In our feature interview this week, we take you through the little white lies you might hear from time to time as a buyer. “The owners are expecting an offer”, “The seller has not set an expectation” – in fact there are 8 that Shannon Davis has been able to identify as he talks about what they mean and how to react to them.
When the topic of investing in apartments and managing strata levies comes up, it often generates some robust discussion centered around body corporate or strata fees and consequently some investors avoid these properties like the plague. So is buying a property with body corporates really a problem? We look at that today in an effort to see if that type of property is right for you.
A major economic and construction forecasting agency is predicting that home prices across Australia will fall in real terms over the next three years. In its latest property market outlook, BIS Shrapnel has predicted real price falls of between 1 and 12 per cent across the capital cities by the end of 2018-19. BIS Shrapnel’s Angie Zigomanis explains more.
If, like me, you are sick of the winging about how un-affordable property is, especially for first home buyers, and that the fault for all this lies squarely at the feet of greedy investors and filthy capitalists who have invested in property and are reaping the rewards … then you will enjoy the comments by Todd Hunter.
Ben Handler joins the chorus of those who are sick of all the talk about un-affordable property in Australia. He also has some excellent suggestions about how first time buyers can get in the market and a warning about the dangers of rushing in because you are fed up with missing out.
Why property is so ‘unaffordable’ – NOT – Todd Hunter
Kevin: We hear it all the time – don’t we – about how unaffordable property is, mainly coming from a number of people who either don’t own property – obviously – or from the younger generation who are always complaining about the fact that the older generation seems to have made it more unaffordable for them to buy a property.
I’m prompted to talk about this today on the show because of a blog article that was written by Todd Hunter, who is an author and also a founder of WHEREGROUP. I’m going to read a portion of it just before I introduce Todd to you. This is straight from his blog:
“All I hear about lately is how first home buyers in Australia cannot afford to buy their first home due to house prices being so unaffordable. I have to say, I’m sick of whining. This sense of self-entitlement is simply sickening. Apparently things are so much tougher than they were 10, 20, or even 30 years ago. But are they really?”
And that’s only just a portion of it. We’ll talk about the reaction to that as well, but Todd joins me.
Todd: Hey, how are you going?
Kevin: Good. I imagine from this, you’re speaking from experience, are you?
Todd: Yes, most definitely. I obviously already own property myself, but I’m in the business as well of helping people invest and helping people get into their first home. So I’ve seen it from both sides.
Kevin: In that portion that I just read there, you said that it’s a privilege not a right. Just talk a little bit more about that. What’s the attitude that you’re hearing?
Todd: For me, with property, it really is a privilege to own a property. It’s not a given right that we actually have to have housing and we can afford to buy our own home. If you can afford to do it – and I’ve shown that it can be done – then it is a privilege. It shouldn’t be taken for granted.
I’ve seen two sides of this, from the older generation and the younger generation, where some people are saying it’s an absolute right to own a home – and I don’t think it is.
Kevin: There’s been a slow creep here. I’ve done this show now for about 12 years, and I remember talking probably even 10 years ago about how the younger generation wanted everything quickly. In other words, that’s when we were talking about the McMansions and those really big properties.
I’ve often reflected back on the first property that Carolyn and I bought, which was a very modest three-bedroom, little brick home in Toowoomba. I sometimes wonder if our expectations are just too great and that’s actually what’s causing a lot of this, Todd.
Todd: Yes, I think it is. I’ve seen some of the comments on the blog where their expectations are that they want the glamorous property five kilometers from the CBD. They’re not willing to travel from Penrith or Campbelltown into Sydney or Milton in Melbourne down into the city. They want to be in that hub. It’s that sense of entitlement I think.
Kevin: We’ve looked a lot, too, at the generational attitudes and I think wanting everything too quickly and almost not willing to take some sacrifices. I know we’re generalizing a lot here because there are a number of people I’ve spoken to in the show who have taken some great sacrifices to get into their first property. Is that one of the causes of this – it’s this rite of passage and we’re not prepared to sacrifice for it and we’re looking to blame someone?
Todd: I think it is, yes. And I think that given the social media that we have now, it’s a very easy avenue to voice that, as well. Yes, most definitely.
Kevin: You said earlier in our conversation that you’ve shown that anyone can own a property. Let’s talk about that. For people who are finding it difficult to get into the market, what can they be doing now constructively to do that?
