27 Oct I am 'surprised' by this market – Michael Yardney
This market just continually surprises, doesn’t it? You look at the growth in Sydney and Melbourne, and there were so many predictions at that start of the year that it just wouldn’t continue, but it has. How do you get on in this kind of market? What do you do? How do you get in there? Michael Yardney answers those questions and more.
Kevin: No doubt about it. This market just continually surprises, doesn’t it? You look at the growth in Sydney and Melbourne, and there were so many predictions at that start of the year that it just wouldn’t continue, but it has. How do you get on in this kind of market? What do you do? How do you get in there? Michael Yardney is going to help us with this question. Michael, of course, is from Metropole Property Strategies and is a regular on our show.
Good day, Michael.
Michael: Hello, Kevin. You’re right; the markets have surprised on the upside, haven’t they?
Kevin: Yes. Are you surprised by it, Michael?
Michael: I didn’t think they would be as strong as this at the beginning of the year. Yes, I am. Again, not every market. While Sydney and Melbourne, in particular, have done well, even those markets are fragmented. But it’s the shortage of stock in the investment-grade sub-segments, plus low interest rates and increasing confidence since the election. We have noticed on the ground, the properties we’re looking at, this type of investment-grade properties have moved up 5% and in some cases, even 10% in the last six months or so.
Kevin: Yes, it’s quite staggering, isn’t it? So what can someone do to get into the market when it’s like this, Michael? What would you recommend?
Michael: What I would recommend not doing is sitting on the sidelines waiting for things to change, to get better, to get easier. It clearly is a seller’s market. If you have the right type of property, there will be multiple dealers at an auction or people looking to buy as private sale. So a good negotiation tactic I’d start with, Kevin, is don’t be smart; a good negotiation is when you win and actually get the property.
I’ve seen people miss out for $2000, for $5000, go to multiple properties and lose out trying to be overly smart, when, in fact, I would be suggesting the best negotiating strategy is when you win.
Kevin: I have heard you, though, on a number of occasions say, Michael, “I’ve missed out on that one. We didn’t get it.” You have to have a limit though, don’t you?
Michael: Of course, you do. But I think what’s happening at the moment, we’re experiencing the words over and over again when we go to an auction and we do set a limit and we lose out is that the person who’s bought is somebody who’s missed two or three times at previous weekends and they’re now one of those emotional buyers who are going to buy at any cost.
And no, Kevin, you can’t chase them, so the answer is do you your homework, do your sums, but don’t try and be smart. If an opportunity does come around, be prepared to act quickly. Have a look, make sure you’ve done all your correct due diligence, but if you know what you want and you’ve researched the markets and you have finance approval on your side, when you find the right property, be prepared to make an offer early and a firm offer.
Kevin: Yes, but don’t leave home without a blank check.
Michael: Well, be prepared to make an offer quickly. If it’s going to auction, go there with a realistic figure knowing it’s going to probably be more expensive that you would have spent six months ago and when you look back in 10 years’ time, you’re going to think, “Gee, it was really cheap, wasn’t it?”
Kevin: That’s right. The other thing, too, mate, is you can’t be too cute with your offers, can you, in this market?
Michael: No, I don’t think you can. You should buy unconditionally. Don’t try and be smart and make it subject to finance and building and pest inspection and my wife’s cousin’s approval; in fact, be prepared to buy unconditionally or on one condition. The condition we sometimes use that covers all the others is subject to the purchaser’s solicitor’s approval.
Now, most vendors, most sellers, most estate agents won’t understand the power of that. Because the purchaser’s solicitor – my solicitor – has the right to say, “I don’t approve,” and they can not approve for any type of reason, but it doesn’t sound as intimidating or subject to finance or subject to building and pest inspection.
It’s a simple thing where people say, “Oh, the solicitor is not going to give us a hard time. It’s a good contract.” It’s not only the contract he’s looking at, Kevin.
Kevin: With such a hot market and so many properties selling at auction, what about making an offer before auction, Michael?
Michael: Interestingly despite the hot market and the very high clearance rates, we’re finding a lot of vendors are prepared to sell before auction. There are two times that they’re prepared to do it, Kevin – very often right at the beginning of the campaign, because in their mind they’re going to save $20,000 or so in marketing costs, and they’re also a bit scared about what the end result will be. A lot of people find auctions very emotional.
The other time we’re finding in Melbourne, in particular, three to four days before the auction, three days when the cooling off period is now over and the auction conditions are there, people are prepared to sell rather than take the risk of auction. Of course, you’re not going to nab a bargain doing that, but in fact, I’d much rather my buyer’s agent come on a Monday morning and say, “Hey, there were four other bidders and I’ve actually outbid them and we got a good property,” than saying, “Hey, I got a good bargain because there was no one else at the auction. No one was interested.” I’d wonder “What’s going on? What are we missing out on?”
Kevin: Yes, “Why is it like that?” What about leveraging your relationships, Michael?
Michael: One of the benefits that we have as buyer’s agents is we know the selling agents in the areas where we’re purchasing, which means they’re going to give us a lot of those opportunities really early in the auction campaign, as I said, or off-market opportunities in private sales.
I guess clients come to us about our experience, our knowledge, our relationships. While you can actually get knowledge on the Internet and you can do your homework that way, you actually can’t buy experience, you can’t buy relationships, you can’t buy perspective – and that’s what, I guess, a good buyer’s agent can bring to the party.
And they know how to talk with selling agents and we can sometimes dig deep and find out the vendor’s motivation, which the average buyer can’t, Kevin.
Kevin: Speaking of motivation, too, Michael, price is not always the only motivator, is it?
Michael: No, it’s not, Kevin. Interestingly, we want to understand when sellers are motivated, because we’re not going to take advantage of people, but we will take advantage of the situation and make sure that they get what they want so that we can get what we want.
If somebody is divorced, you’ll often find they’re very, very keen to get out quickly, even if they don’t get the top dollar because they just need to be out of the house. If people have troubles with debt with the banks and they have deadlines to meet, again, sometimes a quick settlement at a lower price will be more important to them than hanging out and the bank taking over. Death is another common motivating factor where people just want to move on. They want to clear the estate. They don’t want all the emotion involved in it.
Interestingly, I’ve found other sellers are sometimes keen to sell to families. They don’t want a developer or somebody to pull down the house – the house that they’ve lived in and the castle that they’ve built and the family has grown up in.
It’s surprising how often money isn’t the main motivator; there are other secondary ones that you have to look at, as well.
Kevin: Indeed. Very wise words. Michael, thank you so much for your time.
Michael: My pleasure, Kevin.