02 Oct Secret Power of Persuasion | Why you should invest in South East Queensland | Under-quoting Crackdown | The management of units | Should I employ a property manager? | Plus more
A high-profile industry figure has called for an end to undocumented selling activity, which many agents believe is rife in their local market. John Cunningham says not having an agency agreement not only jeopardises potential commission for the agent, but puts vendors and agencies at risk since they’re unwittingly part of the issue.
When buying a property, or any other big-ticket item, we usually want to buy it at the best price possible, while the vendor wants to sell it for the highest price they can achieve. Good negotiators have developed the art of being able to influence others to see things their way. They know how to get others to do things they want to get done. Michael Yardney shares with us the Secret Power of Persuasion – the six universal principles of influence.
Gavin McPherson from Oasis Properties tells us why he and his colleagues are focused on investing in South East Queensland.
We catch up with the person who has been named as the top property manger in Queensland. We ask her what we should be looking at when considering employing a property manager.
We know that apartments are growing in popularity but did you know that in a little under 20 years over half of Sydney’s population will be living in units. With so much close quarters living there are going to be a growing number of disputes. Michael Teys has written a book on what strata laws will be like in the future and how they will impact how we live in this environment. We discuss that with him.
“Pitch it low and watch it go” is a saying in real estate used by agents to entice interest from buyers. In the November issue of Australian Property Investor magazine you can read an article called “Under quoting crackdown” that gives a detailed description about how big the problem really is and what you can do to protect yourself. Miriam Sankuhler is a buyer’s agent and director of Property Mavens and she joins us to talk about how wide spread the problem really is.
Kevin: I’m delighted to have back into the show Gavin McPherson. Gavin is the CEO for Oasis Property. They work all around Australia, but it’s interesting to note that they’re predominantly looking at the southeast corner of Queensland right now, and I’m curious to know why.
He joins me. Hi, Gavin.
Gavin: Good day, Kevin. How are you?
Kevin: Good, mate. Thank you for your time. I’m very keen to talk to you about this. I don’t want to talk hotspots, but why the particular focus on South East Queensland?
Gavin: A really important… A bit “wonkish” point to make, but a very important point. Ever since 1988 – so you could say as long as Australia has been a global economy – Australians have always spent between 33% and 55% of their household incomes. Now, you’re looking at those southern states, Sydney and Melbourne, we’re there – 54.6%, 55% – whether you want to argue over a decimal point or not, we are there. It’s over.
Now, if you marry that with the fact 62% to 68% of people getting home loans at the moment, so they’re the homebuyers we know of, they’re investors, and investors are after only one thing – money. If they can’t get that growth out of Sydney and Melbourne – which they are not going to get, in my opinion and in almost every person’s opinion; they’d be breaking new records if they did, put it that way – then they have to move somewhere else.
Then you have the discrepancy between Sydney markets and your southern markets. Now, as you move down that channel of 4.7 million people in greater Sydney, 4.4 in greater Melbourne, you’re moving down to the markets like Gold Coast and Brisbane. You have up to a 65% discrepancy in house prices. But let’s not forget us in Queensland. We only have a 12% loss in wages, so somebody has to close that gap.
If there was deficiency in those southern Queensland markets insofar as the fundamentals, then I’d have a problem. But there isn’t a deficiency. Brisbane has great drivers. It actually is Australia’s fastest growing capital city and is expected to be so until 2030. Gold Coast, again, has got its other drivers.
Kevin: What’s going to slow the market? Do you see it continuing to grow in Sydney and Melbourne, and is there an opportunity for Brisbane to play catch-up?
Gavin: Yes, I do. There are two comments here. When I say I expect Sydney and Melbourne to stop that growth, I think it’s happening already. I know my business operates anywhere up to 200 inspections a week, and I can tell you right now it’s getting thin on the ground. Agents are getting away with high prices and, again, there are expectations there, and affordability is good because of interest rates, but I think that’s temporary.
Second to that also, let’s not forget where Brisbane currently is at the moment in regards to its price discrepancies. I would say it’s quite disingenuous to say that Brisbane hasn’t already grown. Let’s have a good look at just state one example. Give or take where you get your numbers from, Brisbane grew by about 7% last year – nice moderate growth, but nothing spectacular.