Todd: I think certainly just cutting back on expenses that they think are necessities that really aren’t – things like washing your car or having a coffee every day or all the apps that they download and pay for continuously. Things like that can be certainly cut back – and Foxtel – and just continue to keep saving, saving, saving.
It definitely can be done. We see that quite often with a lot of clients. They’re out there and they’re actually getting ahead and they’re doing this. We are generalizing in this aspect here, but there are some out there who are actually getting goals.
Kevin: We’ve heard a lot about rentvestors, too. These are people who are willing to rent right now where they want to live but then go and buy an investment property – not necessarily where they’d want to live but one that’s going to give them a fairly good return. We’re hearing some shocking numbers about first-home buyers falling out of the market. Do you think they’re just not looking creatively enough?
Todd: Most definitely, yes. I think it’s that expectation thing again. Part of that blog is that I put down a whole bunch of suburbs that were key areas within Sydney and Melbourne that seem to be the two areas that most people are saying they can’t afford. I said, “Well, I can find a bunch of one-bedroom units that are all very, very affordable.” How isn’t it affordable?
Kevin: Our right to actually own a property, it’s something that’s been born into us, that we have to own property. Do you think we need to change that focus a little bit and say, “Okay, we need to own property but not necessarily a home to live in. We need to build a portfolio.” Are they two entirely different things, Todd?
Todd: Yes, they are. We’re seeing a lot of people who are doing this rent-and-invest strategy to get into the market and buying in more affordable places to do so. We’re probably one of the only few countries in the world that has this great Australian dream of owning your own home. It’s bred into us, and I don’t see that coming out of us real quick.
Kevin: What can parents do to help their kids do this, and are you seeing a bit of that happening as well, Todd?
Todd: Yes, we’re definitely seeing that – and more and more so as it goes on. They’re guarantoring loans or gifting some deposits to help them along. Especially when mom and dad have done fairly well out of the property market over the last few years, they’re saying, “I can obviously help the kids along.” They can either do an equity loan against their home and gift them the cash or they can put one of their properties or home property up for security to help the children get into their first property.
Kevin: I did an exercise a couple of weeks ago where we had a look at property prices back in 1975 and the number of differences then – interest rates were much higher than what they are today and the banks would only ever look at the income of one person. Even though you’re a husband and wife and you’re maybe both working, they would still only look at the husband’s wage. There were a number of things against us in those days even though property prices were a lot less than what they are today, Todd.
Todd: Yes, definitely. There were shorter loan terms, like 25-year loan terms. There was the one-income scenario. You’re talking about those high interest rates. There were a number of factors that made it difficult back then, as well. I think that’s the key thing. I’m not saying that it’s easy to get into property now, but I don’t think it’s any harder than what it was back in the early days when we were buying property.
Kevin: I’m going to read now one of the responses to your blog article that came from Andy. I’m going to take out the first couple of sentences because he says some pretty uncomplimentary things about you and what you should be doing with your head. Anyway, he goes on to say:
“Just look at the intelligent comments on this feed and you’ll see that it’s not the same as it was when you were young. It’s your generation and the Baby Boomers who have ruined the whole world for future generations. It’s going to take many generations to fix up this mess of a world that you’ve made for them, and here you are acting all proud and high and mighty for it. You should be ashamed.”
What’s your response to Andy about that?
Todd: I’m not acting all high and mighty; we’re seeing a lot of these whinges and hence that’s why the blog was written. Have we ruined it for them? No, I don’t think we have ruined it for the Generation Y and the Millennials. No, I don’t think that at all. I just think they just have to think differently. It’s a totally different world out there, so they have opportunities that obviously we didn’t have, as well. There are certainly opportunities for them to do it.
Kevin: I think if they make some sacrifices like the ones that you’ve mentioned in your blog article – and there were about six of them there, which you might cover very quickly – if they take some of those sacrifices and get into the market, sure, it is appreciating but they’re going to be getting an appreciating asset. It’s only a matter of getting your foot on the ladder, isn’t it?
Todd: Yes, it most definitely is. Part of that comment there is amusing that they have blamed us for all the property prices going up and that we’ve ruined the world, yet they want to get into the property market and have their properties appreciate, which is exactly the argument that they’re fighting against there. Counterintuitive, I think.
Kevin: I’m just going to quickly summarize the points that you’ve made here – stay at home and don’t rent a place that you can’t afford, spend a year or two saving, start having conversations with your mom and dad about how they can help, adjust your expectations, and get your mates involved, too, so you can hang out and socialize with people who are like-minded instead of going out and having a few drinks. It all comes down to sacrifice, doesn’t it?
