Predictions to rip a hole in your back pocket: Edwin Almeida

Now, if you are not a believer in being prepared and you don't feel that the property market will drop; put that coffee mug away. Click back to your Facebook page. Danger, read this at your own peril.

For the rest of us, it's time to pour ourselves a fresh cup of coffee, and look at the property market trends. Trends that we have been discussing for over 12 months now, and have been preparing our readers for: i.e. the changes in market forces.

Here we are, moving into 2016 and again, economists with invested interest in the property market continue to spruik the “steady property growth” in Sydney and the “she’ll be right” lines.

Our readers, followers and clients, on the other hand have been preparing for the reality of what is about to “slap” many economists in the proverbial face and a lot of investors, rip holes in their back pockets.

Sydney Property Snapshot: Auction Result Saturday 30 January 2016

There are a number of key take-aways from the transaction report or “on the market history” shown above (Source CoreLogic RPData). I will concentrate on three of these as follows.

• Vendor's & Agent's Expectations:

We may on the one hand say, vendor’s expectations were being fueled by the main-stream-media’s property reports, coupled with the crazy prices being paid by our friendly Chinese investors and home grown investors wanting to jump on the "Gravy Train".

Expectations also adding to real estate agent's promises of achieving high prices.

Prices again being fueled by buyer's fear of missing out, coupled with the notion of huge under-supply as well as beliefs of  “not enough land”. Then there are the ongoing beliefs of: high migration intake and that "interest rates won’t go up anytime soon: therefore, commit now". My favorite "HUGE rental squeeze".

The above mentioned beliefs as you well guessed, primed the market and created a foundation for this property bubble. A foundation that supported the comparable sales in the area, in most instances; prices that reflected the initial “Above $730K” prices being advertised i.e. the prices being paid at the height of the market.

• Agent’s Marketing & Sales Strategy:

The main strategy I want to review, is the one carried out by the second agency. In simple language: “what the hell were they thinking in taking the property to auction” and for a second time?

I can only say; yes, I’m sure the vendor is now conditioned and perhaps even bullied into being a “motivated vendor”.

• Drops and Market Conditions:

However, we can see on the surface by the evidence presented in the recent auction reports, vendors are moving into very precarious territory when taking property to auction on an agent’s ‘whim’. And, you have to be careful who you appoint as the real estate agent and the auctioneer, if that is the method you are told is the best way to sell your home.

Again, the table above shows two key points: the first, the drop in asking to highest bid value and the second, the number of days on the market.

The passed-in bid, is reported to be $650,000 by the second agent. A significant drop and contrary to the first agent's initial asking price which was for: offers above $730,000. WOW ...

We can see a significant drop of willingness for people to commit now. A difference of almost -12% from the height of the market in 2015, to now. But, there is more room for a further drop.

I point out; we are only a month into 2016.There will be more carnage to come. Carnage that will take out many vendors that are not vigilant.

For Now: Is it a matter of...

1. Signs of the times?
2. Real Estate Agent's flawed marketing strategy?
3. Auctioneer's ignorance? OR
4. All of the above?

More than ever before, I urge you as vendors and agents; do your homework. Ask yourselves as agents, the fundamental question which is pertinent to obtaining the best price for your client: is an auction campaign still the best way forward, for your vendor?

Vendors, again more than ever, be proactive and ask the agent about the number of registered bidders leading up to the auction day. If none are registered then ask whether you should still be going to auction. Meet the auctioneer and ensure they go through the property, days before the actual auction date that is.

Most of all vendors, do not be afraid to question the agent's reasoning for the marketing strategy they want you to embark on. It may well cost you 10's to 100's of thousands of dollars, if you don't.

EDWIN ALMEIDA is licensee in charge of Just Think Real Estate.

He is also the creator of Oz Real Estate.TV and a presenter for propertyinvestingvault.com.