But then again you go to somewhere like New Farm, I’m seeing examples of 25% to 30% growth. I’ve certainly got that, and certainly some of the market is worth participating in. But then you go out to Chirnside and get minus 2% growth last year.
I’d suggest to you that absolutely there is growth but there are certain growth corridors, and there are some disingenuous comments out there at the moment that you can take a dartboard of Brisbane and throw a dart and you will make money. I think that’s pretty incorrect at the moment. I think that you could have made that statement two years ago, but you have to be very careful.
I think people are being overcritical of Brisbane at the moment in some particular areas where they’re overbuilt. But I think they’re right in your Woolloongabbas, your West Ends, the Portside of Hamilton, Newstead, and South Bank. I think those areas will be overbuilt and investors should stay away. But the areas of high demand where they’re really not letting any more stock out – Paddington, Auchenflower – I think those places will thrive.
Kevin: Let’s have a look at the differences between Gold Coast and Brisbane. It’s easy to say South East Queensland, but there are two major markets there, even if you exclude the Sunshine Coast. Let’s have a look at Gold Coast versus Brisbane.
Gavin: Absolutely. First and foremost, you have some great commentary out there by Bernard Salt at the moment in talking about Brisbane especially and Gold Coast and those two being intertwined possibly by 2035 and definitely by 2050. I think people should expect that sort of growth corridor to occur over a meaningful period of timeframe.
But let’s deal with meaningful timeframes like we have to deal with as investors – three years, five years, seven years. Gold Coast right now, people have just gotten so used to the comment that Gold Coast is oversupplied with property – they’ve been saying it so long – they’ve actually gone the other way.
The biggest proof in that pudding is vacancy rates. The areas that we’re participating in – Main Beach, Mermaid Beach, Broadbeach, Surfers Paradise – those vacancy rates now are down. Even though they’re actually at 1.8% across the board of Gold Coast, we’re finding more like 1% in those areas, and that’s a great symptom of undersupply.
Now, it’s true to say that places like Jewel and the new buildings that are coming up in Broadbeach and the like, those things will provide more stock on the market. However, they’re not going to be creating dwellings until about 2019 and 2020. There will be more of an undersupply, it will put more pressure on those vacancies, and I suggest also provide some really good yields. The problem with Gold Coast, it moves very quickly.
Kevin: Do you think running up to the Commonwealth Games, things are going to tick along quite nicely on the Gold Coast? What will happen after the Games? Is that when we’ll see that oversupply?
Gavin: It’s a really good question. It’s a great question. I think it’s a big coincidence that the date happens to coincide with what I think will tend to a peaking out of Gold Coast, but it is just a coincidence. It’s like people saying that Sydney was stimulated by the Olympic Games. I think, again, it was just another collision of all the stars and a blue moon that it just so happened that Sydney thrived after the Olympic Games.
The Commonwealth Games is a great line in the sand, so I think it fast-tracked a lot of infrastructure that was absolutely needed. I do know from the office of Tom Tate himself that they want a world-class city, and I know that all the energy is behind that.
So barring unforeseen circumstances – like a different persuasion of local government – I think Gold Coast is probably going to attract a lot more upside volatility – meaning growth – in the short-term, and certainly outstripping Brisbane for the most part. That’s not to say that Brisbane won’t be a better bet by 2030, however.
Kevin: Very good insights. Thank you so much for your time. Gavin McPherson, CEO for Oasis Property, and a good look there at the Gold Coast and Brisbane markets. I’d like to get us back sometime, too, to talk about Sunshine Coast because we’ve heard about a major oversupply of stock in that area for many years, so it would be good to get your take on that, too.
Gavin, for the time being, thanks for your time.
Gavin: My pleasure, Kevin. Thank you.
Kevin: I want to bring you a story now that’s prompted by some comments made by a very high-profile industry figure, John Cunningham, who is actually the managing director of Cunninghams Real Estate and also the Real Estate Institute of New South Wales deputy president.
John, welcome to the show, and thanks for your time.
John: Thanks, Kevin.
Kevin: The comment that I’m referring was breaching of the act, which is fairly common I understand in a tight market, and that’s really an undocumented selling activity. What’s your concern around this, and what’s actually happening, John?
