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The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


Category Archives For: Property Buying Tips

The Signal Point

We’ve been looking forward to this day.

The 29th of January is a signal point of the year kicking into gear for 2013.

January is, without doubt, the quietest month of the year in real estate.

Many are away, and thanks to much of the vendor population in Melbourne being of the age when they have a child or two, school holidays are a massive diversion to property trading.

So welcome back. Options and new marketing campaigns will start to increase. This year might still prove to be a slower start, yet it’s a start – which counts!

Traditionally Spring is the most dominant time in property trading, however March can be one of the busiest months of the year.

Owners seeking uninterrupted 5 week auction campaigns will have this in their sights.

After the Australia Day Weekend has passed, it indicates a signal point to us that we are moving from a dormant market to an active one.


Home Alone

From Secret Agent Researcher, David Goei.

A tradesman we were speaking with recently commented how he had been working throughout the whole of New year’s Day, with 16 break ins occurring on the 31st of December, and no one wanting to fix them up. Most of these occurred in the North and Western suburbs, with sliding doors and  windows being the main points of entry.

It is little surprise that burglars tend to strike during the holiday season, when people are away or out enjoying themselves on New Year’s Eve, but this is just one of the indicators that a home is a prime target.

Chris McGoey, a security consultant, and Richard Wright, a criminology professor, interviewed convicted burglars in North Carolina, Oregon, California and Kentucky on when they are most likely to strike and have come up with this list of things.

  1. Burglars tend to scout out their targets beforehand, by performing simple manual jobs which involve casing the inside of your home, even using your bathroom so that they can unlatch the window or reduce security. And remember: Burglars do their best never to look like burglars.
  2. Announcing vacation plans on social media alerts burglars, and they can find your home address with some effort.
  3. Displays of opulence might work against you, it simply means you are more worth robbing to burglars. It is advisable to draw the curtains at night, or your home becomes a thieves’ shopping gallery.
  4. An open window is an open invitation.
  5. Christmas Lights set up… but always turned off?  A giveaway that you have left for the season.  If you choose to put up Christmas Lights or Christmas Decorations outside your home for Christmas, its a good idea to take them down if you are planning on going away and were thinking just to switch them off
  6. They are likely to try and open your front door if no one answers when they knock. This is why there should be no excuse for not locking your front door when leaving your home; you might be having a bad day but you could make it worse. If you answer, they will simply ask for directions and walk away.
  7. Placing a security system behind a door with decorative glass might not be a good idea, especially if burglars can see if the alarm is set. And on that matter, always set your home alarm if you have one, you might be complacent but burglars are more than happy for you to be. Some motion detectors would not hurt while you are at it.
  8. Drawers of any kind (sock, medicine, underwear) will be raided.
  9. A safe which isn’t bolted down is likely to be simply carried off, to be opened at a later time.
  10. That trick McCauly Culkin used in that movie? It actually works; sounds and lights coming from inside a home act as a good deterrent against burglary.
  11. Mail piling at the letter box or front of the house indicates your absence
  12. Burglars are not adverse to breaking a window to get in, all of which is why…
  13. It pays to be friendly with your neighbours. They could help you keep any incoming mail, or check in on that strange sound coming from your home. That or you could get a really loud dog for your kids next Christmas.

 


Special Conditions

The rise of special conditions in contracts for the sale/purchase of real estate is growing at a very high rate.

Normally solicitors would prepare a standard contact of sale with minimal conditions. We are noticing however – the steady increase in the amount of special conditions stipulated into the contract.

These special conditions are not standard, and usually benefit the vendor at the expense of the potential purchaser.

For example, recently we’ve seen:

  • Special conditions that allow the vendor to resale the property during the settlement period if a higher offer is received by the vendor.
  • Substantial penalty rates for any overdue monies that are far and above normal penalties.
  • Time limits such as; 10 minutes that the purchaser has to sign a contract before the property is resubmitted to auction.
  • Liability transfer for any building works completed by the vendor to the purchaser.

