, not my own.
Kevin: Did you learn that lesson early in the piece?
Michael: Unfortunately, Kevin, I didn’t. Initially, I guess I didn’t want to pay for advice, maybe for two reasons. One, I was cheap. I didn’t think I could afford it. I have now learned that advice isn’t an expense; it’s an investment.
But the other is I think I was taught by my parents to learn from experience, learn on your own. And boy, Kevin, that’s a very hard way of doing things. The market teaches you lessons that are costly in many ways – financially and emotionally.
I guess what I’ve learned is experience is an expensive teacher. I love that saying. I heard that experience is what you get two minutes after you need it.
Kevin: I guess we’re also restricted by our internal wealth programing, aren’t we?
Michael: Exactly right. What this means is that you can only grow your wealth to the extent that your internal financial thermostat is there. At Wealth Retreats and doing my big seminars, I talk about this concept of imagine yourself as a cup. If a cup is very small, you can only accumulate a small amount of money, and any extra just spills over and you lose it. You simply can’t have more money than the size of your cup. The answer is to grow yourself into a bigger cup so that you attract and keep more wealth.
I’ve heard somebody else say that you can’t drive a Lamborghini with the engine of a Mini Minor. So, what you really have to do is upgrade your wealth programming, the way you think and the way you react about money.
As we often spoken about in our chats, Kevin, successful investing has a lot to do with property, finance and tax, but it has just as much to do with your own internal wealth programming. And that’s a lesson I learned a bit late in the piece, but boy, has it changed the way I move forward.
Kevin: While there may be no guarantees to success, Michael, there are proven ways for you to be successful, aren’t there? Which is really what you’re talking about.
Michael: Yes, it is. I guess I learned that concept from Tony Robins. He called it modeling. In other words, what you do is he describes the process of finding proven models, saying that you should look at the very best people in any field that you’re in, how they behave and how they think, and then you should do the same as they do, because when you do, you can often repeat their success, Kevin.
Kevin: Great talking to you, Michael. Thank you very much for your time. Michael Yardney from Metropole Property Strategists. Thanks, mate.
Michael: My pleasure, Kevin.
Regional revolution – Margaret Lomas
Kevin: When we talk about investment properties, we’re hearing more and more about regional properties, and I’m just interested to know if they’re becoming more attractive to investors, and if so, why. Margaret Lomas from Destiny Financial Solutions joins me, also the star of Sky TV and Real Estate Success with Margaret Lomas.
Margaret, welcome to the show again. Nice to be talking to you.
Margaret: It’s great to be back.
Kevin: You’re into the new season on Sky, too, looking really good.
Margaret: I get excited about every new season. We try to come up with a couple of new things for each of those new seasons. Yes, it’s quite exciting for me to be going into season nine. It’s been nine years now, which is great.
Kevin: It’s a tremendous story, isn’t it? One of the things I love about talking to you, too, on the back of the show is that you get to see so many of the regional areas around Australia. Are you noticing, are they becoming more attractive to investors, Margaret?
Margaret: It’s funny because many, many years ago, I was definitely talking about the regions as viable places to invest. At the time, I got a bit of a reputation for being a property investor who only ever invested in the regions. I remember reading about myself as if I was stuck on the regions and nowhere else, when at the time, my own portfolio was probably 70% city or capital cities and only 30% regions.
It’s important for all investors to note that you can’t just say “Is it good to invest in the regions?” without looking all around that at everything else that’s happening. But there are definitely times when the regions are a better place to invest and times when they’re not.
I’ve always said that anyone who says the most important thing when you’re investing is time in market, that would normally come from someone who is probably trying to sell you a dodgy investment that needs time to perform. I actually believe the most important thing when property investing is market timing, and whether to invest in regions or not comes down to market timing.
Kevin: That’s an interesting twist. I’ve never heard it put that way. Is this the time, and are there certain markets that we should be looking at, Margaret?
Margaret: Yes. I think we’re coming toward a time when we are going to see some regional markets perform very well, but it won’t be all regional markets. Just like with all property, everyone is talking about the big property boom at the moment, but if you speak to someone in Adelaide, they’re going to say, “What property boom? We’re not having a property boom here.”
It’s the same with regional markets. There will be times when some of them are good to invest in, times when they’re not, and other regional markets that are never going to present a good investment in our lifetime.