John: What’s happening in a tight market, Kevin, is that agents tend to try to find ways around the legislation to get buyers into properties that aren’t on the market yet. In doing so, they’re creating an environment, I suppose, where you really have to know whether the best outcome is achieved, but at the same time they’re breaching laws that then can lead to fines and can lead to poor consumer outcomes, as well. I think it’s just a tip of the iceberg in many respects.
Kevin: Can agents actually get away with selling a property and achieving a commission when they don’t have a clear agency to sell?
John: In different states, that does vary. In New South Wales, for example, they must have an agency agreement to be entitled to commission and they must also have a contract to sale of land in place. It’s illegal to actually offer a property for sale without that. That does vary from state to state and from type of property, such as rural properties and so on. However, what it does do is it does leave the door open for it to be abused further, and I think the more people who get away with it, the more it’s going to happen.
Kevin: I believe, too, from a contact that we’ve had that Consumer Affairs in Victoria say that agents can legally show a property with the owner’s consent. That’s showing a property, but what about when you get to the point of contract? At that point, does there need to be a document between the seller and the agent in any state?
John: Yes, most definitely, in every state that requires a document to entitle the agent to commission. If they don’t have that, they’re not entitled to commission. They can’t charge commission and nor would a court uphold any claim for commission. The variation in the states is, in Victoria, you don’t need a contract for sale of land to offer property for sale, so any seller can show the property, but the agent is risking a fee if they don’t have the right documentation.
Kevin: Yes, we have seen in the past in really strong markets like we have now, where agents attempted to take on client listings, these are listings that aren’t necessarily going to be publicized so that they can get their buyers through it. This is the sort of activity you’re talking about, John?
John: Very much so, yes. In New South Wales it’s just problematic because of that legislation, so what people are doing is they’re bypassing the legislation. They might have an agency sign, for example, but they don’t have the right documentation in place to legally show that property. In that instance, the breach of the act is creating an un-level playing field in the marketplace. Buyers aren’t going to object and sellers aren’t going to object, so long as they get the outcome that they desire, but from an industry point of view, it’s a problem and it’s quite common.
Kevin: For buyers and sellers, it’s actually quite a desirable situation. For a seller, they’ll say, “We don’t have to do any marketing,” and for a buyer, “We’re going to get ahead of the market and maybe secure something before it hits the market.”
Kevin: What are the dangers here for buyers and sellers by engaging in this type of activity with an agent?
John: Primarily from a buyer’s point of view, you’re not necessarily dealing with a genuine seller. It’s one of those speculative “If I get the price, I’ll sell it.” They could be looking at properties and getting quite excited about properties that are completely unrealistically priced and a very low-motivated seller.
In that respect, it can be quite misleading, and in many cases, these things never come off because the seller’s expectations are way too high and they haven’t got the motivation to actually put the legal documentation in place, which does cost them money to do through lawyers or conveyancers. That in itself from the buyer’s point of view can be very misleading and deceptive.
Kevin: And, John, from a seller’s point of view?
John: From a seller’s point of view, I suppose they’re actually engaging in an activity that does breach the act and the agent can be up for fines. There are potentially fines for sellers, as well, but there’s never been enacted, primarily because it is a breach of the Property, Stock, and Business Agents Act. An agent can face some quite hefty fines in the event that they do go down that path.
From the seller’s perspective, they probably have very little to lose in doing it. They’re just dealing with an agent who’s obviously bending the laws, and you’re going to have to wonder what else they’re going to bend along the way.
Kevin: I do wonder, though, that any seller who would do that is probably not just going to do it with one agent. They may do it with several, and even though there’s no documentation between them, that could then lead to a dispute over commission, which can become very messy.
John: Completely, Kevin. That’s another byproduct of it, that you end up in a very messy situation – multiple buyers with different agents viewing the property. Then they might make a decision to appoint a single agent, but you have this raft of people behind who’ve seen it who are all going to be potentially up for a double claim of commission.
It’s messy, and I think it’s unprofessional. I think that’s probably more the point. As an industry, we’re trying to become more professional, and these sorts of activities just bring us down to the lowest common denominator, and the consumer suffers from that in the end.
We have to uphold higher standards in our industry to be treated seriously. I think the majority of agents do, but those that don’t, little things like this that they get away with, I think it’s the tip of the iceberg. If we’re going to be wanting to actually provide better consumer and customer experiences, we have to lift our game.
Kevin: Always good talking to you, John Cunningham. Thank you so much for your time, John.