Todd: It does, most definitely.
Kevin: Todd, thanks again for your time.
Todd: Thanks for having me on.
Prices set to fall due to oversupply – Angie Zigomanis
Kevin: I’m joined by Angie Zigomanis. Angie is a Senior Manager Residential Property at BIS Shrapnel.
Angie, thanks for your time.
Angie: No worries at all.
Kevin: The headlines this week are a little bit alarming, proclaiming that home prices are tipped to fall and that Australia will face an oversupply of housing by 2018. People are worried about this. Investors are talking, of course. Walk us through the findings and what should we be concerned about, Angie?
Angie: I guess as economists we take the classic Economics 101 approach of looking at demand and supply. On the demand side, we look at population growth, and we translate that population growth to the number of new dwellings that are needed. Then on the supply side, we look at the number of dwellings that are actually under construction and working their way through to completion.
I suppose over the last 12 months or so, we’ve seen a significant uptick on the construction side, particularly in the apartment sector. And that will continue to flow through over the next couple of years because for major apartment projects, it will take one to two years – if not longer – for it to work its way through from project commencement to project completion.
Based on those numbers, we think that particularly in the unit sector, new apartment supply will be running at much higher than what’s required by population growth, and in a nutshell, that means there won’t necessarily be enough tenants to occupy those apartments once completed.
Kevin: We’ve seen this in the past, haven’t we? It is a bit of a cycle where we see some of these figures projected on properties that aren’t even developed at this stage, that probably never will be developed. Is there a bit of over-exaggeration in some of the reactions here?
Angie: Potentially. We have seen cycles before, and the Brisbane, Melbourne, and Sydney markets have all gone through various cycles, and it’s just classical cyclical behavior. When the market’s strong, people pile in and often pile in when the market’s starting to turn, but that supply still has to work its way through.
It definitely happens. There are potential upsides if population growth comes through stronger than we expect, and on the supply side, there are also people who may not necessarily get the pre-sales off the ground for the project to proceed, or they might have the pre-sales but they might not be able to get the finance and so that pulls the project out of the market, as well.
Kevin: I’ll use Brisbane as an example, but markets like Brisbane follow very much behind Sydney and Melbourne, and we saw a huge mass of properties coming through. We’re now starting to see a bit of a decline as the banks tighten up in some of those areas. Is that likely to follow through into areas like Brisbane where we might see a lot of these developments just not come out of the ground?
Angie: Yes, definitely. We’ve already seen some sites that have been purchased in the last few years come back onto the market again because the developer hasn’t been able to proceed with it. We are probably seeing some projects that are pre-selling at the moment where sales rates probably aren’t necessarily strong enough for them to eventually breach whatever pre-sales hurdle that’s required by their financier.
Kevin: This oversupply that we’re talking about, is it right across the board in all markets around Australia?
Angie: No. There are two aspects to our measures of oversupply. One is where it is and two is what type of dwellings it’s in. In terms of aggregate measures, we probably expect two or three years out from now New South Wales will be the only state that’s in undersupply.
Then if you look more particularly at dwelling types, we’ve seen a big upturn in apartment construction, and that’s really where we expect most oversupply, particularly in Brisbane and Melbourne, to be concentrated. Both cities have seen a high level of apartment construction, particularly in the inner city areas, and probably disproportionately high relative to historical norms and likely to be relative to demand, as well. That’s where we expect vacancy rates to be highest and we expect rents to be most challenged.
Kevin: I guess for those people who are looking at buying some of these apartments in all of these capital cities we’re talking about, it’s very important that they make sure they’re going with a developer who’s actually going to complete the development, that it will come out of the ground, Angie.
Angie: Yes, exactly. If you’re looking at that project, definitely. One of the other things that we’re seeing coming through particularly in the Brisbane market is that construction costs are increasing pretty rapidly for new apartments, as well, and so I think there are instances now where a developer has sold apartments at a certain price – maybe one to two years ago at a lower price – and is all of a sudden, trying to lock in a construction contract and finding the building doesn’t necessarily stack up financially anymore because the costs have increased so much in the meantime.
Kevin: I talked to a number of developers, one in particular I was talking to this week is Pellicano who are very well known developers all around Australia. They’re doing a number of developments in Melbourne and they’ve done a lot in Brisbane, as well. They’re starting to come out of the ground. They’re the type of developer you could have some confidence in if you buy one of their developments because you can see it coming out of the ground now and you know it’s going to complete.