I feel at the moment, those regional areas that are really worth watching are the ones that are closer to our recently boomed capital cities and even those ones if you have a little bit more time to wait, close to those capital cities of ours that haven’t quite boomed yet or still have more grunt in them. They’re normally the kind of regional areas where you’re just beginning to see people move out to them by choice and commute back to their city jobs.
Kevin: It’s that ripple effect – isn’t it? – that ripples out.
Margaret: Yes. It’s a ripple effect that’s forced on us by the fact that, very often, those main areas, those main cities, do reach a point where the average person can no longer afford to buy in, and they then make that choice. It reaches a point where they make that choice where it now becomes better to put up with the longer commute to save the money before it gets to that peak where it’s far too expensive.
People are willing to pay a bit more, a bit more, and a bit more, but it reaches a point then where they go, “Right now, it’s worth me spending that hour to an hour and a half on the train every morning and afternoon to get both a better lifestyle and also a cheaper property.”
Kevin: It’s the improvements – isn’t it? – that are going into an area to attract people there, because if you attract the people there, they like living there, and even if they do have to travel a bit for work, they’re still going to need some housing accommodation, which would be the magnet.
Margaret: That’s exactly right, and that was going to be my next point. You can’t just point to any regional area just outside of a capital city and within commutable distance and say, “That one is going to take off.”
It isn’t going to take off if it isn’t providing a certain amount of amenity, and normally, better amenity than you can get if you were to live in the cheapest place you could find in the nearby capital city.
Let me give Sydney as a good example. In Sydney, you can choose to either move all the way out to a suburb as far out as you can possibly imagine that may not have a lot of amenity, or you can invest or buy in the Central Coast with a similar commute time and yet a lot more amenity, because you could be living right near the beach or certainly on water. You’d probably get water views for the amount of money that you won’t get anything in Sydney.
You’re going to get a lot of other good amenity with cafés really starting to come. We’re seeing a lot more cafés and great dining options, a bit more culture, certainly big shopping centers, and all of the stuff that people really want, and it’s only an-hour-and-a-half commute from Sydney.
Kevin: Great example. Margaret, are there any Internet sites that you monitor that will indicate to you that these areas should be looked at a little closer?
Margaret: I don’t like Internet sites and I don’t like data, because to me, all they’re doing is telling us the obvious that we can see and witness with our own eyes. If you’re seeing it, then you’re probably too late already, which is why I don’t like those sites.
I simply use maps. I find out where those areas are that are getting really hot, go in, look at my maps, start looking around those areas, go back to RealEstate.com, see what properties are selling there for. If they’re significantly cheaper, I start then to narrow down the process: are the days on market reducing in those areas to show that people are starting to gain an interest?
Then I go to the council to see what they’re doing. Then I work out whether there are schools close enough by where the people can get close enough to a bus stop, a train stop, or light rail or whatever else is available, and then start the process of being able to whittle down. And in doing that, you’ll toss areas off the list.
At the moment, I’m thinking not only the Central Coast makes a good opportunity. You can certainly buy a house and land here for between $500,000 and $600,000, which probably sounds a lot to a lot of people up in Brisbane, but it’s quite cheap in the scheme of things in the Sydney area.
But there are other places I really like too, like Sunbury in Melbourne. People call that a regional area. Have you been there? It’s ten minutes from the airport, so I don’t see that as a regional area, yet we’re starting to see a lot of things happening out that way.
Even places like Geelong: there are outer suburbs of Geelong that are being developed that are subject to a lot of really good infrastructure that are going to give some really good returns for investors and great places for people to live.
Pakenham out toward the east there: that’s another affordable area that’s definitely commutable not only to Melbourne but highly commutable to the Monash employment lands, which are going to employ 50,000 people in the coming ten years. There is plenty of them out there and available.
Kevin: That is great advice. You can get a lot more of that sort of advice by following Margaret on her shows on Sky TV 602. There are a couple of shows, Property Success with Margaret Lomas and the other one is more of a talk style where people actually call you up and ask you about areas.
Margaret: Yes. Your Money Your Call, and we try to tell people don’t necessarily ring up and ask about areas because that makes a really boring show when every caller says, “What about this area? What about this area? What about this area?” But people ring us up with all sorts of questions. They ask us about property and tax, they ask us about the Budget, they ask us about all sorts of things: insurance. Every single question you can imagine related to property, we get asked on that show and we can usually answer them.