John: A pleasure, Kevin. Thank you.
Kevin: Earlier this year in the REIQ, the Real Estate Institute of Queensland Awards, the award for the REIQ Property Manager of the Year went to Loretta Morgan from Jam Property. Loretta joins me.
Hi, Loretta. How are you?
Loretta: Good. Thank you, Kevin. How are you?
Kevin: Good. Congratulations on the award. I know it must seem like a fair while ago, but you are the current person. I’m keen to talk to you about what people should look for in a good property manager.
What’s important to you? Let’s walk through a few issues. We quite often hear about property management portfolios that are very big. What’s important? Is it the size or is it the quality?
Loretta: I think it’s really important to look at the quality of the rent roll that you’re managing, first and foremost.
Kevin: Okay, relate that then to an investor. How can they make their property part of that portfolio so that it is a quality property?
Loretta: We’re looking at the maintenance of the property. Is the property in good condition and is the landlord proactive in completing maintenance upon request? We want to look at the geographical location of the properties. Are they in a high demand area? What sort of rental returns are we getting on the property?
Kevin: These are all things, I guess for astute investors, if they’re looking at picking up an investment property, they’d have the same kinds of concerns, so they should be able to answer a lot of those questions for you, I’d imagine.
Loretta: Absolutely, they should.
Kevin: Loretta, one of the other frustrations I’ve found in talking to investors is that the property manager will come in and make a presentation – it all sounds very fine – but over a period of time, there seems to be almost a shift in focus from it being about the investor to being about the tenant. How do you get that balance right, and how important is it for you?
Loretta: I think it’s really important to look at. It’s always only ever about the investor and the investor’s property, and the tenant tacks into that. What I’m saying here is that we’re engaged to look after the investor and the investment property.
We’re integral to the success of that property investor’s journey, and it’s really important that we’re ensuring that we’re giving the right information and the right education to the investor and looking after them, but also that our processes are in place and our education is in place for the tenant journey, so then that adds to a better success rate in their property investment journey.
Kevin: Okay. A couple of questions for you, then. What is it you think property investors look for in their property manager? What’s important?
Loretta: I think it’s really important that the investor looks at – and what I find – is what is their level of understanding of the property investment journey or property investing, their experience in the industry, how long have they been, where are they adding value, where will they look after me and my property as opposed to the agent up the road, and so on?
Kevin: Quite often, it’s a matter of us not really knowing the kinds of questions to ask or even if we do know, what answers we should expect. If I were to ask you now, why I should use you, then there are probably a ton of reasons that you’d give me but I don’t know how to drill down into those. What are some of the key questions that investors should be asking? And tell me about the answers they should expect to get.
Loretta: I think that it’s important for investors to be asking – and we have a list of 34 questions, actually, that we go through with our investors on what they should be asking their property managers – but some examples are: what is the turnover in tenants? How long is it taking you to lease properties? Where are your properties located? How many properties do you have on your portfolio? How many staff? Then they can look at staff to property ratios.
Kevin: These are all great questions. They’re great questions that you know the answer to, Loretta. This is the point I’m making. For a lot of investors, they don’t know what to expect back. I could say to you, “How many staff have you got?” and you could tell me six. That doesn’t mean a thing to me. I need to understand how that relates to me appointing you as a property manager.
Loretta: Absolutely. What we do there, Kevin, is we provide them with the answers to those questions and what they should be looking for as minimum standards across the board so that they’re better informed, so that they can make better decisions when they’re appointing a property manager.
Kevin: For anyone listening now who probably has a property that’s maybe been vacant for a couple of weeks, what’s an acceptable vacancy period – or is there such a thing?
Loretta: We’re experiencing a fantastic market up here at the moment and our vacancy rate is sitting at 1.45%, so essentially, we have very minimum vacancies. The average time on market can be zero to maybe even a couple of days, anywhere up to one week at most.
Kevin: Okay, that’s the point I was making. I guess if my property has been vacant for any more than a week, I should be getting a bit twitchy about it?
Loretta: Absolutely. Then you want to be asking your property manager, “What are you going to do to get my property rented?”
Kevin: What sort of feedback are you giving? The other thing I want to know about, too, is when a property is vacant, what are some of the things that will stop that vacancy? In other words, how can I turn it around? Is it all about price, or is it about the way the property appears? Can you give me bit of an insight there?