Watch those special conditions!


Insurance Overlook

A large grey area has been developed in the field of insurance for home buyers and landlords. When exactly does a purchaser take out insurance on a property? When the initial deposit is paid – or when settlement has been effected?

Technically, a purchaser doesn’t own the property until settlement has been completed. However new contracts can have special conditions inserted that require the purchaser to be insured at the time of exchanging initial contracts.

This can seem to almost shift the liability.

An example of what could be a potential problem. Let’s say that buyer X buys from seller Y. The property is a vacant warehouse. Buyer X completes a final inspection and everything looks fine. The property settles and buyer X drives to their new warehouse to find the whole property has been burnt down.

Was the fire pre settlement or after? Was Seller Y insured?

These situations can leave buyer X in a very sticky situation. An insurance policy from the point of deposit would have been a safe and secure option for X.

Even If Y is deemed accountable, it could be a nightmare trying to get compensation through the past owner.


Buy vs Rent

One way to determine affordability is to look at the difference between renting and buying a property. A common measure throughout the world is to use the House Price vs Rent Ratio.


Just like analysing a business of a company share price,  the House Price vs Rent Ratio can help give a property buyer a measure as to whether they should buy a certain property or not.

We’ve looked at some of the key inner city areas, and the ratios that exist in each of those suburbs. The data in the table to the right has been gathered from the 1st of April to the 31st of July,  a third of the year 2012. Interesting findings are below…

  • Lowest Average Price: Kensington at $693,885
  • Highest Average Price: Hawthorn at $1,582,833
  • Lowest Average Annual Rent: Kensington at $25,351.13
  • Highest Average Annual Rent: Middle Park at $38,640.64
  • Lowest Ratio: Brunswick East at 25.08
  • Highest Ratio: Hawthorn at 45.45
  • Despite having the lowest Rent and Prices, Kensington does not appear to be the lowest ratio.

A Rent vs Buy ratio of over 31 is really making renting more favourable overall.


Which auction are you bidding at?

We get the odd frustration from having an auction operate under a different formula from the standard Schedule 1 auction (explained below).


A few weeks ago, we were bidding on behalf of a client for the property 74 Falconer Street North Fitzroy (above).  Half an hour before the auction,  we were made aware that one of the owners of the property were intending to bid at their own auction. The sale situation was a deceased estate.

A number of siblings were the beneficiaries, and one sibling wanted to buy the property from the other siblings.  They used an open market strategy – and we ended up being out bid by that sibling at the auction.

It was a disappointing situation. We felt that the entire campaign should have mentioned this in the marketing material, rather than buyers being made aware just 30 mins prior to the auction.

As a guide to these confusing situations, we’ve included below the different types of auctions, so buyers can be best informed about these and what they mean.

By law, the estate agent must display the auction rules 30 mins prior to auction. The auction can either be Schedule 1, 2, 3, 4 or a schedule 1 with an alternative.

Here is the breakdown:

Schedule 1:

The most common auction in Victoria. A schedule 1 auction allows the agent to place a bid on behalf of the vendor however no co-owner bidding to take place.
The alternative to schedule 1 is exactly the same listed above with no vendor bidding at all.  This is the purest auction possible.  However,  most auctions will not use this.

Schedule 2: 

Where 2 co-owners own the property,  one co-owner may bid for the property plus the auctioneer may also take a vendor bid on behalf of the owners.

Schedule 3: 

The property has 2 owners or more,  and some (but not all) co-owners may bid for the property.  The auctioneer may also take vendor bids.

Schedule 4: 

2 or more co-owners own the property. All co-owners may bid on the property however vendor bids cannot be taken by the auctioneer.
This can be a marriage situation were both husband and wife and bidding for their own property together with the open market!

A good tip for property buyers is to always look at the rules of the auction before they intend to bid.  Even take a photo with your smartphone to ensure that the auction you are bidding on is a pure auction. Owners bidding on their own property can distort the price paid to unrealistic levels and you don’t want to be left buying a property, at a figure that isn’t market driven.


