Harris Partners Real Estate Publication - Issue Thirty One

9818 2133www.harrispartners.com.au

In this issue of Property News:• Feng Shui your home• Hooked on bait pricing• Housing Finance Commitments• Recent Sales

The search for a new family home can be a lengthy, gruelling process. Even more so when it comes to interpreting the rubbery prices agents quote to buyers in the lead up to the auction.

Many a buyer has been to an auction recently in the hope that their property search is about to end with the impending purchase. Hearts are broken when the opening bid is well above the buyer’s maximum price. Even more confusing, the opening bid is also well above what the agent quoted during the opening inspection.

What is really happening in these (very common) instances? Is the market really that strong that a property the agent thought would sell for between $900,000 and $1,000,000, can then achieve an opening bid of $1,050,000? When the 10 registered bidders have finished slugging it out and the property sells for $1,145,000, did the owner really get 20% above what they were hoping for? The answer is no.

The answer is the buyers were attracted to the property by false price quotes, or “bait pricing”. This scenario played out on the sale of a property in Abbotsford recently. But it is far from a one off. It is a deliberate tactic to attract multiple bidders to an auction. Each Saturday, buyers get their hearts broken and their wallets walloped as they swallow the bait price the agent quotes as the expected selling price.Motive behind bait pricing

Why do agents bait price? Well, that is the same as asking, how do you have an auction with one buyer? The auction system needs multiple bidders to fuel the spectacle. Now that dummy bidding has been outlawed, agents have turned to bait pricing to ensure they have multiple people bidding at the auction.

Buyers can probably accept isolated instances of a property exceeding everyone’s expectations. But to see it happen every weekend over the course of their respective property search makes

even the most forgiving buyer a tad cynical.

Peter O’Malley of Harris Partners told Property News that “Buyers need to remain conscious that the auction system uses under-bidders as cannon-fodder in order for the agent to get the property sold.”

“To have 10 potential parties spend up to $1,000 each on inspections, solicitors and searches, when only one buyer will secure the property is a gross inefficiency at the buyers expense.”

When fronted by angry under-bidders, the agents have a long list of “plausible” excuses, sorry reasons as to the anomaly. The same reasons they roll out weekly in defence of the “outstanding result they managed to achieve”. They tell heart broken under-bidders that the market is rising, it sold above reserve, we are shocked by the price too, we cannot be blamed for getting a good price, it is market forces at work. Continued on page 3 ►

Hooked on bait pricing

Avoid being snagged by the price quote

Letter from the Editor

404 Darling StreetBALMAIN NSW 2041

phone: (02) 9818 2133

fax: (02) 9810 6432

email: info@harrispartners.com.au

web: www.harrispartners.com.au

Disclaimer: This newsletter is not to be treated as advice! Neither Peter O’Malley, Harris Partners Real Estate, nor Newsletter House Pty Ltd accept any form of liability, be it contractual, tortious or otherwise, for the contents of this newsletter or for any consequences arising from its use or any reliance placed upon it. The information, opinions and advice contained in this newsletter are of a general nature only and may not relate to or be relevant to your particular circumstances. There are many issues involved with buying and selling real estate so it is important that you get specific advice prior to making any decisions on your next real estate transaction.

Dear ReadersWelcome to the April edition of Property News. In this month’s edition, we take a close look at a common strategy that agents adopt to attract multiple buyers to the auction – bait pricing. Find out why agents bait price and how to protect yourself against spending money on a property that you have no chance of securing.

Louis Christopher writes an insightful interpretation of the recent Home Finance Approvals numbers. Historic data can be the best way to predict future market movements, as Louis points out some interesting correlations over the past decade.

Feng Shui your home and sell for the best possible price. Learn the simple tips that will transform your home.

If the team at Harris Partners can help you in anyway, feel free to contact the office 7 days a week on 02 9818 2133.Best wishesPeter O’Malley

When you walk into a property for the first time, your senses take in absolutely everything — the sight, sound, smell, taste and feel.

Many sellers mistakenly believe that preparing your home for sale is all about the way your home looks.

However, many other aspects can affect the way your home ‘feels’ to a potential buyer.

By applying Feng Shui methods and by creating the right mood, a buyer will be able to see themselves living in your home — and once you have achieved this, you can start filling out the paper work!

