8th Sep, 2004
OVERPRICING TARGETS WRONG MARKET
Vendors wanting to know if they have pitched their asking price just right can tell by the amount of purchaser interest. If the asking price is right, there will be lots of inspections, positive feedback and early offers. If the “negotiation factor” is too big, far from creating an incentive for purchasers to make an offer, it makes them think the seller is unlikely to accept a reasonable offer and offers are unlikely to be forthcoming.
Properties in a highly sought after category or in locations where there is a shortage of property for sale usually have more room to inflate the asking price, but most vendors need to be aware of the Catch 22 situation caused by serious over pricing. If the asking price of a property is more inflated than other similar properties on the market, the agent may have to puff the advertising copy, or purchasers will not be attracted to the property at that price. If the property’s benefits are exaggerated, purchasers will be disappointed when the reality doesn’t match their expectation. The irony will not be lost on most property consumers; the very strategy which less market aware vendors think will maximise their sale price could lessen market interest in the property, making it take longer to sell and ultimately reducing its selling price.
Overpricing targets the wrong market - purchasers whose expectations match their pockets in a way that the house does not match its asking price. Purchasers are quick to tell an agent if a property on their books is overpriced. They know that other buyers won’t be rushing to make offers. It’s not uncommon for purchasers to notice an advertisement or a signboard but not make their first inspection of the property until months later when the price has been reduced. By then they have the psychological edge which enables them to drive a harder bargain.
The right negotiating factor should make purchasers feel anxious that if they don’t get in quickly they will miss out to someone else. The resulting climate of competition in the first few days and weeks of marketing is usually the best opportunity to sell the house for the highest possible price.
8th Sep, 2004
Buyers should think twice before cutting corners on recommended pest and building reports, even if their finances are stretched. Most real estate agents have dealt with purchasers who were wiser after the event.
Even near-new properties should be held up to independent professional scrutiny. After all, one cause of termites entering new homes is careless workmanship. Termites have been known to enter via formwork that has been left around concrete steps, for example. Reports that cost a few hundred dollars could save thousands even tens of thousands of dollars if the damage turns out to be extensive.
As long as the reports are done by licensed pest and building inspectors that have professional indemnity insurance, there should be no question of the buyer being out of pocket even if a tradesperson fails to analyse building faults that later become apparent.
If your building and pest report does uncover problems, that doesn’t automatically mean you should pull out of the sale. One way to approach the issue is to re-negotiate the sale price to allow for repairs. Prudent vendors usually see the wisdom of making adjustments to retain their purchaser. Another option is to negotiate for the vendor to arrange for a tradesman to carry out the work before settlement takes place.
Even a termite infestation doesn’t necessarily mean purchasers should write the property off. A surprising number of homes has had termites at some stage and few infestations actually cause structural problems. Purchasers should quantify the damage before making a decision. If there is serious structural damage which is unquantifiable, it is usually safer to give up the idea of purchase no matter how much you like the property.
While building and pest reports are done to prevent the stress of disappointment and financial loss, in fact, in most cases they enable purchasers to reinforce the feeling that they have made the right choice.
7th Sep, 2004
How many purchasers buy the first property they see? Ask most agents and they will tell you it rarely happens. Most purchasers stay on agents’ books for weeks, sometimes months. The amount of time they spend shopping around reflects the amount of money invested and the fact that for 97% of purchasers, the family home is their single greatest asset.
By the time purchasers are ready to make a commitment, they know exactly what their money will buy. Vendors who price a property too high and “hope” someone will come along just waste time and potential purchasers. At any one time, the percentage of qualified purchasers (those with finance and enough market knowledge to commit themselves) is probably about equal to the number who tell the agent \"We have just started looking\" or \"We are still not sure what we can expect to get for the money.\"
The phrase for the money says it all. One of the most important aspects of shopping around for any product or service is comparing prices.
One of the reasons there is often a gap between what vendors and purchasers think a property is worth is that vendors often look at the asking prices of properties similar to their own, while all purchasers on the other hand compare the selling prices of recently sold houses of the type they are looking for .
In pricing a property for sale so that qualified purchasers express interest, it is important not to rely solely on the highest figures given by agents’ appraisals, as “buying” listings (attracting properties for sale by inflating the appraised value and agreeing to set a high asking price) is common practice amongst less professional agents. Ask agents appraising your property to provide you with the sale prices of at least half a dozen similar properties that have sold recently in your area.
5th Sep, 2004
AGENTS WHO INFORM RATHER THAN PERSUADE
Anyone who has ever bought or sold a property will probably recognise two very distinct marketing styles shown by agents. These are often distinguished by the labels push and pull.
Research indicates that consumers prefer agents who demonstrate pull qualities because they communicate and create trust. They establish empathy and offer service. The push style creates distrust, alienation and client stress. And the push selling interaction is not enjoyable for the agent either, who inevitably falls back on hype or artificially induced enthusiasm.
