Dear reader,

Here is our Winter '08 edition of James Market Report.

James Market Report • What are you going to do at AUCTION on a PASS IN or VENDOR BID? • 2008 Market News - Million Dollar Melbourne - What is happening? • Some of our recent purchases for our clients.

Million Dollar Melbourne. Architectural advisory.

Read Mal's Column and the homes he has visited and assessed each week at www.jamesbuyeradvocates.com.au or contact him on 0408 107 988

What are you going to do at AUCTION on a PASS IN or VENDOR BID?

Many buyers turn up to an auction with little planning having been done, other than "I think I will bid up to ..." or plan B "I will see what others do".

If you want to spend all your money in this market that, as a general rule, has shifted downwards between 5 and 20% in the past few months (inner Melbourne higher-end properties), then this planning - or lack of it - will achieve that (spending all your money).

2007 was to some extent easy - you turned up, put your hand up and, at the end of the auction, you had either bought the property or you hadn't. Much of our work as buyer agents was buying before auctions, stringing together bidding strategies, assessing value or negotiating off-market properties.

In 2008, the rules have changed for buyers. In 2008, if you turn up and put your hand up,  quite often you are the only person to do so. Look at the results below of the million-plus dollar properties passed in at auctions; more than half had the auctioneer issuing vendor bids at the pass-in price.

So what happens next after you have put your hand up and it's passed into you?

Usually, you are fawned over by a number of surprised agents (who are surprised because they thought there were going to be five bidders but, for some reason, nobody else showed up). You are taken inside and immediately told just how lucky you are and the reserve is only "x" dollars above the quoted range and this is your lucky day.

Can we rewind a bit before we discuss what are your options from here.....................Roll back

........................Once you have found your dream home and it is going to auction on this (or a later weekend), there are a few things you should do before auction day.

1. Get an architect or builder to assess the home's current condition. A pest inspection in many cases is also money well spent.

2. Documentation needs to be checked by a solicitor - not a conveyancer, but a solicitor who can give you a legal opinion on its validity.

3. Get some professional help - and we don't mean the help that involves somebody giving you medication. We mean a professional buyer advocate, experienced in the type and price of property you are looking at. A buyer advocate experienced in the ways of the other side (granted good selling agents also know a thing or two about managing buyer advocates - so make sure it's an experienced advocate at the price levels and property types you are looking at).
   
   Of course we are going to say get a buyer advocate - but we can show you numerous examples where we have had a lot of money left in our pocket (or should I say your money stayed in your pocket) when acting on behalf of clients who freely admit they would have planted it down on the table if asked. This is not a slight on selling agents - to the contrary, this only confirms why 99 per cent of all sellers hire selling agents because they do work, they do make a difference and, in this market, good selling agents make a difference more than ever. For some reason, many buyers are embarrassed or feel it's an assault on their manhood or feel they can, on their first or second go at auctions, match it with the best in the business (high-end selling agents) and therefore they don't hire a professional buyer advocate.
   
   Many people (buyers) just simply do not know how good a Jenny Dwyer or Barb Gregory of bayside Hocking Stuart are at making you feel all warm and fuzzy as they work you up and up the price spiral. David Hart and James Paynter of Buxton have stronger styles, but are no less effective when dealing on a one-buyer (maybe you) property, but making that buyer feel he or she is one of four.
   
   Many buyers don't understand how good Andrew McCann or Kaine Lanyon of Bennison Mackinnon are at building you up to a pre-auction negotiation when, in fact, you are the only potential bidder. Michael Gibson and Michael Armstrong of Kay and Burton are quite polished at giving you the constant impression that they are there to help. But, unless it's at such and such a level (price wise), while they would love you to buy this truly magnificent property, they cannot recommend a sale by their vendor. James and Hamish Tostevin of Marshall White are legendary with their skills at engaging you within 30 seconds, making you feel you have their undivided attention, that you are special and they will help you pay this incredible price you need to pay now if you want to buy your dream home.
   
   Contrast Alastair Craig and Scott Paterson of Jellis Craig who have styles that are very smooth, very professional and sometimes a bit dismissive - but this is a tactic to push you into new price levels and they are doing this on behalf of their client, the vendor, not you the buyer.
   
   Any of these agents (and many more) are simply very good at their job and, in this market, when they are focused, they are formidable opponents and significant obstacles if you want to buy the property at what you consider to be a good price.
   
   Two final points on buyer advocates. It is better if you speak to us before you open your mouth on price to the selling agent. Our fees? Simple: no purchase, no charge (so you're on par with the other buyer that didn't buy) or 1 per cent plus GST if you are successful. That's one bid, a fraction of the first agent bluff and two bits of not much if you have secured the home you really want.

4. Get a FIRM idea on different value ranges - in today's market, last year's data is a guide but not a bible. The market has shifted and next week it may shift again - we are in volatile times, so you need different price guides for different situations. ON THE SAME PROPERTY.