Angie: Yes, exactly. Any business that’s a reasonable size and has a big base behind it and that’s been in there for the long haul already, you know that it’s in their best interest just to proceed with the project to maintain their reputation.
Kevin: My guest is Angie Zigomanis, Senior Manager Residential Property at BIS Shrapnel.
Let’s talk about a couple of markets that are really finding it quite tough now – Perth and Darwin. Both places are already finding it really, really tough. Is there more pain for them, or is there a bit of light on the horizon?
Angie: I think for now there is more pain for them. Both markets are really driven by the resource sector and particularly investment in the resource sector. For example, when you’re expanding a mine, it may take a few thousand people to work on the construction side of it, but once it reaches the operational phase, it might only take a few hundred people to operate it. It’s really in the construction phase when all the jobs are created and when the economy benefits the most.
If you look at Perth, but really we’re looking at Western Australia and mostly at North West Shelf, I guess, a lot of the projects are now working their way through to completion and steadily moving into the operation phase. That will continue to take place and probably bottom out on our numbers in 2018.
Darwin is in a similar boat. They’re really being driven almost by one project, the big INPEX LNG project. That construction project also completes around 2018, as well. So there will continue to be a drag on both of those local economies of Perth and Darwin down through to 2018 when it bottoms out. Really, the light at the end of the tunnel will be after that.
Kevin: Looking a little bit broader around Australia, some fairly stark predictions over the next three years. What’s it likely to be like after that?
Angie; Beyond the next three years, I think we’ll probably see most markets bottoming out around 2018 and maybe 2019 and then the next cycle to come through. The strongest upturns to come through beyond there are probably in markets like Brisbane where it’s really missed the cycle here.
We saw Sydney and Melbourne take off but Brisbane lagged well behind, and on the assumption that the Queensland economy comes back pretty strongly, as well, we think there’ll be plenty of upside in the Brisbane market in that cycle. Even in places like Perth prices will have dropped back considerably, and by 2019, I think we measured in real terms that Perth prices will be down by over 20%. So that will position themselves well for the next round of price growth and the next cycle, as well.
It’s really in those cities that are doing it toughest now will probably be in the best position for the next cycle.
Kevin: Yes. You’ve probably already answered this next question, but there’s always some good news. What about the good news that’s coming out of all of this, some of the positives?
Angie: I think it provides a good way to set themselves up for the next cycle. No one will ring a bell and tell you, “Here’s when the market hits rock bottom and today’s the day you go out on the market and buy.” So you really, I guess, should be in the market when as a purchaser, you’re in a position where you can bargain, haggle, and negotiate yourself the best price and sit and work your way through until the next upturn comes through.
Kevin: Always good talking to you, Angie Zigomanis, Senior Manager Residential Property at BIS Shrapnel.
Thank you very much for your time, Angie.
Angie: No worries at all. Thanks, Kevin.
Body Corporate pros and cons – Michael Yardney
Kevin: When we talk about investing in units, the topic of body corporate always comes up, and I guess that prompts us to ask the question, what’s a body corporate all about? Do we really need it? What’s its purpose? And should it be such a stumbling block? To answer those and lots of other questions about it, Michael Yardney joins me from Metropole Property Strategists.
Michael, firstly, tell me what is a strata scheme all about?
Michael: Strata schemes are a form of subdivision, and whenever there’s common land – it could be the gardens, maybe the hallways, the flights of stairs, foyers – a body corporate, sometimes known as an owners corporation, is formed to manage it on behalf of the collective owners, because if you buy an apartment, you own within the four walls, below your roof and above your floor, but there’s also a part ownership of the other common areas, and expenses of those are divided between the dwelling and paid by the various owners.
If you’re on a standalone property with no body corporate, you’re still paying most of those outgoings also, so the trick is to find a property with a well-run owners corporation who don’t pay excessive fees, things that you don’t use or you don’t need. So I wouldn’t exclude a property because it has an owners corporation, but I’d ask some particular questions before I look at one.
Kevin: Who decides on the levies in an owners corporation?
Michael: An owners corporation is run by a committee on behalf of all the owners. If it’s a small block of apartments – three or four – probably everyone will be sitting on the committee and appoint a chairman. Once a year, they’ll meet and they’ll decide “Look, I have to pay for some insurance, we have to pay for some garden maintenance, and maybe we should put a little bit of money aside for future costs,” and the committee decides on behalf of all the owners. It’s usually run by an external manager, in other words an owners corporation or a body corporate company, but sometimes, the committee runs it themselves.