Loretta: Absolutely. What you want to be looking for is presentation and position. What are the photos looking like? What sort of story are you telling in the description to prospective tenants? How readily available are you making the property for inspections? If you’re setting open for inspection times, when are they? Are they to suit the target market, or are they to suit you, the property manager?
As price is important, those other key factors have a huge impact. What else is on the market that the tenants are looking at? How does that compare to the product that you’re presenting, and how do we have that discussion with our property owner?
Kevin: Earlier in our chat, Loretta, you mentioned that you have I think it was 34 questions that people should ask. How can we get a copy of that?
Loretta: We can get a copy on my website of the 34 questions that you should be asking.
Kevin: All right. That’s JamProperty.com.au if you want to know what those questions are. Of course, if you want the answers to those questions, I suggest that you certainly have a talk to Loretta and her team at Jam Property. Their website, again, is JamProperty.com.au. Pick up those questions for yourself.
Loretta, once again, congratulations on becoming the Property Manager of the Year – very proud of it as you must be.
Loretta: Yes, I am. Thank you.
Kevin: Good on you, and we’ll look forward to talking to you again soon.
Loretta: Thanks so much, Kevin.
Kevin: Have you ever noticed how people who are successful in most walks of life usually have the gift of being really good negotiators? Call it negotiation, call it persuasion; there is an art to it. Michael Yardney has been looking at this, and he joins me.
Michael: Hello, Kevin.
Kevin: What’s behind being a good persuader?
Michael: Kevin, we tend to read a bit about this win-win negotiation, but let’s be honest, in many of our negotiations we want it to be a bit more than win-win.
When you’re buying your next car, you’d really like the negotiations to end up favoring you rather than being evenhanded, and when you buy properties or other big-ticket items, usually you want to buy at the best price, while the vendor wants it at the highest price.
Good negotiators, Kevin, develop the art of being able to influence others to see their way. They know how to get things done. In fact, there have been quite a lot of studies about it, Kevin. Robert Cialdini many years ago wrote a book that is called “The Psychology of Persuasion,” and I’ve learned a lot of lessons from it.
Kevin: Okay. Let’s run through a few of those, Michael.
Michael: What he did was, as a psychologist, work out how one can influence other people. The first rule, he said, is the rule of reciprocation. We’re taught that we should repay other people for things that they do to us. That’s only fair. Most of us don’t want to think that we’re an ingrate.
Kevin, it reminds me of the old days. Remember when we used to go to the airports, the Hare Krishnas were there, and they gave you a little flower? And in return, they expected you to give some money, and people felt obliged, didn’t they?
Kevin: Yes. It’s the theory of give to get, isn’t it?
Michael: That’s right. Put simply, whatever you give out in life, you tend to get back sooner or later. If you go through life looking for good in other people, helping others get what they need, you may not always get instant rewards, Kevin, but the principle of reciprocity – people reciprocating – will give it back somewhere down the line.
Kevin: Yes. Okay, what’s number two?
Michael: Robert Cialdini pointed out that we like social proof. We like noticing what other people are doing and doing things that we think are correct. Innately we want to be like other people, and we get comfort knowing that other people are doing what we’re considering doing.
The principle is often used by salespeople who give testimonials, saying, “People just like you have done this.” Most people feel at ease if they know others have already done this, so the celebrity product endorsements, the footballers, the sporting people.
This lesson from this, Kevin, is if we want to be good negotiators and persuaders, if you want somebody to do something for you, be sure to let them see that other people are already doing it or are willing to do it. Show them that others like them believe in the product or service that you’re wanting to give.
Kevin: Michael, how important is it to speak to people in the terms of their own values?
Michael: Kevin, I think people like to make a stand and then feel committed to doing it, so you should understand what people are wanting. When people tell their friends they’re going to give up smoking or going to lose weight, it motivates them to keep going with their decisions.
We tend to feel pressured to behave consistent with the choices we’ve made. No one likes to admit they’re wrong. So when you want to get somebody to do something, I’d often suggest you actually get them to commit verbally to an action, because if you do that, the chances are going to go up that they’re actually going to do it.
Kevin: I was wrong once, you know. I thought I made a mistake.
Michael: But you were wrong.
Kevin: I was wrong. I was very wrong; made a mistake.
