23 Mar Don't fall foul of FOMO – Rich Harvey
FOMO or fear of missing out is driving many property buyers, especially auction bidders, to pay way over the odds according to Real Estate Buyers Association of Australia president Rich Harvey. He talks to us about this and has an excellent suggestion for you if that sounds like what you might be going through.
Kevin: Rich Harvey, is on the line. Good morning, Rich. How are you?
Rich: A very good morning, Kevin
Kevin: Interested to read during the week that you’ve put a warning out to buyers about making sure they don’t become wounded bull bidders. What do you mean by that?
Rich: Indeed. We see a lot of frustrated buyers going to auction, particularly in the Sydney and the Melbourne markets, which have a larger percentage of auctions. We see buyers might have gone to five or ten auctions, they’ve missed out, and they walk into that next auction and then they end up paying over the odds for that property without regard to the true market value.
It’s like they use the bidding card as a fan. They just can’t stop raising it up the top, and they end up just paying way too much for the property. It’s just another word for a frustrated buyer. We see it all the time. There are a couple of different demographics, but often you’ll see younger families and they’re dragging the kids around and particularly the last couple of weekends, there have been heat wave conditions, and people just get over it. But they end up paying anywhere from $100,000 to $500,000 more than they need to on a property just to get into the market. It’s quite dangerous territory for some people.
Kevin: Rich, to go one step further, let’s have a look at Melbourne today. There are 1400 auctions. Assuming that there are probably two, maybe even three, bidders at each auction, we’re talking about thousands of people who are going to walk away unsatisfied after today. That feeds that fear of loss and that feeds that frenzy, doesn’t it, to go out and buy something?
Rich: Actually Dr. Andrew Wilson sent me some figures on the weekend and also CoreLogic gave me some great numbers. I asked them, “What’s the percentage of properties going to auction versus private treaty?” In Sydney, around 23% of listings went to auction last year and 77% were private treaty. In Melbourne, it was around 30% auction and 70% private treaty. And in Brisbane, it was around 6% auctions and 94% private treaty.
People shouldn’t have a fear of missing out at auction. There are other properties available for them. They just have to be patient and hang on.
I think a lot of the public aren’t aware that there’s a hidden property market. I think particularly what we as buyer’s agents promote as one of our key benefits for our services is getting access to that off-market property. And there are quite a few of them. We’re finding, particularly in the higher price ranges, there’s a disproportionate percentage of off-markets available, and it’s a really great market you can tap into to get a property.
Kevin: How do you do that as a buyer’s agent? How do you tap into it? How could the consumer do it?
Rich: It’s harder for the consumer to do it. It’s easier for us as buyer’s agents. We just have a really extensive network and a really good relationship with agents. We bring a qualified buyer to the table, we get advance notice. Because we’re in the industry, we know what’s going on.
We don’t collude or do anything at all unsavory. It’s very much a straight professional relationship. It’s simply relationship building and it’s time spent. If you spend a lot of time doing something, you get very good at it.
So as buyer’s agents, we have a lot of access to properties that people wouldn’t otherwise find.
Kevin: What would be your suggestion, Rich, to people who may have chosen an area – should they be then cultivating that relationship with the agents in that area?
Rich: Correct. That’s right. It’s just a matter of maintaining those relationships. You have to be the squeaky wheel that gets the oil there and gets noticed in those areas. That’s the key.
Kevin: Are you going to many auctions? Are you bidding today?
Rich: We had one we were going to be doing today but it got sold prior, unfortunately. We have another two this afternoon. So fingers crossed, we’ll try and get those two today.
Kevin: Did it sell to your client?
Rich: No. It went over their limit, unfortunately. You just have to know when to walk away.
Kevin: That’s a good point. You obviously worked with your buyer and you set a limit. You don’t need to tell us the property, but can you give us some comparative figures?
Rich: It was a one-bedroom in Randwick. I believe it sold for around $780,000, where we were willing to go to about $760,000. We were close but we’re not that close. Also the client just had a limit, unfortunately. The property is probably actually worth that, but some of these clients just have a budget and they just can’t go over that.
Kevin: It’s worth it because someone paid for it. That defines its worth, doesn’t it really?
Rich: That’s right.
Kevin: Were your clients restricted on finance, or were they investors?
Rich: They’re investors.
Kevin: So they had a very hard view on what it was worth.
Rich: That’s right. Exactly. Yes.
Kevin: Do you find generally, Rich, that investors take a much harder line at that because they look at it as a business as opposed to someone who’s going to become emotionally involved in buying a home?
Rich: Absolutely. With investors it’s all about the return on investment and the yield and the growth factor you’re going to get, so you have to buy well. For the home buyers, it can be more emotional. It doesn’t mean there’s any less attention given to it. But for the home buyers, they can ride out the cycle stuff a little bit more, so there can be a little more of a flexible factor in the price that they pay.
Kevin: Thanks, Rich. Great talking to you, mate. Thank you.
Rich: Thank you.
Kevin: Rich Harvey is the president of the Real Estate Buyers Association of Australia.