Kevin: As I understand, there are two different types of fees: there are the ones for just the general, ongoing maintenance, but there’s also a need for a sinking fund, too, isn’t there?
Michael: That’s good management, because I come across investors who have a standalone property and all of a sudden, the guttering goes and they have to spend thousands of dollars, or they have to repaint the whole building and that costs them lots of money, as well, so they don’t have any reserve for it. But a well-run owners corporation will put a little bit aside each year in preparation for this, so you don’t get a shock in the future.
Kevin: And there could be shocks that come along. I’ve heard of a couple of blocks, particularly in Sydney, when you have these major rain events, where the roof may start to leek and there’s a lot of need to do some major waterproofing. I’ve actually seen these owners corporations have to go out and get loans to fund these sort of improvements.
Michael: That creates financial embarrassment for all the owners, so a well-run owners corporation will always have what’s called a sinking fund. In some states, they’re mandatory, and in other states, they’re not, but it’s just good management, running your property investments like a business, Kevin.
Kevin: I suppose it comes down to due diligence – when you’re coming to buy a unit like this to make sure that you thoroughly check those owners corporation minutes to see how much there is there and if there’s any history of problems in the past, Michael.
Michael: That’s a great comment, because the owners corporation prepare minutes for the various owners in the building, and that’s passed on to potential purchases. So you should look at those minutes, and what you should be looking for is a proactive committee. You’re looking for a building that’s well run, that’s modern, but that hasn’t got excessive expenses for things like swimming pools or gyms or lifts, especially if you’re not going to use them.
I always find it interesting that people on the first and second floor have to pay the same levy for their lifts that the people on the 15th and 16th floor – who use the lifts more and have got better views – have to pay.
You look for a well-run committee, because a poorly run one can create headaches in the future. Look for expenses, look for outgoing, look for whether they’re proactive, and the other thing you should really look for is signs of disputes internally amongst the owners corporation members, or externally, with disputes with neighbors or contractors, because if you were to buy the building, you’d be buying into those disputes, your part of it.
Kevin: Yes, make sure you go back and read those minutes, because there are a lot of things that sometimes just the body corporate searches or the owners corporation searches won’t show you and won’t reveal, so my experience is that you’re better off just going and having a look at them yourself. That’s my view.
Michael: Definitely. I think then once you own your investment property, you should become part of the committee. You should treat it properly. A lot of people get the annual notice and think “I don’t want to go, it’s an hour of my time at night, it’s inconvenient; I’ll just send a proxy in,” and then they complain a year or two later that the owners corporation isn’t looking after it, they’re not maintaining it, they’re wasting money. So take part in it.
And again, if it’s an investment grade property, if it’s in the right location and you can’t afford a house or a townhouse in that location, it’s better to buy an apartment there, and really, the only extra cost you tend to pay with strata levies is the body corporate manager’s fees, because you’d have to pay the insurance anyway, you’d have to pay the gardening anyway, you’d have to pay the maintenance anyway if you own the whole building, and owners corporation management fees are in the order of thousands of dollars a year, not tens of thousands. When you split it six or eight ways, it really doesn’t change the bottom line of your investment.
Kevin: Great talking to you. Michael Yardney, thanks for your time.
Michael: My pleasure, Kevin.
The little white lies and what they mean – Shannon Davis
Kevin: Now at the outset, I have to say no one is suggesting that real estate agents tell lies, but occasionally, I guess you can say they do get a bit creative with the truth. It’s not just real estate agents; I guess anyone in a selling role sometimes has to maybe sidestep around what’s really happening to try to get a sale across the line.
I’m not going to sit in judgment, I don’t want you to sit in judgment, either, but the thing that I want to discuss now is some of the – I guess – white lies that real estate agents actually tell. Someone who has the antenna up all the time is Shannon Davis, who is a buyer’s agent. You are a real estate agent, but you’re a buyer’s agent, and you probably come across this quite often, Shannon.
Thank you for your time.
Shannon: No worries, Kevin.
Kevin: Let’s have a look at a few of these. You’ve identified eight for me, and I just want to talk to you about each one of these. When an agent says to a buyer “Hey, we have another interested party,” what do you say about that?
Shannon: Yes, that’s a good one. People are more motivated by losing things than gaining things, so its aim is to create some urgency for someone to take action. That may be true or perceived, but whatever the case, in any negotiation, it’s a battle for time, information, and power.