Michael, people like to do business with people they know and like, don’t they?
Michael: That’s right, Kevin. People tend to like others who have got similar opinions to them, similar personal traits, backgrounds, or lifestyles. More people are going to say yes to you if they like you, and the more similar to them that you appear, the more likely they’re going to like you.
That’s why it’s important to build rapport with people when you’re planning to negotiate. That’s one of Robert Cialdini’s principles, that you should be a likable person and do business with people you like.
Kevin: Michael, tell me about his principle of authority.
Michael: I think most of us, Kevin, have been raised to respect authority. We tend to place importance on information given by authority figures – like doctors, like policemen, like professionals.
Now, of course sometimes people confuse symbols of authority – such as titles and appearance – with true substance, but this means you can use this principle to your advantage. You should look and act like an authority yourself, dress like people who are already in the position of authority that you seek, or you can cite authoritative sources. In other words, use other people’s authority on your side to help get what you want when you negotiate.
Kevin: And to wrap the series up, Michael, scarcity. This is one I guess you have to be fairly careful about, and when you use it, and how you use it.
Michael: You have to use it authentically, Kevin. All these things, you have to use authentically, and I’ll explain that in a second. But the concept really is that we don’t want to miss out on something that’s special, that’s unique, and that concept of scarcity will often drive us to action.
We often think things are more valuable if they’re scarce. Things that are hard to get seem more valuable than things that are easy to get. I guess that’s why they often have limited-time offers, or “closing this weekend,” or “limited edition.”
Kevin, Professor Cialdini’s six weapons of influence are incredibly powerful, and if you combine them, you can make them work even better for you. The thing is, though, that these principles are ethic-less. They can be used to create a win-win outcome for you and for those who you negotiate with, or they can be used to dark purposes of influence. Obviously, I suggest that we only use these in the correct way to get the correct sort of outcomes in our negotiations.
Kevin: Indeed. Always good, Michael. Lovely talking to you. Thanks for your time.
Michael: My pleasure, Kevin.
Kevin: You can read more about Michael, of course, at his blog site, PropertyUpdate.com.au.
Michael: My pleasure, Kevin.
Kevin: “Pitch it low, and watch it go.” That’s the saying that used to be used in real estate by agents to entice interest from buyers. I say it used to be used, and I certainly hope it was in the past.
It’s also called under-quoting, and there’s been a lot of discussion about how to stop this practice by agents. In some states of Australia, state governments have introduced legislation to try to curb the problem. In Queensland, price ranging has been banned altogether for auctions so that agents are not able to provide price ranges to buyers, whereas in New South Wales and Victoria, the practice by agents has continued, thus frustrating the problem.
In the November issue of Australian Property Investor magazine you can read an article called Under-quoting Crackdown that gives a detailed description about how big the problem really is and what you can do to protect yourself.
Miriam Sandkuhler is a buyer’s agent. She’s also director of Property Mavens. She’s quoted in the article in Australian Property Investor magazine, and she joins us right now.
Miriam: Thank you, Kevin. Thank you for having me.
Kevin: Miriam, is this practice by agents of under-quoting getting worse?
Miriam: I don’t know if it’s getting worse; I think it’s just becoming more noted and more talked about. I think it’s been pretty prevalent for a while, and in a heated market, there’s a lot more media around it.
Kevin: Yes. Do you think that buyer’s agents like yourself and even buyers are just getting fed up with the practice and maybe that’s why it’s getting more press?
Miriam: Absolutely. Buyers are just simply not willing to trust estate agent prices anymore. Unfortunately, it’s one of those things where transparency and trust go hand in hand. So while the real estate industry refuses to be transparent around pricing, then trust won’t be forthcoming from consumers.
Kevin: You sometimes wonder whether there should be no price at all as opposed to a misleading price.
Miriam: I think that’s fraught with disaster, to be honest. I mean, having no price makes the assumption that the consumer should have an indication of what pricing should be.
It’s a little bit like selling a car and with the variety of different cars out there and the different ages of different cars, expecting the consumer to be able to figure out what a 1974 Holden Torana should be priced at versus a 1983 Commodore. It’s just really unrealistic and unfair.
I think there needs to be pricing like everything that we buy in our society – there’s a price on it. We just need transparency and honesty around that pricing.
Kevin: What’s the worst example of under-quoting that you’ve seen?