Agents who are genuinely enthusiastic about their job are prepared to go the extra mile to meet client needs rather than pressure clients to meet theirs. They provide clients with the information that enables them to make an informed decision – no matter how long it takes.
The focus on information rather than persuasion means agents develop good long term relationships with clients. Their service orientation attracts both vendors and purchasers and they tend to get a lot of repeat or referred business when satisfied clients recommend them to their family and friends. As a result they can always demonstrate a wide range of genuine purchasers on their books and plenty of good quality listings.
Furthermore, agents who meet their own needs (achieving a target, earning an income) by meeting the clients’ needs first, rather than by attempting to manipulate the relationship, have the conviction that they are adding measurable value to the selling/buying process.
6th Aug, 2004
Negotiating on a property can be stressful for both vendors and purchasers. Emotional involvement makes objectivity difficult. Vendors often think that moving from their original asking price means they are “losing money”, while purchasers are afraid of “going too high” in the heat of the moment.
It helps to remember that market value for any property cannot be scientifically established or arbitrarily insisted on. Neither the vendor’s “I won’t take any less than…” or the purchaser’s “This is my final offer” actuallly determine the price. The price only becomes a reality when two parties agree to it and exchange contracts at law. In the course of negotiation, the vendor’s desire to get the highest price is offset against the purchaser’s desire not to pay too much. Neither wants to miss out – vendors on sales, purchasers on properties they have set their heart on. The point or price that is neither too little nor too much is arrived at by small (usually!) adjustments until the two parties arrive at a position they find mutually satisfactory.
Ultimatums usually bring negotiations to an end. The New Shorter Oxford Dictionary (1993) says: “It is not a negotiation when one party says: “This is what I want.”
It is easy to forget that market forces dictate prices and vendors who say: “We need $x to buy what we want” and purchasers who say: “This is my one and only offer, take it or leave it.” need to ask themselves whether they have based their figures on analysis of past selling prices for similar houses, and not on their own wishful thinking. Whether you’re a purchaser or a vendor, leaving a window open for negotiation usually means you won’t get the door closed on the sale.
Where the balance of power lies in negotiations depends on the market. In a sellers’ market, vendors can and do make ultimatums and hold out for dream prices, while in a buyers’ market it is the buyers who have the upper hand in any negotiations.
Vendors who don’t negotiate because they don’t like a purchaser’s initial offer never find out the highest price their would-be purchaser is prepared to pay. (Sometimes the purchaser doesn’t know until they have negotiated their way there!). Even if the highest offer a purchaser makes is unacceptable, at least it provides a point of comparison for future offers.
5th Aug, 2004
One of the main reasons that residential property investors sell their properties is that they are impatient to see the fruits of their investment. Sometimes this causes them to sell at an inopportune time - say when the market is slow or before they have held the property long enough to see serious capital appreciation.
The smartest property investors never sell. That’s right. Never.
Sometimes people think selling is the way to realise a profit. But every real esate sale incurs costs which eat into the profits. The most effective way investors can enjoy their increasing wealth is paradoxically to borrow more money. Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation.
Holding investment properties long-term means greater long term wealth when it is needed (usually on retirement when income from work ceases).
It is true that patience is required. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.
The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience - usually when the equity in their family home reaches a fairly high level and after consulting their accountant.
Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.
4th Aug, 2004
The Reserve Bank of Australia left interest rates unchanged for an eighth consecutive month on Wednesday, but many economists expect it to tighten credit again once the election is out of the way.
The central bank published a brief statement on its website, saying it had decided at Tuesday\'s board meeting to keep its official cash rate at 5.25 per cent.
The RBA provides no explanation when it leaves rates unchanged, but will detail its current thinking in its quarterly monetary policy statement next Monday.
The bank\'s widely anticipated decision will be welcomed by the Howard government, which faces a tight election within months and which had made clear in recent days that it saw no case for another rate rise.
The RBA raised rates twice at the end of last year when house prices were rising at their fastest pace in 15 years and when domestic demand was growing at levels most economists agreed was unsustainable.
While signs of falling house prices and cooling demand early this year prompted the bank to pause, evidence since then that the economy is taking off again has prompted many economists to tip another rise after the election.
\"The rosy outlook for households, rising inflation, the tight labour market, stubbornly high growth in housing credit, signs that the housing market has stabilised and the falling Australian dollar mean the RBA probably has to tighten policy before the end of the year,\" said JP Morgan\'s Stephen Walters.
Others, though, argue that the temporary stimulus to spending from the federal government\'s budget giveaways - as showed up in this week\'s June retail trade numbers - have obscured a slowing trend in demand.
\"Before the June jump, retail spending had been slowing as consumers were buckling under the weight of higher interest rates, falling house prices and a record debt burden. These problems are still around and make any talk of interest rate hikes foolhardy,\" said TD Securities\' strategist Stephen Koukoulas.
