The key issues at the top end of the Melbourne market

We said May was a month of change and boy has it been. Sure, the market changes, but there have been some very dramatic mood swings since Easter.

We can tell just by tracking the activity on our negotiation council. Before Easter the offer board was full. We had 12 active negotiations in the week before Easter in fact. After Easter the offer board was nearly empty – in fact it had an average of two on it for the first fortnight.

Then last Friday suddenly the Offer Board was full again. We now have 11 active negotiations to discuss.  That reflects how the market mood is swinging right now at the top end. Its fluid, it’s dynamic and it’s a little unclear.

Although looking at this weekend’s results, you wouldn’t think there was anything unclear.

You won’t always see the impact of these mood swings in price changes at the lower end. Because the A grader at $1.3 million which has six bidders before Easter will still have three bidders when the market dips and so most observers won’t see any change.

But at the top end, as well as on B and C graders at the lower end, a mood change can cut what would once have been a three bidder auction to just one bidder – and if that one bidder is you, then are you simply competing against yourself.

Key issues at the top end of the market are

• Agent quoting
• Chinese nationals buying
• Market vagaries in May

We feel it is important for buyers to understand and face these issues rather than just worrying and complaining about them.

Agent Quoting

We have received a couple of responses from readers regarding some of our more recent comments on agent quoting.

We seem to have given some people the impression that we support Underquoting.

Let’s be clear we don’t support underquoting – for the simple reason that markets function better when they are ethically run. In better functioning markets we earn a more meaningful living. So we are not a supporter of agent underquoting.

In our attempt to help the markets function better we tried to explain what an agent quote is and what it isn’t.

We pointed out that an agent quote is nothing more than an attempt by the agent to get as many buyers as possible to see the home.

Yes, you the buyer want the agent quote to be more than that, i.e. the reserve or indicative sell price. Consumer Affairs Victoria says it should be this and that – but it is not.

In fact there is a big difference between what an Agent Quote is and what you might think it should be.

Agent quotes are like marriages; we all want them to be good but about half aren’t and so we can stay unhappy or we can do something about it.

And, frustrating as big differences between the agent quote and the actual sell price may be, getting emotional about that can be counterproductive to helping you buy the home you want.

So getting emotional is not what we think you should do. Understand and take alternative action  is what we think you should do.

If you can understand agent quoting for what it really is, not what you want, then you will buy a lot better.

We also pointed out previously the unhelpfulness of CAV’s assumption that just because they have received few complaints about underquoting, that means there is no problem.

Cheerio from us publicly on this subject for a while.

Chinese Nationals

Some people have also expressed concerns about the number of properties being bought by Chinese Nationals. There is perhaps a fear that it has become impossible to compete against a group of people who seem to have very deep pockets.

We even get complaints that we raise this as a subject.

As buyers you need to know who your competitors are and how to maximise your chances of dealing with their strengths and weaknesses in this market. As with underquoting though, there is no point being caught up in fear and frustration at such competition.

The law allows Chinese nationals to buy homes in Victoria, and if you want to buy a home in Melbourne’s Inner East and increasingly in Bayside you are going to have to compete against this group of people.

If you are a buyer then you need strategies. We act for Chinese nationals in buying homes in Australia.  We have also competed against Chinese nationals at auctions and in other negotiations.

So over the years we have learnt through experience to feel comfortable negotiating both for and against Chinese nationals.

This weekend, we had to deal with both issues on a property we bid on.

The property at 27 Dean Street, Kew (Anthony Panayi & Chris Ewart of Christopher Russell) was a basic brick home on a big block – it was a land sale. The initial quote on the home at was $1,500,000, but was raised to $1,800,000 during the campaign. We turned up half an hour before the auction and there was a steady stream of Chinese nationals and Chinese Australians flowing into the property.

Our research indicated that the property was worth a lot more than $1.8 million, and we opened the bidding at $2,200,000. At that point it was announced on the market, and from then on our two main competitors were either Chinese nationals or New Australians (both had interpreters to assist).

We bid in a certain manner to win us the home, and in this instance our clients won.

Was this a case of poor agent quoting? Well, the agent’s original quote was $1.5 million, which he then raised to $1.8 million. The auctioneer got a lot of people to the auction and then put it on the market with our first bid. So in this instance a big tick to the agent – he did his job for his client (the seller).

If you as a buyer were thinking it was not going to go anywhere near that number, then is that the fault of the selling agent (who is not working for you)? Did you do your due diligence to understand what it realistically should go for?

We paid a price that to us seemed strong but not mind boggling. There have been a number of sales of new builds in the area at $4 million for blocks this size. If you work your way backwards, and value the build cost of new home at $1.2 million, then the price we offered stacks up.

On advice received we formed and gave an opinion that it could go above $2.6 million at a strong auction.

You might think we opened too strongly. Well other bidders didn’t think so. It would have been a volcano if bidding started low. Our bidding patterns were designed very specifically to compete against the Chinese nationals or Chinese New Australians we knew would be there.

Summary

If you don’t understand how agent quoting works, you will not give yourself the best chance to buy.

And, if you don’t accept and have a strategy for competing against Chinese nationals bidding, you will not give yourself the best chance to buy either.

Finally, if you don’t understand and take affirmative action in this May market then you will either bring too many people into a bidding war against you or you may pay too much.

Mal writes weekly auction reports, advice and in-depth market analysis on James' website.