5. Get a plan - flowchart scenarios, prepare scripts on what to say when under pressure.

6. Practise your breathing, your scripts. We know some clients laugh when they read this bit. It's true. If you cannot go to Harvey Norman today and HAGGLE $150 off the asking price of a computer, or you cannot get up in front of 20 office colleagues and give an off-the-cuff talk on why your dream home is in fact not your dream home, then are you sure you are the right man (or woman) for the job this weekend against experienced buyers and quality selling agents? Alternatively, have you the skills to take advantage of poor selling agent preparation?

OK, so now to auction day

1. Does the auction feel alive or not?

2. Should I open the bidding or not? The advantage to opening the bidding is you can make it lower than a vendor bid and, if you are smart, that may stop the vendor bidding. The disadvantage is it gives your buying opponents, Nervous Nellie or Nervous Neil, a confidence boost that somebody else likes this and then they start bidding.
3. You've bid $1.83 million. The vendor bid is $2.1 million. OH MY GOD. What do I do now???? ..................................................

Thoughts that run through our mind:

1. The quote
2. The agent and his or her experience (What have been their recent successes? Or not successes?)
3. Was there any other bidding?
4. Has the vendor bought (research beforehand)

Some of the tactics and techniques an agent may use on you - do you know what to do?

1. The squeeze
2. Silence
3. Walk away
4. Double tag - one responding and one listening
5. Higher authority
6. You instead of us
7. Multiple offers
8. Over the top - new player
9. The trial agreement - if I can get my guy to
10. The deadline
11. Build the pace
12. Slow the pace
13. The alternative (competition)
14. The no response
15. Show me the money
16. The fait accompli
17. Grinding
18. Timing
19. Bridge building
20. Laugh and pause
21. The withdrawal
22. The 1,2,3 drop
23. The dribble, dribble, solid amount - last gasp

If we haven't at least made you think about your auction this weekend, then apologies, but if we have, then let's meet and have a chat - no obligation and you assess if we can add some value.

After all, GREAT NEGOTIATING is not about missing out - anybody can do that. GREAT NEGOTIATING is not about paying over the odds by a long way and spending all your money and then some - anybody can do that. GREAT NEGOTIATING is about getting what you want at a price you are happy with.

Why should a SELLER have all the odds in their favour - the market has shifted direction - HAVE YOU?

 

30 March 2008

Dear Mal, Peter, Melissa and Adam,

Re ............ Avenue Balwyn,

We would like to take this opportunity to thank you very much for securing our future home.

When one of our colleagues pulled out at the last moment in assisting us for the purchase of ......... Ave Balwyn, we thought we would need some help in making one of the most important decisions (financially) in our lifetime.

We were both extremely impressed given the short time frame you and Peter had to work with ie less than 48 hours before auction.

Your professionalism in putting together a substantial report on the property and the follow-up strategy at auction and post-auction negotiations, we believe gave us the edge in securing the property.

We were glad that you were bidding for us at that auction, as you took control of the proceedings immediately and certainly made it clear to other bidders that they had a real fight on their hands if they were to be successful.

We cannot talk highly enough of your overall approach and in particular your post-auction skills in negotiating a great price for us. We firmly believe that you have added value in the process of purchasing our home and would not hesitate to recommend you to any friends or family.

Well done to your team.

Yours sincerely

Ezio and Sonia

2008 Market News - Million Dollar Melbourne - What is happening?

Excerpts from our Weekly News/Blog that can be found online at www.jamesbuyeradvocates.com.au
To fully explain what is happening in the Melbourne Market, we have decided to use a number of land examples.

Here are three articles relating to land value:

Situation One: A tale of three properties in two markets - pre-Xmas 2007 and post-Easter 2008

24 Seymour Grove Brighton
This property sold on one side of the street (south-facing and no good for sunshine) for $2.92 million in December 2007. We assessed at land value only.

Date: Dec 2007
Landsize: 974sqm
Price: $2.92 million

29 Seymour Grove Brighton
Date: April 2008
Landsize: 1014sqm
Price: $2.16 million

This property sold this weekend for $2.160 million - having been on the market at $2.04 million - and was on the north side of the street (great for sunshine) and rated by us at a whopping 866 out of 1000 - so it's a great property. There were three bidders - the market knew it was there and what it might sell for.

13 Wolseley Grove Brighton
To confirm the gravity of this market shift with some types of property. 13 Wolseley Grove, the next street up in Brighton (same James Home Rating 866/1000, same north-facing, same land size, same bulldozer house theory),  was auctioned a month or so ago with a price expectation of 2.9 to 3.0 million (we thought that was possible earlier this year when asked). It remained unsold at auction after a vendor bid of 2.1 million and a reserve of $2.85 million. We have since been informed that it may be for sale at 2.5 million; however, the price received for Seymour Grove may mean a further price alteration.

Are we saying the market has dropped all of its gains of 2007? In some ways, yes, we are saying that for the higher-end properties that are not "whiz bang wow!" That, of course, may turn around next week.

Are we saying that for all properties? NO. For example, for properties under a million dollars or properties that require little work and have the right "3 Ps" - Price, Property and Position - we see the market as having only eased slightly (up to 10 per cent off from Jan 2008). A lot of the sub-million dollar properties didn't rise as quickly last year as the top-end properties.