I think the buyers need to know that they can walk away, there are other properties out there, whereas the seller only has the one to sell. I think power can be a perception, and it’s not always with the seller. If they have another party and you’re getting the urgency put on you, you need to make sure what your role is and whether you’re worried about losing the property to someone else. Make up your own mind from there, and perhaps call the bluff if you’re not quite ready to take action.
Kevin: Let’s talk about calling the bluff. How do you do that, and how do we find out if there is another interested party? Most people are interested… Anyone who comes to an open home is an interested person, let’s put it that way, but how interested are they? Are they prepared to buy it? How do you find some of these things out?
Shannon: Yes, I think questions are key. Strive to be innocent. Think of Columbo if you can. He used to always ask those silly little annoying questions, and the more questions you ask, the more information you garner.
That brings us to the next one, which is “We’ve had an offer.” You need to dig a little bit deeper to see if that offer is written, if it’s on contract, or if it’s just a verbal, and then you can gauge your reaction after that.
Kevin: Yes. You can ask, but you’re probably not going to get an answer about the level of the offer, are you?
Shannon: No, but it doesn’t hurt asking. There are all types of agents out there – inexperienced ones, ones who just work with buyers, there are seasoned pros – so it doesn’t hurt to ask.
Kevin: Yes. You’ve highlighted it there. You have to ask whether that offer is in writing or whether it’s verbal. The difference between the two, Shannon?
Shannon: Well, a person putting things in writing… Business is done in writing. Verbal can be any sort of reaction, and it’s no interest to the sales agent until we see something that’s in writing, but even better if it’s in a legally binding contract. That’s when we know that we have genuine interest. Everything else is all irrelevant.
Kevin: I guess in all of these conversations we’re having – and we have a number to get through yet – you have to understand that the agent you’re talking to is actually representing the seller, so most of the conversation that they have with you is going to be couched in terms of the benefit to the seller, not to you as the buyer.
Shannon: And that’s what we need to worry about. If you’re representing yourself, it’s buyer beware, and no matter how friendly, charming, charismatic the agent is, they’re not your friend; it’s a person working for someone else.
Kevin: The next one is a bit unusual, where an agent would say, “We haven’t had as much interest as we’ve anticipated.” Why would they say that, and what can we read into that?
Shannon: This is designed for the bargain hunters. Maybe there’s an auction approaching and they want to draw as many people to the crowd as they can, and they’re signaling a weakness on the other side. They want to try and encourage any action to what may be a stale listing, and something like that will get the bargain hunters motivated, and perhaps on the premise that they might get a decent purchase. But of course, when you turn up to auction, you might see that it’s overflowing with people who are there and maybe you’ve been had.
Kevin: Yes. Getting back to the comment you made earlier about asking questions, those Columbo questions – and I love that. He was very good at that, wasn’t he? Right at the end, he’d just come back.
Shannon: Very good. I loved Columbo.
Kevin: A really good question to ask there is if an agent says to you “We haven’t had as much interest as we anticipated,” it would be great to say “Why do you think that is?”
Shannon: Yes, definitely.
Kevin: Just to see what the agent comes up with.
Shannon: Questions such as days on market, vendor motivation, maybe the negatives that you put up in the property, just to see what the other interest has been and what the agent feels about those objections.
Kevin: It comes back to having a lot of knowledge, and you mentioned about days on market and success rate, understanding what’s happening on the market. If you push that back to the agent and show them that you know what they’re talking about, you’re less likely to cop some of these little – as we call them – white lies.
Shannon: Definitely. You look to be serious, you look to be informed, and you’ll probably get good oil, rather than being treated like a person who may be had.
Kevin: Yes. We have a number of others to get through. The next one you highlighted for me was that the vendor wants contracts signed up tonight. What are they implying there?
Shannon: Time is a really big thing in negotiation, and often, the seller will try to move the time. Maybe they’ve bought elsewhere, or maybe they have an impending overseas visit. We need to push back to see whether that deadline is real or just made up, and if you’re not in a position to sign – perhaps you haven’t been to see your bank, or your significant other hasn’t been through the property – it’s just one of those things that’s designed to create urgency. So if you’re not in a position, just push back on that.
Kevin: Yes. I guarantee that if I went to any seller, any vendor and said “Would you like a contract tonight,” they’re all going to say yes. So that in itself is just a statement; it doesn’t really mean much. Every seller wants a contract, don’t they? That’s why they’re on the market.