The bank\'s case for hiking rates again is made more difficult by the fact that inflation is right in the middle of its 2-3 per cent target band and is seen as unlikely to go outside the range in the next 18 months.
In June, the RBA said it believed some balance had returned to the economy, with house prices easing and the global outlook improving.
But data since then has shown housing credit still growing at above 20 per cent annually and housing activity plateauing. The evidence on house prices remains mixed, although the RBA has said it appears prices declined in the June quarter.
The bank bill futures strip, a barometer of market expectations for the cash rate, projects one further quarter percentage point increase before December.
With the global economy rapidly on the improve, central banks elsewhere have begun raising interest rates.
The US Federal Reserve kicked off its tightening cycle in June, raising its funds target rate from 46-year lows of 1 per cent. It is expected to raise rates at each of its remaining four meetings this year, starting next week.
9th Jul, 2004
Australia\'s Reserve Bank (RBA) met this week and as a result of that meeting have elected not to raise official interest rates. The decision was predicted by most economists who believe the Reserve Bank will most likely leave rates steady for at least the next few months.
Today\'s decision to leave interest rates steady at 5.25% for the seventh consecutive month leaves in place the 4.0 percentage point gap between Australian and US rates, which makes Australia a more attractive investment destination.
Before reaching the decision it’s likely that the Reserve Bank looked at the total economic situation in Australia, including unemployment rates and the current housing market, as well as last week\'s increase in the US benchmark interest rate, which rose from 1% to 1.25%.
In June, the RBA said it believed some balance had returned to the economy, with house prices easing and the global outlook improving. However since then, data has shown that credit growth has increased at its fastest pace in fifteen years. In addition, construction levels are up with building approvals for apartments and townhouses rising by 9.7% during May 2004.
Some economists believe that interest rates will remain unchanged until after the impending federal election, especially with slowing house prices, the lingering drought and if inflation remains low.
Others suggest unsustainable credit growth, resilient domestic demand and the government\'s budget giveaways mean the RBA is still inclined to raise rates.
HSBC chief economist John Edwards said that while a rate rise in Australia was necessary, \"it is not required urgently\", and Westpac\'s Bill Evans said the next movement in rates would come in December.
The Federal Treasuer, Mr Peter Costello, said the current economic conditions in Australia support low interest rates.
“Inflation is low in our economy, it\'s down around two per cent, we don\'t have inflationary pressures and that\'s consistent with a low interest rate regime,\" Mr Costello said.
9th Jul, 2004
There is a provision in the Taxation Act called a Variation of Tax Instalment Deductions, whereby as soon as you purchase an investment property, even before you have settled, you can arrange to reduce the tax deducted from your salary. It is necessary to lodge a variation form annually, but it is very simple and highly recommended. Ask your accountant or the Taxation Office for more information.
5th Jul, 2004
The latest building approvals data to be released by the Australian Bureau of Statistics shows, in seasonally adjusted terms, total building approvals rose by 1.5% during May 2004, the second consecutive monthly rise.During the month building approvals for flats, apartments and townhouses increased by 9.7%, following on from a 7.4% increase in April 2004.
Building approvals for detached houses didn’t fare so well, falling by 3.4% during May 2004, the seventh consecutive fall in detached housing approvals.
The Housing Industry Authority (HIA), Australia’s peak building industry body, said the increase in approvals for flats and apartments was a direct result of the lack of available land to build detached houses. With no new land available, builders and developers have turned their attention to rezoned land in existing urban areas where they are able to knock down older homes and build apartments in their place.
Around the country, falls in building approvals were recorded in Tasmania, down 16.5%, Queensland, down 8.6% and New South Wales, down 8.3%.
In contrast, building approvals rose in Western Australia, up 11.7%, Victoria, up 10.2%, the ACT, up 7.1% and the Northern Territory, up 5.1%. Approvals in South Australia remained unchanged for the month.
HIA’s Senior Economist, Mr Harley Dale, said, “Overall the profile for building approvals is telling us a story of a \'soft landing\' for the new housing sector with an easing in residential construction activity in 2004/05 that will be very mild by historical standards”.
“This profile for building approvals, consistent with other lead indicators for housing will, together with the rates on hold scenario from the Reserve Bank, ensure that the new housing and renovation industry doesn\'t become a significant drag on economic and employment growth in 2004/05,\" he added.
This sentiment was echoed in the June quarter HIA National Outlook report which said leading indicators for housing, such as building approvals, housing finance and new home sales have been consistently pointing to a moderate correction in housing activity for over six months.
HIA believe housing investment will ease by 5% in 2004/05, following on from 8% growth the previous year, which in historical terms is a very moderate annual correction.
As for a major price crash, HIA predict continuing robust overseas migration to Australia will keep demand for property high and as a result there will be no dramatic price corrections.