SOUND A simple way to appeal to the sound sense is to play some soft relaxing music during inspection

times. Installing a wind chime at the front door will also provide something extra to stimulate a buyer’s imagination.

But there is nothing better than hearing the sound of birds twittering in the backyard, so if you are feeling adventurous install a bird feeder to encourage them on to your property.

SMELL When a potential buyer walks into your home, the last thing they want to smell is the remains of cleaning products,

freshly painted walls or floor polish. So to mask these smells you need to create your own scents, to lure the buyers into your home. The smell of freshly baked cookies is a wonderful way to make potential buyers feel at home, burn essential oils or place a large bunch of aromatic flowers in the living area of your home.

TASTE Providing food is an overlooked method , when sellers are trying to make people feel at home during an inspection.

your home for sale

Place a bowl of individually wrapped lollies or chocolates in the front entrance and encourage potential buyers to help themselves. This method will instantly make them feel more comfortable in their surrounds and encourage them to picture living in your house.

TOUCH This is a tricky one, as you do not want people running their hands over every part of your clean house.

But the sense of touch can be created visually by adding texture.

Use a combination of different plants in your garden, place different textured pillows on the sofa and vary the floor surfaces by using textured mats and rugs.

If it is a hot day, open the windows to allow buyers to feel a cool breeze on their skin, however if it is cold make sure you trap the warm air inside the house.

Ensuring the potential buyers are comfortable with the temperature inside the house helps them to feel more at home.

If you follow these few simple tips, it is easy to transform the Feng Shui of your home and hopefully have a buyer fall in love with your home.

How does this method turn an unfamiliar property into an inviting home?

Want to auctionyour property?

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► Continued from page 1 Peter added, “The most blatant

example of bait pricing is when a property is passed in for more than the agent quoted to buyers. This is an extreme but common example of bait pricing. In such instances, all under-bidders should demand a refund from the agent on any expenses and/or report the incident to the Department of Fair Trade.”2 Questions

The crux of the bait pricing issue comes down to 2 questions. What price did the agent tell the owner to expect for the property? Secondly, what price did the agent tell interested buyers at the open inspection? In many cases, the price the agent tells the prospective buyers is far lower than the price they told the homeowner when they were competing for the listing.

An agent that constantly tells buyers they have no idea what a property is likely to sell for, is lying. This is akin to the agent saying to every prospective home-seller, “I have no idea what your home is likely to sell for, but pick me as your agent because I know the market really well.”

If a seller knowingly allows the agent to market their home at a price point that the owner would not accept, they are as guilty as the agent of bait pricing.

Property sellers should also be aware that bait pricing usually attracts buyers who cannot afford your property. Why attract 10 people to an auction if 9

cannot afford it? Sure, the bidding may look ferocious and spirited to the casual observer, but the bidding is all happening below the seller’s reserve price.

It would be fairer for the buyers and more prudent for the sellers to disclose the reserve price from day 1 of marketing. That way only buyers who can afford to pay the sellers price will bid.Protection for buyers

The best way to protect yourself against bait pricing is to disregard everything the agent tells you and do your own research. Believe nothing, check everything. If the price the agent is quoting seems too good to be true, you are probably right.

The Home Price Guide website offers excellent data on recent sales. Purchase a copy of the recent sales in your target suburb. It will be more than worth the investment. Compare what homes similar to the one you are inspecting have sold for. Ask agents in the area that do not have the listing what they expect the property to sell for.

Make an offer prior to auction and send the vendor’s solicitor a copy of your offer at the same time as you give it to the selling agent. Put the agents price quote on the record. Point out in your letter of offer what your offered amount is in relation to the quoted price given at the open inspection by the agent.

If this is the home for you, make your best offer prior to auction, with a sub-clause advising that you will not be in

attendance nor bidding at the auction. If your highest offer is not acceptable to the owner a week out from the auction, it probably won’t be accepted at the auction. Emotionally, you are better off being disappointed about having your best offer declined in privacy as opposed to being in front of 100 real estate spectators on auction day.

Don’t worry about playing your hand by offering your best price prior to auction. If you are an under-bidder at auction, you will have disclosed your best price, spent money and still missed out on the property.

