The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.
We have just released our latest Secret Agent report! To welcome the first month of Spring, we are investigating if daily and monthly temperatures have any effect on auction results.
Start reading this report by clicking on the link below:
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The start of this month marked the commencement of winter auctions for 2013. A running joke in the industry, is that if you’re a buyer intending to bid on a weekend auction – pray that it rains!
We at Secret Agent wanted to ask ourselves a very simple question. Could rain affect auction prices? Would it have a detrimental affect to property pricing?
Our initial thoughts were that it wouldn’t impact results. If a buyer was set to bid on a property, the weather wouldn’t impact the way a serious purchaser would pursue it.
However we started following some interesting research on the correlation of stock market performance and the weather, this started our quest to establish if in fact the Melbourne property market was influenced by the weather. The research mentioned was prepared by the University of Berkeley, and compared the Dow Jones Industrials and weather patterns from 1948 – 2010. The market recorded an average reduction of -2.8% on cloudy days over that time period (62 years of data).
We looked at the winter months when an auction occurred on a wet day (i.e. more than 4mm of rain) there was an average price difference of -5% as opposed to auctions that took place on a dry day with less than 4mm of rain.
This finding was compiled with 2012 sales results that occurred on a Saturday (i.e. at Auction) between June and August 2012.
Average auction result with less than 4mm of rain: $1,003,300
Average auction result with 4mm or more of rain: $956,800
-5% difference could be expected for property owners auctioning on a rainy day!
The one saving grace to this situation is that some correlations over the past decade show that prices on a whole are stronger in winter than those at other points in the year. The reason for this is the scarcity of stock in Winter. A vendor could be wise to sell in winter, but only on a dry day!
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.
Tomorrow is a day that will help ‘shed the light’ on early market conditions for 2011.
Stock levels will be sufficient enough for a guide and some overall good quality property is being offered.
My thoughts are that we are in for a cautious start. A clearance rate of between 50 – 60% should be about right. Remember that many auctions that fail can go unreported. Which means a number reported in the media can be downgraded somewhat.
Good luck if you’re attempting to buy anything tomorrow.
Last weekend we saw clearance rates plummet to 61%, this surely can only be directly linked to a lack of confidence in the market as a result of recent interest rate rises.
With a steady decline in auction success, is it time we ask how relevant they are? With another 2000 auctions over the coming two weeks, are property sellers jumping on, what was once a good selling method, and now, used as a tool for agents to turn over high volumes of property? Some properties will always be successful at auction and many should simply not be considered for the process.
Spring has long been the ‘ideal’ time to sell a property, but given the recent decline in success of the Auction process it may be time we see more Private Treaties. The expense associated with an Auction campaign has always been a bitter pill for vendors to swallow, even more so when the property has passed in, let alone the stigma associated with a failed Auction.
Whereas if you are buying, failed Auctions can be a blessing, the ball is now firmly in your court. A chance for negotiation to take place, without the public analysing every move that is made. And with the benefit of having an asking price to work with, rather than a fictitious auction quote price.
We may see clearances drop to the 50% range as they have in Sydney, any extra pressure from the banks will certainly not be do anything to encourage buyers to drip into their pockets or more importantly put their hands in the air on the weekend.
There are two types of changes that happen with Real Estate companies that bring greater transparency to the overall market.
The first is legislative changes that punishes agents if a newly imposed law is broken. These are normally consumer driven and new laws try to curb bad behaviour. We noticed this recently with quoting and some years ago with dummy bidding which was a rather large one.
The second form of change is company driven changes. BenMac has made them, so has Keatings.
Company driven changes are the best adhered to and the most respected by the public. Legislative changes often don’t stop the problem yet company driven ones do. The company leader forces other players in the market to also change.
What I’m starting to see is more board room auctions especially in the inner city. The normal practice has been for property to be put into a ‘blind tender’ once an acceptable offer was made. These are listings that are sold by any other method besides public auction.
Nelson Alexander has just started doing this in the inner city and I’ll expect others will follow. Many Eastern suburb agents are already running this way and more will also follow.
A tender process is challenging for residential home buyers. Unlike commercial property buyers, home buyers have emotion at stake plus a lack of experience in these dealings.