At this stage, we are focused on making sure that we are paying the right price in the face of no competition, the right price in the favour of proven competition, or recommending we pass until we find another similar property within the right price range. However, if you are not experienced at auctions, your inexperience could be costing you hundreds of thousands of dollars.

Situation Two: two Hawthorn properties auctioned same day

11 Lawson Street, Hawthorn East - a property we rated at 775 out of 1000.
We viewed this property and rated it quite highly, but as land-only, at 775/1000. However, the quote seemed high with $1.8 million being the top end of the range. The home was built late 70s/early 80s but had some drawbacks associated with that era - dated decor, small rooms, less-than-perfect floor plan. We could not see how renovating the existing property made any sense and therefore overcapitalisation was a real chance if the buyer paid too much for the land and built again. The auction itself was attended by around 70 people and, in our opinion, it felt like there were buyers there, but nobody put in a bid. A number of vendor bids from Jeff Gole (who is a good auctioneer) and no interest from the street resulted in a pass-in at $1.6 million. It did sell in later negotiations at $1.687 million.

37 Illawarra Street Hawthorn - a property we rated 696 out of 1000.
Alternatively, another good property at 37 Illawarra St Hawthorn (on Scotch Hill) was rated at 696/1000 . It was auctioned by Tim Fletcher from Fletchers (another very experienced auctioneer), who had a very strong result at $2 million. The auction was very well attended, as it should be for a property on Scotch Hill without freeway noise. Being picky, you could say that, despite the land size, it was a trifle narrow for what will eventually be a $3-4million home. Also being picky, you could say that the neighbours dominated the site a little - however, Adam (James Architect) outlined an ingenious way to design for a narrow block and make the neighbours work for you in terms of street presence. Then a selling agent's saying of "quote 'em low, watch 'em go" applied. At $1.5 million, the quote was always $200,000 to $300,000 under the minimum expected, even in this shifting market. We estimated the property at a minimum $1.8 million before auction (based on previous sales) and said it may get $2 million if it was a strong auction. It was a strong auction and it did get $2 million. So did the buyers get a good buy? We still think yes and we still think that a $1 to $1.5 million dollar home (needs to be well designed and finished) will go well in an area close to transport and a number of private schools and a street that has Kooyongkoot Road as its neighbour.

So why did a property we rated slightly lower get a better price?
The market. That is why you must have a two-pronged strategy - one if you really want to buy it and you have competition (Illawarra St) and one if you don't have competition and don't want to pay a huge price (Lawson St).

Situation Three: Kew, Yarra River Precinct

Land value only - a multi-million block of land that we were engaged in both purchasing (bought at auction) and selling (recommended the selling agents) recently saw an increase of around 50 per cent within a two-year period with nothing being done to the site at all. This was bought during a very hot market and sold during a cooling market time (recently).

It again emphasises the points:

1. Properties that are quality sell strongly even in quiet times.
2. Properties that are bought and sold well will stand up under almost any circumstance.
3. In almost all cases. land and its position is the key to good investing, not the building.

Some of our purchases in the past month or so:

BENTLEIGH EAST - NORMDALE ROAD - Land, dual occupancy, north-facing rear
ESSENDON - FLETCHER STREET - first home buy
PARKDALE - DICKENS STREET - Townhouse, ocean views, family home
BRIGHTON - LINDSAY STREET - Large land, north-facing rear with tennis court
FOOTSCRAY - CENTRAL AVENUE - Investment, 2BR, off-street parking, pretty period home
BRIGHTON - GROSVENOR STREET - Period home, north-facing rear
HAMPTON - SERVICE STREET - Investment block with two homes on it, north-acing rear
MAIDSTONE - CURTIN STREET - Development block with plans and permits opposite a park
ST KILDA - HOLROYD STREET - Family Home for two families - been looking for two years - we found in three weeks
CAMBERWELL - ATHELSTAN ROAD - Period home - Bought at auction for existing tenants
BALWYN - In one of Balwyn's top 3 streets - family home
CARNEGIE - AMES AVENUE - Two-storey family home
POINT LONSDALE - SARAH STREET - Holiday house
BENTLEIGH EAST - CASTLEWOOD STREET - Big land, neat 1960s home for first homebuyers
MENTONE - BALCOMBE ROAD - Commercial investment
BRIGHTON EAST - BRIGHT STREET - Block of land for new home -bought before auction
HAMPTON - OCEAN STREET - Great position, well renovated, single-fronted period family home

Buyer Advocacy

Our workload has increased significantly this year in the $1m to $5m range as more clients see value in the services we provide and we have the qualified people to service you.

Think about using people who have been through downturn markets previously and know how to find and negotiate.

If you or any of your clients or friends would like a confidential one on one in person or on the phone discussion about what is happening in Inner Melbourne Residential please contact us for an appointment.

Contact Us

If we can help you with any buying advocacy matter, or one of your clients/friends is in need of independent, qualified property advice, then please call Peter, Adam, Melissa or Mal on 03 9596 8822 at our Head Office: 9 Hillcrest Avenue Brighton, or email enquiry@mjba.com.au Our website is www.mjba.com.au.