June to stop the Sydney property boom - and stop the .... verbal offers or those via email are merely a sign of ... the
ISSUE 118
PREVIEW OF THE SPRING MARKET REGULATION THAT WAS INTENDED TO IMPACT - DOES SO The Government introduced an excess of regulation in May and June to stop the Sydney property boom - and stop the boom they did. For the first time in five years, heading into the Spring market there will be overhanging stock from Winter. The slow down in the market is not a case of buyer fatigue or buyer disinterest. Buyers are still keen to partake in the property market. The regulations forced onto retail banks by the Australian Prudential Regulation Authority (APRA) has seen willing buyers unable to buy or bid to the price levels they were previously able to. Of all the regulation that has impacted on the market, the decision to clamp down on ‘interest only loans’ for both investors and owner occupiers has had the biggest impact. Interest rates are still low and employment is high, so the downside to the market must not be overplayed. However, the days of rampant price growth are over. The market will be best tested coming into spring as stock levels surge from a seasonal perspective at a time when the banks have been forced to curb lending. There have still been individual sales that would suggest the market has not missed a beat. As a buyer or seller, it is crucial to understand the market will play
1/125 Darling St Balmain East sold for $1,300,000 after 14 days on the market.
inconsistently going forward and will lack predictability. The underlying economic story for NSW is very positive. If you are buying or selling a property that appeals to buyers in a strong cash position, you are likely to see a very positive result. Conversely, if your property appeals to buyers who are financing their purchase with high loan-to-value ratios, the bank is likely to dissuade them from signing a contract.
Many people have been shocked to learn of the banks tightened lending in the market. Depending on whether you are buying or selling, there are certain points to look out for in the current market. CONTINUED ON PAGE 3
IN THIS ISSUE • Preview of the Spring market • Controlling the agent • 7 questions to ask when selling
CONTROLLING THE AGENT WHAT ARE STANDARD TERMS AND WHAT IS FAIR? Home sellers are well advised to scrutinise their agency agreement prior to signing it. The selling fee, advertising costs and expected selling price are all key elements of an agency agreement, however, the devil is often in the detail. One commonly overlooked component of an agency agreement is the ‘Exclusive Agency Period’. As market conditions normalise, agents that over promise on their service levels and/or the expected selling price will be caught out. In a market that punishes agents who over price listings, there will be increased instances where home owners want and/or need to change firms – an instance rarely seen during the boom. In many agency agreements, there is a clause stating that the ‘Exclusive Agency Period’ will be ‘90 days after the auction’. This works out at around 120 days of exclusivity, even if the auction fails and the client is unhappy. Some agency agreements are a set time frame of 90 days. Given the purpose of an auction is to sell on the day – it begs a very good question. Why does an agent need 90 days exclusivity post auction? In fairness, not all auctions conclude on the day and it is common for negotiations to spill over into the next week or two before the property sells, but 90 days?!
The best way to control an agent is by controlling the time frame in which you are exclusively committed.
Why would an agent insist on 90 days exclusivity after the auction day?
When a home seller who really needs or wants to sell signs a 120 day ‘Exclusive Agency Agreement’, they unwittingly hand complete control to the agent. If the price and service don’t meet the agent’s promises, the home seller is stuck until the completion of the ‘Exclusive Agency Period’. At the point of signing the agency agreement, it’s crucial a home seller understands the legal and practical ramifications of the agreement. A phrase often used by sales people when it comes to paperwork is ‘it’s all standard’. When signing a contract (which an exclusive agency agreement is) it is important to remember everything is negotiable. The best way to control an agent is by controlling the time frame in which you are exclusively committed. An exclusive period in which the agent has time to deliver on the promises they have made is fair and commercial. If the agent
believes in the auction process, engage the agent until the day of the auction. If the agent’s claim is to ‘have interested buyers’ offer them a few weeks exclusivity to show the buyers through your property. In addition, ask for all agents to put their promises in writing. If the property sells below the agent’s suggested price, will the agent reduce their commission? If not, why not! Home sellers also need protection against being conditioned. Conditioning is when the agent praises the property before gaining the listing and once listed, systematically channels negative feedback about the property to the vendor, with the express purpose of driving down the vendor’s price expectations. If your property remains unsold at the end of the exclusive agency period, that is not necessarily the catalyst to change your agent. Rather, it’s that you maintain control as the vendor.