Shannon: That’s right, and we need to just concern us with ourselves and control what we can control. It goes back to that perception of power. Sometimes yours is the power, because you can walk away.
Kevin: The next one I love, and this one is going to come up all the time, especially with auctions, where the agent will say, “Well, the vendor hasn’t really given us a good indication of their expectation.” I would imagine this would be on the tail end of “How much do they want?” That’s the question I would ask the agent.
Shannon: Yes, definitely, and if you think that any vendor has signed up an agent to represent them without giving an indication of their price expectation, you believe that pigs can fly. Of course, they’ve given an indication, but what the agent is trying to do is solicit your highest price without putting a range into your thinking. The better question probably is “What comparative sales have you got to justify the price point for this property?”
Kevin: Because in fairness, there are some parts of Australia – Queensland being one of them – where the agent is not allowed to give you an indication on price, and that’s in legislation. So I guess you have to be a little bit wary about that, don’t you?
Shannon: Yes, but they do have an obligation to give comparative sales, too. So while they can’t put a price in your head, there’s nothing stopping them talking about that.
Kevin: Yes. Next one: “We’re happy to present any offers prior to auction day.” This is a tough one, because a lot of buyers actually to try to avoid going to the day of the auction, so they will actually try and put their best foot forward, but in doing that, they could actually be making a very big negotiation mistake, Shannon.
Shannon: Yes, they may be even raising the reserve. Because they’re so genuinely, emotionally tied up with the property, they’re showing their cards before they need to. I think in trying to avoid the contest, they’ve really given all the information to the other side, which is never a good idea.
Kevin: Yes, not a good idea at all, so that’s one. Do you try to buy properties before auction day?
Shannon: When it is a property not attracting the offers. If it was a property with little developer interest and perhaps no owner-occupier appeal but has a really good commercial location and there’s a property that would fit us, I can garner that it’s not going to be a strong appeal to most people and perhaps the vendor is a little bit desperate. That’s when we would try and secure something prior to auction, not the other way, when it’s obvious high demand and going to be well contested. It’s just showing your cards before you need to.
Kevin: Okay, the next one is really I guess where you’re at the point of going to contract, and the agent says to you, “Well, you don’t really need a solicitor looking over this. Just sign it. It’s a standard contract.” Not a good idea?
Shannon: Never a good idea with that one, because people shouldn’t talk beyond their qualification and an agent has no legal qualifications there. Every real estate transaction should have the advice of a solicitor, and it’s actually stipulated in the contracts, as well, so that would be quite a disreputable agent who would suggest that.
Kevin: Yes, any agent who does suggest that, just disregard them, and make sure you do contact your solicitor, because it needs to be done. I guess this next one is in a similar vein, too, where you may want something put into a contract, and it says “Well, we don’t need a special condition on this; the vendors are going to be fine with that one.” That’s a big mistake.
Shannon: Definitely. Business is done in writing. It needs to be done. Don’t go to settlement where it then becomes your problem. You need to make that a condition of sale, so that it’s all stipulated and agreed to before the settlement date.
Kevin: Yes, another great reason why you should be consulting your solicitor and getting your solicitor to draft that special condition.
Shannon: Definitely, take it out of the hands of the agents, and the solicitors can work to that themselves.
Kevin: Easy to see why you are so good at what you do, Shannon Davis from Metropole Properties. Thank you very much for your time, Shannon, for sharing your wisdom with us and enlightening us on a number of those points. Thanks for your time, mate.
Shannon: No worries, Kevin. Any time.
Don’t panic. That is the worst thing to do – Ben Handler
Kevin: We’ve been talking today in the show about whinging and whining about how unaffordable property is, particularly in relation to first-home buyers. Joining the conversation now is one of the co-owners, the director of Cohen Handler Buyers’ Agents, Ben Handler.
Ben, thanks for your time.
Ben: Thank you.
Kevin; We’ve had some pretty strong views expressed already about whinging and whining and what people should be doing to get into the property industry. How unaffordable is it really, Ben?
Ben: It really depends. I guess I agree in regards to people whinging that they’re struggling to save money, that they’re spending money on other things. However – we hear this a lot – while the market is competitive, it’s also very exciting and dynamic and rewarding at the same time for those who buy well. First-home buyers need to put effort into planning, into researching, into saving, and this ultimately will be determined by how serious the buyer is to find their dream home.
Kevin: Do you think we’ve play too much the hope game?