So I’ve listed below some possible side effects, both good and bad for buyers and sellers:
Buyers:
Positive
*Only have to pay just slightly more than the second highest bidder
*Transparency. Can see who you’re bidding against
*May not have to pay your absolute best price
Negative
*Others bidders will know what you’ve offered
*Increase pressure. Board room auctions can be daunting
*Competition. Social proof of bidding can mean that the price passes the possible sale price if a tender was in place
*Emotion. Board room auctions are still auctions!
Sellers:
Positive
*A market based price. An auction is the best way of determining market value
*Creating an emotion filled environment can work in your favour
*Property with broad market appeal will normally benefit from open competition
Negative
*Leaving ‘money on the table’. The top purchaser may have been prepared to pay a far greater
price than the second highest bidder.
*Unusual property with a limited market appeal may sell for less as a result.
*Potential bidders may be unable to attend in person.
I think overall that board room auctions are a good fit for the residential market. Opportunities and threats always exist with change and this will mean different strategies moving forward.
The frustration of long auction campaigns if often felt by many buyers. It’s becoming more apparent as technology continues to improve that many campaigns just run too long.
In fact, I think that shorter campaigns actually work better for both buyer and seller in a market that is balanced to strong.
So ignoring when the market is less consistent, I want to lay out both buyer and seller advantages below:
Buyer
Seller
Part of longer campaign is to help shape expectation, especially with property owners. However if expectation is in alignment, then shorter campaigns I think would be a good thing.
On Saturday I went to bid at an auction on behalf of a client. About 5 minutes prior to the start of the auction – a lady started handing out leaflets to every person in the crowd.
The leaflet (which is attached) read like this:
‘How much is ………. really worth? It is up to the Market to decide, BUT when the real estate agents are feeding us misinformation, how can we tell?
Not only is (the property) being falsely advertised as a three bedroom home (with a study), ………… (The Agent) gave us a select comparative report of select three bedroom homes sold, all between $720 – $770k.
But, in 2010 there have been 21 homes sold with a comparable land size in Coburg. The average price for all three bedroom’s sold was $705,800. The average price for two bedroom homes during the same period was $616,330.
A home in Strathearn Ave, Coburg 2 Bed, 1 Car, 1 Bath (497sqm) sold for $711,000 in early 2010. Another house in Maranoa Cres (643sqm) 2 Beds, 1 Bath sold for $625,000 in Feb 2010. Both of these homes are just around the corner.
Potential bidders, you and I make up the market. Here is some information that you may not have been told, use it wisely’
Following this was a standard pest inspection report and pre purchase inspection report with a manicured selection of text that they wanted other bidders to read.
My gut feel suggested a certain bidder (leaning on the fence) on Saturday was the person responsible and that they had hired ‘outside help’ to pass around the flyers.
To be honest, I think it’s pretty disappointing from the buyers angle. This doesn’t (and didn’t) stop people from bidding. In fact, if the house was such a dud then they wouldn’t have been bidding. I felt it gave other bidders confidence by the desperation of this flyer.
Many neighbours were incredibly disappointed when they were handed this flyer also. This is almost like having a shot at them – not a good way to introduce yourself to the neighbourhood if you’re the successful buyer.
Fact is these tactics often misfire. You’ll find that vendors won’t want to sell to you or will be unfair in any negotiations if they have a ‘gut feel’ on who it might be, agents will be avoiding you, and your new neighbours will be very cranky indeed.
The REIV are producing some interesting articles for consumers at the moment.
The most recent article being ‘Knocked down, but is it sold?’
So, When a property has been knocked down to the highest bidder, at auction after reaching the reserve, is it sold?
Most would think yes, however technically not.
A vendor is not compelled to sell their home to that highest bidder. Until the vendor’s agreement has been set out in a contract, signed by both them and the successful bidder, the vendor may change their mind for whatever reason and choose not to sell.
The likelihood of his occurring is very very low, really unheard of. Thankfully, almost all properties knocked down at auction above reserve result in a final sale.
But it’s very odd that an auctioneer cannot take ‘late bids’ after the fall of the hammer, yet a vendor can choose to not sell to the highest bidder. On the other hand if a buyer bids at auction and is deemed the highest, legal repercussions can be had on a buyer who goes down the route of choosing not to sign contracts.
It does seem a little like double standards. I agree that a buyer should not have the right to walk away from a situation where they are the success bidder at auction, but I also feel that owners should have penalties in play if they choose not to sell to the highest bidder.