Kevin: You always do every time I watch. Margaret, great talking to you. Thank you so much for your time. Margaret Lomas from Destiny Financial Solutions, I look forward to seeing you on telly really soon.
Margaret: Great. Thank you.
Real Estate ‘unmasked’ – Peter O’Malley
Kevin: I was interested to pick up a book the other day written by Peter O’Malley. Peter is a real estate agent. He is the principal of an agency called Harris Partners, and Peter’s been in the industry for quite a long time. It is an interesting read because it goes into a lot of things that are near and dear to my heart as well, particularly the changes in the industry and how agents need to mold what they do to meet those changes, the major one being digital disruption. Peter joins me.
Peter, thank you very much for your time, and congratulations on the book.
Peter: Thank you, Kevin. And thanks for having me along.
Kevin: It’s a pleasure. The book is called Inside Real Estate. I’ll tell you how you can get it a little bit later in the interview. Let’s talk about digital disruption because there is a lot of talk both within the industry and outside the industry. How has that changed the way agents work from your perspective, Peter?
Peter: The way it’s changed the agents’ workings, Kevin, is they’ve become a lot more database-oriented than outright advertisers of real estate. Real estate is still advertised, of course, Kevin, but we’re seeing a lot of instances where agents nurture their database and are able to offer vendors an off-market transaction without the need to go to the open marketplace as such.
In some market conditions, I support that strategy, Kevin, and in other market conditions, I question that strategy. If the market is in a full-frontal boom – and the Sydney property market, for example, rose 20% in the last nine months – in those circumstances, I would always encourage an owner to expose their property to the open market because you never know how high the price can go.
But in a slow market – say, what you might have in Townsville at the moment – if you want to sell your house and an agent should happen to pop up with a qualified, ready-to-go, cash buyer off-market, you’re probably well-advised to sell off-market, because the open market is probably not going to be any more generous to you given that, say, Townsville is so flat at the moment.
Kevin: Interesting, Peter, to hear you make that comment about marketing, particularly online. I don’t know whether you’re aware, but Australia is the most expensive country in the world to advertise on the Internet, and I think that’s a disgrace.
Peter: I’m very aware of that point, Kevin. I’ve previously written a blog about that point as such. Consumers need to ask themselves what value are they getting for these expensive Internet ads? And that’s a topic that is covered in the book.
That is something that I believe has driven off-market trades in the industry, Kevin, as real estate agents are saying, “Hang on. Why am I going to spend thousands of dollars advertising to buyers who I already know? Why don’t I just cut the third-party provider out?” And that’s an understandable business strategy that agents are adopting to consumers’ benefit and one that I applaud.
Kevin: Just to stretch that thinking a little bit further, here we’re talking about two major portals – RealEstate.com.au and Domain.com.au – that are charging extraordinary figures to advertise when you can go to the States and it’s next to nothing to advertise on the Internet. I sometimes wonder if there is room for a third player, a third serious player, who’s going to hold both of these websites to account, Peter?
Peter: I think there is room for it but no one’s been able to execute it, as we all know, Kevin. A lot of heavy hitters have tried to be the third player in this space, and the industry at large has attempted to do so.
At the end of the day, the value or lack of in a real estate portal is the amount of traffic that it gets, and if real estate agents continue to put all of their listings on websites that then come back and charge them excessive fees, naturally that’s where the home buyers and home sellers are going to do their business.
As I say, as opposed to a third party coming into the marketplace, so far, we’ve seen this growth of off-market transactions across the industry, and that will only increase, in my view, going forward.
Kevin: Could you give me an example of what you mean by these off-market trades?
Peter: Sure. A home seller interviews four or five agents. All of the agents inspect the home, they price the home, the owner agrees with the pricing strategy, and then the agent says to themselves, “I may or may not win this listing, but even if I don’t win this listing, I have a fairly good idea of who’s going to buy this property.
“So instead of trying to convince the home seller to spend $3000 to go on these media websites to advertise the home to a buyer I already know of, I’m going to cut all of that out and ask for a 24-hour or a 48-hour agency agreement from the vendor to run one or two hand-picked buyers, if you like, through the home who are very likely to make an offer,” because you know that they’ve missed out at three or four auctions already and they’re desperate to buy.