Ben: Absolutely. We define hope as really being reactive and not proactive. First-home buyers need to always be on the front foot and ready for change. The market is changing daily or even weekly, so they need to be ready to change their plan of attack. More importantly, they need to get really curious and start asking questions to the real estate agents, really being prepared, because there is a lot of uncertainty out there with what you can get.
Kevin: Help me with some of the questions they should be asking agents to get to the bottom of this.
Ben: For example, if a real estate agent has a property that’s scheduled for auction, a lot of first-home buyers forget to ask the question “Is there an opportunity to buy this prior?” Rather than waiting for that campaign to get to auction where the price, in most cases, goes up due to more interest, there’s always an opportunity to buy pre-auction. That’s also a good example.
Kevin: I guess one of the riders with that, too – and it’s not a condition, but it certainly should be something that every first home buyer should do – is make sure they do their homework so that they have a clear picture of the price before they start making pre-auction offers, Ben.
Ben: Yes, correct. That also comes down to just planning and understanding “Is this property achievable for my budget?” In most cases for a lot of first-home buyers, it’s not. They spend money on due diligence with their solicitor or their accountant or financial planner, and in fact the property is actually not in their budget at all.
Kevin: I heard a suggestion the other day from one of your colleagues actually – not necessarily in your company but he was a buyers’ agent – who was saying that first-home buyers should just totally ignore auctions because auction is a very dangerous way to buy property. I arced up at that because I think that’s some of the worst advice I’ve heard in a long time. You miss out on so many properties if you just ignore auctions.
Ben: Yes, it’s an interesting one. I guess sometimes it is good to take a property to auction to condition the vendor, especially in this market where vendors’ expectations of price is so high now as you can imagine, so sometimes it is good to bring it to auction to actually get the transparency of who are the buyers and what’s really going on. The real estate agents will tell you there are all these people interested, etc. Is it true? Who knows? An auction is a really good representation to understand what’s going on.
However, there is sometimes great opportunity to execute prior to auction – and that just comes down to asking the agent questions and really just getting curious as to what can be achieved.
Kevin: Do you think sometimes that first-home buyers risk buying the wrong type of house or even paying too much because they don’t do their homework?
Ben: It is very common. We see a lot of first-home buyers, really due to frustration, they start to settle for something that’s not really even part of their original brief. They get beaten down from missing out on properties, missing out at auction, from just spending too much time on the weekends and not finding the right property, and they begin to settle for what they really don’t want. We see that a lot.
Kevin: I wonder sometimes – and we touched on this earlier in the show, too, Ben – whether this is just a generational thing where first-home buyers or young people are genuinely looking for something more than what they can actually afford. In other words, their requirements are outstripping their capabilities.
Ben: Yes, this is very common, and as I mentioned earlier, at the very beginning, they get it wrong. [4:40 inaudible] for a property that’s actually not within their budget, and that’s where they get it wrong. Or they might see a sale that happened in that suburb six months ago for their budget but the market is moving so quickly that now it’s unrealistic. So yes, we see that a lot.
Kevin: Just in closing in the minute or two we have, could you just give us the best pieces of advice you have for first-home buyers to get into the market?
Ben: There are three critical things. One is prepare and have a plan that is actually realistic from the beginning. That is critical. Number two, they need to take full control and full ownership of the process, and that comes down to really educating themselves, getting good at asking questions of the real estate agent, etc. The third we see is resilience. You need to prepare yourself to miss out. It’s going to happen, and we see a lot of first-home buyers get broken as a result. They’re the three things.
Kevin: That third point you make there leads a lot of people to make fairly big decisions rather rapidly that could lead them down the path of making the wrong one – in other words, “I’m just fed up with this. I have to buy something,” and they’ll go out and maybe spend too much.
If I can just take you back to the first point, which was you said about making a plan. Who should be involved in that? Tell me the sorts of people we should be talking to to help get that plan together.
Ben: Here at Cohen Handler, we have a designated program to help first-home buyers, and that’s really about formulating this plan to actually understand “Are your expectations realistic?” And that’s mission-critical, number one. Can you actually afford to be in this area? And if not, let’s pivot and change, and make it realistic.
Kevin: Ben, it’s been great talking to you. Thank you very much.
The bottom line, I guess, is to do your homework, do your research, be prepared to maybe go down a few dry gullies, but stop whinging. Is that the message?
Ben: Absolutely. Stop whinging and put effort into preparing.
Kevin: Good on you. Ben Handler, CEO of Cohen Handler Buyers’ Agents. Thanks for your time, Ben. Nice talking to you, mate.
Ben: Thank you very much.