Miriam: A recent example; I was looking at buying a property for a client in a bayside suburb called Albert Park. I’d appraised the property at $2.4 million, and the agent started quoting it at $1.8 million. Over the course of the four-week campaign, eventually the top end of the quote was $2 to 2.2 million, and then I purchased the property for the client just over $2.6 million.
Kevin: Wow, that’s amazing. That’s a nightmare. Is it worse in some states than others, Miriam, as you’re getting around looking at other states?
Miriam: Certainly auctions are mostly prevalent in New South Wales and Victoria. There’s a small amount of auctioning that goes on in WA, not a lot. Certainly the whole auction concept, I think, has fallen apart now in Queensland with the changes that they have done to pricing.
Interestingly enough, my understanding in Queensland — and correct me if I’m wrong — is that now that people aren’t allowed to quote prices, there have been more declared reserves being put forward instead, because they’re not a price; they’re actually a reserve. I’ve heard a little bit of mention of that going on Queensland. But definitely the worst states would be Victoria and New South Wales.
Kevin: It’s a bit of a vicious cycle, isn’t it? I mean, buyers expect properties to be under-quoted, so an agent who does quote accurately, the buyers look at them and say, “I’m not going to pay X percent more than that.” Because that’s actually what they do. They calculate that. What is the solution, do you think?
Miriam: Well, you’re right in that there are agents who under-quote and there are agents who quote accurately. Unfortunately for consumers, the challenge that they have is that different agencies have their own internal unwritten policies as to whether or not they’ll under-quote and to what rate, and then different agents within those agencies will under-quote differently as well. So there’s no one solution of just add 10% or 20% to every property that you see, because certainly in some suburbs over others, the variance could be a 10% to 30% difference when it comes to auction day.
The solution I come back to, I think there should be a declared reserve, the figure that the vendor is prepared to take on the day at auction. If they want to be greedy, they can by all means be greedy and put a ridiculous price out there, and over the course of the campaign, if that blows up in their face, they can reduce that price. But once they’ve put that declared reserve out there over the course of the campaign, they can’t continue to increase it.
Kevin: Looking at it from a buyer’s perspective, what’s the best way for a buyer to protect themselves from being sucked in by agents in this way?
Miriam: A number of different ways. I think they need to research recent sales of like-for-like properties in the suburbs that they’re looking at. If they’re looking at a brick house on 200 square meters of land, then they want to try to find out what other brick houses have sold for recently that are also on 200 square meters of land, notwithstanding you have to compare one’s renovated, one’s not – that sort of scenario.
The other thing is to ask the estate agents for sales evidence to support their quote range. “Can you please give me recent sales to confirm why you’re quoting the property at this price? You’re the expert. Obviously, you base the quote range on something that you’ve sold recently or that you know of.” I think holding them to account in that respect.
Then attend auctions in the areas or the suburbs that you’re looking at, just to see what the market’s paying for particular property types, and again, allow a variance or variation for renovated versus unrenovated properties.
And by all means, finally, engage a buyer’s agent to help you. As professionals, we can certainly save time, money, and stress by doing all the research and searching and negotiations with the clients. While people pay us a fee for service, certainly in a rising market, time is money, and often it can cost people a lot more money in a delay getting a purchase because the market’s increased versus paying a professional to help you straight up.
Kevin: Yes. Good on you, Miriam. Miriam Sandkuhler is a buyer’s agent and also director of Property Mavens.
Miriam, thank you so much for your time.
Miriam: You’re welcome, Kevin. Thank you.
Kevin: Well, as we know, apartments are becoming more and more important on the landscape. They’re the new houses of the future for a growing number of Australians. Housing affordability, aging, environmental issues, immigration, and shrinking household formation patterns are driving this shift. Apartments are now the dominant form of new housing in many of our capital cities, and in fact, in under 20 years, over half of Sydney’s population will live in apartments. In other cities, the trend will be the same.
Therefore, I’m fascinated to talk to you now about a new book that’s just been launched called “Growing Up,” written by our good friend, Michael Teys. Michael is a strata title lawyer and founder of Block Strata, and they manage strata title owners, corporations and body corporate.
Michael, welcome and congratulations on the book.
Michael: Thank you very much, Kevin.