The Value of Light

We’ve always known the importance of good natural light. Apart from the benefits of vitamin D on health, natural light just feels good. It helps make a home “feel good”. Natural light is instinctive to human nature, and the importance of natural light during winter comes at a premium – especially when one is trying to buy their home.

At Secret Agent, we’ve researched to determine whether a clear correlation could be established between average/median house prices and the orientation of the backyard. Our first hunch was that North facing backyards would yield higher prices. This is because a north facing backyard is generally the ideal orientation to capture full light. We have based our data on the quarter from 1st April to 30th June and have used Brunswick, Richmond and Hawthorn to help validate our hypothesis.

These suburbs proved to be excellent samples as they fulfilled the following criteria:

  • High turnover rate for the suburb.
  • Comprised mostly of consistent home type sales (Period Homes)
  • Located in the inner city.


In Hawthorn, West facing backyards had the highest selling prices followed closely by the North. The full Hawthorn statistics are to be released in Secret Agent’s upcoming “The Secret Agent Report” – our research guide. This report will have a Natural light index depending on the orientation of the property.

 

Further Observations

In both Brunswick and Richmond, backyards which have a North facing orientation had the highest average prices for the quarter.

Hawthorn had a higher average price for West facing backyards, with the North (backyards) as a very close second.

North facing backyards surprisingly also had the lowest $/sqm average of all orientations in Brunswick. We note that 6 sales changed hands that were located on busier streets which helped pull back the average $/sqm rate. We also noted that the block size (North facing backyards) were larger in general.

Average price for Brunswick: $725,414

North facing backyard average (Brunswick): $858,000

North facing backyards command a premium of 18.3% more

Average Price for Richmond: $951,029

North facing backyard average (Richmond): $1,105,750

North facing backyards cost 16.27% more

We note that suburbs such as Brunswick tend to have larger block sizes with regards to North and South orientations. Furthermore, single fronted sales were more prevalent with either a West or East facing rear orientation.

 
33 Rosslyn Street West Melbourne.

Big north facing windows allowed this property to have outstanding natural light. Our research suggests that the value in this property is not just about the amount of accommodation, style of property or location; elements such as light also add value to the property.


Off Market

The latest market conditions have created nervousness for many owners, they’ve become a lot more cautious about adopting a full blown marketing campaign.

So the rise of “off market” sales are increasing rapidly, especially in the price range of $2.5 Million and above.

We’ve now noticed that in the inner city for example, more sales are being made through “off market” channels than advertised ones at present.

This creates a whole new world of discreet sales, handshake deals and confidentially agreements.

So what are the benefits of “off market” transactions for buyers and sellers?

  • Privacy kept in tact
  • Home only open to the most qualified of buyers
  • Buyers can negotiate free of any public street theatre
  • Terms of agreement can be much more creative
  • Prices kept confidential
  • No large marketing commitments

Cooling Off

Recent changes in the cooling off laws have been a huge helping hand to property buyers in private negotiations.

We’ve noticed a number of instances were buyers are “cooling off” on bigger sales. Some agents are now having to have 3 sleepless night until the “cooling off” period ends.

Benefits for buyers include:

Having an opportunity to guard themselves against “impulse buying”.

Disadvantages for sellers:

Selling before auction (if outside the three business days before auction period) is now slightly more tricky.

Prospective buyers were asked to waive any cooling off periods by way of disclaimer – now vendors could find a “cooling off” period could hurt the sale and cost many marketing dollars in the process. It’s hard for an auction campaign to reignite after being sold before auction, and then back on the market again after a buyer electing to “cool off”

We could see a lot more emphasis on the calibre of the offer being made and were the purchase capital is coming from than in the past. Example: Two similar offers are placed on a property. An owner may be more willing to elect to take a lower bid, if the purchaser was seen as more sound and stable.An estate agent appointed to sell will require more skill than before in advising their client.