Kevin: Agents have been spending a lot of time building their databases and they’re getting very, very good with some of the CRM programs. They’re able to identify who these buyers are because they’re coming into contact with them long before they used to. Database marketing certainly has to be a great opportunity for sellers to sell at a very low cost.
Peter: That’s right. When I first started in the industry, Kevin, it was the old three-by-five cards, the hand-written notes on everything. The sophistication of the CRMs that are in the real estate industry now means that home owners don’t need to spend thousands and thousands of dollars advertising their house in a replicated fashion to the days of newspaper. The good real estate agents in this industry do nurture their data and can produce a buyer without any cost or risk to the home seller, and that’s something that I applaud.
Kevin: It’s a great question for a consumer to ask an agent: “Tell me about your database. How does it work? How confident are you that you will have the buyer on there?” And this should be one of the key questions consumers ask agents before they list with them.
Peter: That is a key interview question during the process of hiring an estate agent: “How do you find buyers, and can you produce buyers without me having to put my hand in my pocket to find a buyer for the home?”
Kevin: Tell me about silent auctions because I know that you’re a pioneer of this concept. How does it work?
Peter: Silent auctions is a closed bidding process, Kevin. While we like the fact that an appropriately used deadline can put pressure on the buyers, while we know that when one buyer knows they’re in competition with several other buyers, that will drive their energy and their fear of missing out towards the subject property, one of the things that I like about the silent auction is that each party needs to produce their best, highest, and final offer without ever knowing what any of the other bids are.
Across Sydney even during the boom – and I talk about this in the book – a lot of auctions turned into a series of $1000 bids over $100,000 to $200,000. That’s a very painful experience to watch, and at the end of the day, while the property sells and it sells above the reserve, I’m not always convinced that it does sell for the winning bidder’s highest possible price.
We see on average in our silent auctions, Kevin, a spread somewhere between 4% and 6% between what the top bidder pays and the second best bidder pays.
Kevin: Peter, I want to take you to another part of your book Inside Real Estate – which, as I said, has been written by Peter O’Malley who I’m talking to. It’s published by Wiley. And available at most bookshops, Peter, is it?
Peter: Yes indeed, Kevin, nationally.
Kevin: Is there a website we can go to if we want to get hold of it?
Peter: I’m sending people to the Dymocks website. They’re doing a good job of processing orders at the moment.
Kevin: Very good. I’ll take you to page 113, chapter 35: Protecting Yourself from Conditioning. Let me read the definition that you have in there because I think it’s quite appropriate: “It’s a systematic process employed by real estate agents for communicating bad or negative news to the vendors to drive down their price expectations after the agent has received the listing.
Conditioning or crunching are terrible terms that were used in the industry many, many years ago. A very bad practice. Probably one of the most common complaints I get about “How I listed my house, the agent said they loved it, and now they’re telling me all the bad points about it.”
It’s a bad part of the industry, Peter.
Peter: It is. What it comes back to again, Kevin, is the interview process where the home seller inadvertently and mistakenly selects their real estate agent on the price the agent thinks the home will sell for.
Kevin, what I say to home sellers is unless the real estate agent is trying to buy your home, what they think your home is worth is largely irrelevant. You are employing an estate agent to negotiate on your behalf in the open marketplace.
What happens if you do select a real estate agent who over-eggs or over-promises on the expected sale price is that agent then has an over-priced listing by the time it comes on the market, and before that agent can get the home sold, they need to get the home owner’s price down.
They don’t want to say, “I got the price wrong. I apologize.” What they will do is start being critical of the home and wrapping that criticism up in buyer feedback such as “The road is too busy. The bedrooms are too small. The back yard is south-facing.”
This is why it’s a strong point to avoid being conditioned. The best way to do so is to avoid selecting your real estate agent on the price they quote for your home and instead, assess them on other issues, such as their experience, their clearance rates, their database, their fiduciary duty in the negotiations. They’re the sorts of factors that will deliver you the right real estate agent when it comes time to hire one.
Kevin: Great talking to you. Peter O’Malley has been my guest. Peter’s book is simply called Inside Real Estate. Dymocks is the place where you’re going to find it. Go online. You can check it out there.
Pete, thank you very much for your time. Congratulations on the book, and I look forward to talking to you again real soon.
Peter: Thanks very much, Kevin.