Kevin: I thought it’d be handy just to talk about the management of units, and we know that that’s through the strata system. Interested to read in the book that it was actually started about 50 years ago.
Michael: Yes, the first strata title property was in Sydney in 1961. The buildings of that generation are now 50 years old and like all of us, Kevin, who are in our middle years, need a bit of love and attention.
Kevin: Yes, we do. Why was the strata system originally set up?
Michael: It came about because banks wanted to lend money to people individually, but at that point in time, flats were held in a company title structure, so there was some difficulty of the bank having security over a person’s right to occupy an apartment. They came up with this rather ingenious system of giving people a title deed to air space, and Australia was a pioneer of this. It’s, of course, a concept that is now spread worldwide.
Kevin: Yes, I was going to ask you that, whether it is, in fact, something around the world. Interesting you mentioned there company-owned or company title. There are still a few blocks around… Well, I certainly know in Brisbane there are, but what about in other parts of Australia? Are there many?
Michael: Yes. Look, there are about a thousand company title buildings in Sydney alone, so it’s still a significant part of the market. In fact, my company is managing some of the company title buildings and people are generally quite happy in that arrangement. Although, of course, if you do convert them to strata title, there’s a significant uplift in value.
Kevin: What is the basic difference between company-owned and strata titling?
Michael: The powers of a company under the Corporations Act are far wider than the strata title legislation. Strata title legislation tends to respect the rights of the individual. It’s actually quite difficult to get things done on a collective basis, which is one of the reasons why I wrote the book.
But company title is run as a company. There’s a board of directors, and they have rights to allow you to use the space in certain ways, so it can be quite subjective to the personalities of the people running the company, whereas a strata title, you have much more well defined rights and responsibilities.
Kevin: What goes into making up a successful strata management environment around a block?
Michael: First and foremost, you need the willing participation of one or two strong, sensible people. In most buildings – it doesn’t tend to matter whether it’s a six pack or whether it’s a much larger building – there are one or two people who become dominant. If you’re lucky enough to be in a building where that person or persons are sensible and are there for the right reasons, then you’re very lucky and your building is likely to be run well. If you’re in a building where the dominant person is a megalomaniac…
Kevin: A control freak.
Michael: …Or somebody who is lacking some fulfillment in other aspects of their lives, then you can be in real trouble.
Kevin: What’s the difference then between a block that’s predominantly owner-occupied as opposed to one where you have a predominance of tenants?
Michael: A predominantly owner-occupied block is going to be full of people but are more concerned about the way their property is being managed. It can be a difficult block to manage because you’ll get different personality attributes that will come to the surface, and managing strata is primarily about managing people.
Property is property, but people are difficult, and in the strata title environment, some weird and wonderful things can happen. People who go quite sensibly about their work and their day become a little unhinged sometimes when they become involved in strata, so it is about managing people and getting the best out of people, getting people to realize that this is a community. It’s a micro community, and if you like, it’s the fourth level of government. It’s the government that determines when and how we use the property that is immediately around us.
Kevin: Well, up until now of course, 50 years on, the strata system seems to be working very, very well all around Australia. What’s it going to be like into the future? What are the challenges there for some of these committees? What are they going to be facing?
Michael: The big challenge, of course, is ongoing repair and maintenance and the pressure that will come inevitably on the older blocks to be renewed, to be redeveloped or to be refurbished substantially.
Repair and maintenance is something that needs to be done on an ongoing basis. The natural inclination of investors is to spend when they have to, not when they should, and so I think the movement towards a more proactive repair and maintenance routine is important.
There are some cultural issues that are arising in relation to the different attitudes to property and to property management as a consequence of overseas investment that are difficult at the moment, and those are the things strata management are battling with. That’s a challenge for the future.
I think regenerating and renewing the landscape by putting together feasible plans for the redevelopment of the developed blocks and for the redevelopment of blocks that have been abused in the past, have not been properly cared for, and are now in need of a great upkeep.
Kevin: My guest has been Michael Teys. The book is called “Growing Up.” It’s a very thought-provoking and entertaining book about ownership of strata property and living in high-rise and high-density apartments and townhouses. If you find that you’re in that situation and you want to get a bit of an understanding about how maybe you could be a lot happier in your living environment, the book is called “Growing Up” – I suggest you get it – by Michael Teys.
Michael, thank you so much for your time.
Michael: Thank you very much, Kevin.