Tuesday, 23rd February 2016
Stay Calm and Get Your Finances In Order
What will 2016 bring to the property market?
January 2016 saw some big changes in real estate legislation aimed at curbing “under-quoting”. In summary, agents now need to quote a narrow guide (no more than 10%) that mirrors the agency agreement made with their vendors. Specifically, they are no longer able to quote “offers over….”. Now if an agent gives you a “price guide” of $1m, it is meant to imply that the upper end of their expectations should be no higher than $1.1m. The only other option agents have is to not quote at all (as is the case in QLD) – something I feel doesn’t sit well with buyers or the agents who presumably are expected to know what the property is worth. In practice, we are already seeing sales results way out of line of where they were quoted – and this is not necessarily the sales agent’s fault.
A one bedroom apartment in Bondi with iconic views sold in mid-January after only 4 days on the market for 10% more than the top end of the price guide.
A house in Forestville which went to market the following week already had offers on it 15% higher than the price guide – all in the space of 3 days!
And a subterranean 2 bedroom apartment in Redfern quoted at $700,000 to $770,000 under the new regime, sold in a week for $955,000 – equating to more than 25% beyond the price guide!
Have these agents broken the law? Should they be investigated?
In my opinion, probably not. Real estate, like any other market, is a function of supply and demand. When pent-up demand meets quality offerings the results are often higher than anticipated. Likewise, an abundance of inferior listings late last year saw prices and auction clearance rates languish. Buyers were unimpressed with what was on offer, and held back in the vain belief that the market might slow down in 2016. From the results we are currently experiencing, it is unlikely that this will be the case. If the opening week of Saturday inspections 5 weeks ago was any indication, we are in for a strong year yet again. As was the case for the last few years, buyers have returned to the early 2016 market in droves.
I inspected 12 properties from Lilyfield to Surry Hills in that first week and was bowled over by the number of buyers so early in the year. All the agents I spoke to reported high numbers at their open homes, with many adding that a high proportion also requested contracts and further inspections. In subsequent weeks we have found the quality listings to be exceptionally popular, and the general auction clearance rate has now bounced back to 77%.
So should we expect to pay even more in 2016?
There is not a simple answer to this question. Despite the low volume of sales over the last 6 months, agents have still been busy. Some agents (particularly on the North Shore) have preferred to sell off-market – these sales do not show up in the weekly auction results. Others have been doing plenty of appraisals of quality properties, but their vendors are not ready to commit until the market has shown clear improvement. If prices spike in Jan/Feb as we expect, there should be a good flow-on of new listing hitting the market. Our view is stock levels will be the determining factor for price growth in 2016. If many of these appraisals convert to listings, it’s more likely you will be able buy a quality property at a reasonable price. While we are expecting further growth this year, a good influx of new stock should temper the spikes we experienced in 2015.
What should smart buyers do?
Be prepared - Get yourself in a position to act quickly if necessary. In particular, check that your finance approval is still current. Many lenders have changed their guidelines lately, and you may need to re-apply. Also make sure you have a good solicitor ready to review your contract ASAP.
Do your homework - Don’t rely on what the sales agent is telling you in terms of price – at this time of year they often aren’t sure themselves! Try and get yourself up to speed on what properties are really worth by checking the most recent results, and also factoring in what quality properties sold for earlier last year. Look for opportunities - If there is little available for sale in your search area, look in adjoining suburbs, and perhaps even wait a month for when over-supply occurs in a particular suburb. This can often be your best buying opportunity.
Get help - If you don’t have the time, or you are feeling lost with the process, chances are you’re probably right. Experienced Buyers Agents work 6 days per week and will definitely save you money. More importantly, a reputable Buyers Agent will also ensure you avoid buying a non-performer – a mistake that could cost you a small fortune in capital growth and fees further down the track….