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Selling in the current market? Avoid buying before selling - an easy sale that was guaranteed 3 - 6 months ago may now be a challenging transaction. Buying with the intention of then selling in a tightly defined time frame is risky. Be wary of non-binding offers – verbal offers or those via email are merely a sign of good faith. Unless you have a signed contract with a deposit cheque, you have nothing. Buyers may genuinely believe that they are good to complete their non-binding written offer, but to everyone’s frustration, the buyer’s positive mortgage broker may be overridden by the circumspect bank manager. Rest assured, it’s happening. A property is worth what the best buyer is prepared to pay – a property is not worth a) what a vendor thinks it’s worth, b) what it could have sold for in March or c) what the agent thinks it’s worth. A property can only sell for the price at which the agent can negotiate a buyer to sign a contract at. Treat all genuine offers seriously - the hardest offer to accept is not the one that is below your aspirational number, it is the offer that is now below what you have previously rejected. Talk through all offers with your agent in a calm objective manner prior to accepting or rejecting anything. Always sleep on it before responding to a buyer who makes an offer. The boom delivered agents and vendors 3 or 4 buyers per listing. In these circumstances, a silent auction, a public auction or whatever sales process you chose to sell by, would have delivered a good result. As the number of sellers in the market increases and the number of buyer’s decreases, the ratios are evening out. Ask all
agents you interview, how do you get the best market price if there is only one buyer? Hire the agent that answers that question the best. Many vendors have learnt that auction day is not the big party day it was intended to be. Learn from others unfortunate experiences to avoid your own. Use a sales process that maximizes your price but also protects your position in the event there is only one buyer. Buying in the current market? Secure an unconditional loan approval in writing – there is a difference between ‘should get finance’ and ‘having finance sorted’. The banks under the auspices of APRA have become tougher on borrowers. Regardless of how good the mortgage broker or the bank’s relationship manager thinks your application is, get the loan offer in writing from the bank. Good properties will still sell well under competitive conditions. The market did not rise in unison and the boom won’t stop across the board. Being complacent about the market could easily cost you the right property. The key when buying is to buy the best property
your budget allows. Over time, that property will perform well. If your focus is merely grabbing ‘a bargain’ you may miss many good opportunities along the way. Attend auctions and inspections – understand the true market conditions in the area you are buying in, because that segment may be performing differently to the broader market and/or what the media is reporting at the time. Attending many inspections and auctions will help you understand the market at the time you are buying. Focus on actual sale prices as opposed to asking prices or price guides. Agents (and vendors) set the marketing prices but buyers pay the sale price. A signed contract trumps an email offer – you may be faced with an instance where the agent is using a nonbinding email offer against you in negotiations. By signing a contract and handing over a deposit cheque, you can sometimes give your offer an increased chance of success without even offering a higher amount. Vendors quite rightly will take a signed contract more seriously than an email, subject to finance.
This freestanding residence at 26 Alberto St Lilyfield sold for $1,810,000.
SEVEN QUESTIONS TO ASK WHEN SELLING As we head into Spring, there will be an inevitable surge in listings. As the boom fades and more challenging market conditions emerge, the vendor’s real estate agent is either an asset or liability in negotiations. These must-ask questions have been extracted from the book, Inside Real Estate to ensure you employ the best agent. 1. What evidence did you rely on when valuing our property? We are all susceptible to believing what we want to hear. If an agent quotes a high price for your property, it’s natural to want to believe them. However, an agent who cannot justify their price to you as the owner will have an even harder time convincing a buyer! 2. If the property sells below your quoted price, do we still have to pay full commission? When you sign an agency agreement to sell, the agent must provide a written assessment of value. You, as the seller, enter into the agreement, in part, based on the written assessment of the agent. If the agent fails to achieve their promised assessment of value, you should have an ability to penalise the agent for getting it wrong. By being firm on this point when interviewing agents, you will flush out what the agent really thinks your home is worth.
fortunate to have even one buyer. What happens if only one buyer attends the auction? What if two buyers attend the auction, where one absolutely loves the home and the other is a bargain hunter? The bargain hunter sets the price at which the emotional buyer becomes the highest bidder. Resist signing with an agent until they offer a plausible explanation on how they handle a situation where they have only one buyer at the auction. 4. What strategy will you employ to get the highest price for our property? Agents love to talk about ‘clearance rates’ when selling and marketing their firm. As a home seller, you want a high price, not to be part of an agent’s clearance results. Focus on the agent with the best strategy for achieving the highest price, not for clearing housing stock quickly. The time to ask tough questions about the agent’s strategy is before you employ them. The agent is less able to wave you away if you grill them prior to listing. After all, you will be paying a lot of money for the agent’s service, so it’s best everyone is on the same page before you begin. 5. If you already have buyers, why do we need to pay advertising upfront to reach those same buyers?
It’s the greatest paradox in the market. The agent claims to have readily available buyers, and then asks for advertising money to find buyers. Why? 6. Who is the agent that will attend the inspections with buyers? Many lead agents will list the property and then palm off the selling of the property onto a junior or assistant. Get it in writing that the agent you list with will be the agent handling inspections and negotiations. You don’t want the sale of your home to be treated as a training exercise. In fairness, it’s not that junior salespeople won’t be involved in the process, but you need to be completely clear about the experience of the agent who will be leading negotiations in the campaign. 7. Can we have the names and numbers of 10 previous clients? Real estate agents sell houses to buyers and services to sellers. The house is tangible, yet the service is intangible. Judging the value of any service in advance of actually receiving the service is difficult. Speak to the agent’s recent clients to ascertain whether the promises match the delivery.
3. How do you have an auction with one buyer? It is staggering how many homeowners list for auction without knowing the answer to this question. Clearly, auctions rely on competition – that is, multiple bidders. Unique homes often require unique buyers. In soft markets, you can be
More real estate questions can be answered via Inside Real Estate Available now at bookstores and online at dymocks.com.au.