If your offer prior to auction is above the agent’s price quote and is still declined, at least you know the agent is bait pricing. Candice and her husband were recently interested in buying an unrenovated property listed for auction in Birchgrove. The agent quoted around $1.2 million as the expected selling price. When Candice offered $1.2 million the offer was declined because it was too low. By making the offer prior to auction, it flushed out the fact the agent was bait pricing to lure buyers along to the auction. The property went on to sell at the auction for $1,405,000, with half a dozen people bidding whom were never in the hunt.

On the day of the auction, if the bidding does happen to stop below what you offered a week prior to auction, the agent is likely to pass the property in and come back to you anyway. Very rarely will they sell under the hammer at auction for less than they were offered prior to auction.

There you have it, make your best offer prior to auction and walk away if it is declined by the owner. What have you got to lose? Thousands of dollars in unnecessary fees if you get hooked by the bait price.

Avoid being snagged by the price quote

Below is the Australian Bureau of Statistics (ABS) National Housing Approvals (ABS Cat. 5609, Table 1, Col X), excluding refinancing and seasonally adjusted. The data has been placed on a chart with the back series to 1999.

In my opinion this series over time, has been the most reliable indicator of changes in housing demand, and subsequently, housing price movements. Our modelling has indicated a strong correlation between this series and the National Housing Price Index Series (ABS Cat. 6416). On SQM Research modelling the correlation between home financing approvals and house prices runs at approximately +.6, with a six month lag.

With Louis ChristopherHousing Finance Commitments

Housing finance approvals need to hold above 39,000 monthly approvals. You will see on the chart this point has been marked up. At this point, based on SQM Research modelling, finance approvals have to at least hold in order to have a stable, albeit flat market. The grey trend line is the point where we think the market would achieve long term house price growth of Nominal GDP (Real GDP and inflation) + 1-2%.

As you can observe we are now below both points.

You will also note the small horizontal line that has been drawn up, which represents the bottom in approvals for 2008. We know at this point, house prices

fell by an average of around 5%. In some areas the falls were far greater, while in others the market flat-lined.

I will let you draw your own conclusions on what this all means.

In my opinion, approvals need to recover quickly from this point or at least stop the declines. Another three to four months below the red dot and it is a bear’s market. In this case I have not published the state break up as the various state trends recorded over the past 12 months are all very similar to this chart.

I also note the ongoing very low stock for-sale levels in many parts of the country. Auction clearance rates are also still high (though the actual % cleared is debatable).

So there is a possibility housing finance approvals could now bottom out or bounce back. The RBA holding fire in February may also influence approvals for that month. But lifting interest rates again recently plus the real chance they will go again soon, might keep approvals down for the March/April reads.

Overall, the data would be suggestive that potential residential real estate buyers and sellers should now take into account an increased risk of a “weak” market.

This is an informal update and discussion is welcome.

Louis Christopher is Managing Director of SQM Research & Head of Property with Adviser Edge.

81 Belmont RdMosman$1,300,000

3 1 1

19 North StBalmain$949,000

2 1 1

141 Catherine StLeichhardt$805,000

3 1 1

8 McDonald StLeichhardt$701,000

2 1 1

117 Lilyfield RdLilyfield$830,000

2 2 -

7 Jarrett StLeichhardt$540,000

1 1 -

29 Darvall StBalmain$Undisclosed

4 2 2

26 Waterloo StRozelle$850,000

3 1 -

3 Glebe StGlebe$870,000

3 2 1

13 Collingwood StDrummoyne$1,610,000

3 1 4

For a complimentary market appraisal on your property phone Harris Partners 02 9818 2133

Houses

Davidson StBalmain$Undisclosed

3 2 2

13 Short StBalmain$1,155,000

3 2 -

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9/34-38 Paling StLilyfield$668,000

3 2 1

410/1 Layton StCamperdown$642,500

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7/154 Bellevue RdBellevue Hill$740,000

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502/287 Pyrmont StUltimo$530,000

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93/1 Dolphin ClChiswick$595,000

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118/85 Reynolds StBalmain$622,000

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3/14-16 Albert StGladesville$670,000

3 2 2

4/16 Hosking StBalmain East$670,000

2 1 1

303/26 Warayama PlRozelle$450,000

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1/10 Macquarie StBalmain$Undisclosed

2 1 -

17/258 Johnston StAnnandale$345,000

1 1 -

620/287 Pyrmont StUltimo$446,500

1 1 1

For a complimentary market appraisal on your property phone Harris Partners 02 9818 2133

Units & Townhouses

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