www.harrispartners.com.au

(02) 9818 2133

IN THIS ISSUE:

REAL ESTATE REPORTIssue 108

HARRIS PARTNERS

The selection of the selling agent is usually decided upon from an interview and/or a sales

proposal process.

Whether it’s an interview or a sales proposal that you are using to determine your agent, neither actually shows the agent in action.

Agents are fully rehearsed with scripts and dialogues to ensure a slick presentation when they are being interviewed by sellers.

Given you are employing an agent to market, sell and negotiate the sale of your home, it is worth seeing them in action.

To gain a true perspective of the agents you are considering, mystery shop them as a buyer.

When you mystery shop the agent, ask a few probing questions. You will quickly gain an insight into whether you want that agent representing you.

Questions such as ‘why hasn’t the property sold yet?’ or ‘do you have sales evidence to justify the price guide?’ can garner surprising answers.

Every agent will find it easy to hold the line with a new listing that has a lot of interest in it.

However, you will get a better perspective of the agent’s ability if

Continued on page 3

MYSTERY SHOP THE AGENT

you mystery shop them on one of their failed auctions or struggling campaigns.

Look for clues as to whether the agent is protecting their client’s interests or breaching confidence.The best agents are the best at protecting their clients, even when the campaign is not going to script. A dangerous agent for the seller is one that becomes desperate when the campaign does not go as expected.

All agents look good when there are 3 buyers trying to buy 1 house. How does that same agent look when the property has failed at auction, the advertising money has been spent (wasted) and the crowds have stopped turning up to the open inspection?

What you want to see when you mystery shop an agent

Available and follow up – In order to mystery shop an agent, you first want one that is available. Does the agent respond to messages? It is a phenomenon in real estate that the stronger the market, the worse the service buyers receive from agents. Essentially, in a boom, service to buyers goes down as agents’ advertising for buyers goes up!

Mystery shop the agent

How’s the market? Recent SalesHow much will it

lease for?

172 Glebe Point Rd Glebe sold for $1,650,000 in a successful campaign after 8 days on the market.

Dear Readers,

As the spring property

market kicks off, the Inner

West and many parts of

Sydney are again in boom mode.

Winter saw very little stock hit the

market. Many sellers have held

their campaigns back until spring

to avoid the Federal election, which

was held on July 2.

The intention to hold an early

election was telegraphed as early

as March by the Government. They

then announced an abnormally long

campaign period that resulted in a

cliff hanger of a result, inadvertently

expanding the overall election

uncertainty.

Sellers that went to the market

during winter benefited from the

triple whammy of a May interest

rate cut, low stock levels and talk of

further interest rate cuts.

The talk of further rate cuts was

justified in August, when the RBA

took the cash rate to 1.5%. Against

predictions and expectations, the

Sydney property market is now up

by 5 to 8% since January 1.

HOW’S THE MARKET?

At a time that central banks are

playing currency wars and creating

asset bubbles as a side effect, it’s

crucial to watch the market rather

than listen to predictions. This boom

may still have more to run over the

next 12 to 18 months.

There were some unusual rate

outcomes from the August rate cut.

The Australian Dollar actually went

up in response to the cut and retail

banks only passed on about half the

cut to consumers. Furthermore, we

saw some buyers being subjected to

increased scrutiny from banks prior

to gaining financial approval.

Retail banks are also becoming

increasingly circumspect towards

apartments in suburbs they deem to

be at risk of over-development.

Rest assured APRA is behind the

retail banks’ renewed caution

towards the property boom.

It is clear the RBA and APRA

want lower interest rates (&

lower AUD) in order to stimulate

the national economy, not

the Sydney housing market.

What is remarkable is how the

Sydney boom persists while many

other capital cities such as Brisbane

and Adelaide flounder.

Given those markets are struggling

to the degree that they are in the

midst of the lowest interest rates

this country has ever seen, shows

how soft the underbelly is there.

The amount of advertising in Sydney

promoting Brisbane apartments

is unprecedented. If Brisbane

apartments were such a good buy,

rest assured, Brisbane investors

would be buying them.

There were some highlight sales

over winter. A two bedroom semi in

Norton St Leichhardt that saw over

60 buyers inspect and enquire in just

3 weeks of marketing. The property

sold for $1,103,000.

A renovated terrace in May St

Lilyfield on 175sqm sold above $1.8

million and 60 Foucart St Rozelle

sold for $1,915,000 as 4 buyers bid

the price above expectations.

Even though the market was pushed

higher by low stock levels and lower

rates, the momentum in the market

looks set to maintain itself into the

spring.

The question many are wondering

now is when will the boom end and

what does the end of the boom look

like? While the boom looks set to roll

on, does it gently fizzle out or will

we witness a bursting bubble? Fairly

confronting questions, but worth

pondering given we are 4 years into

a boom that was created and driven

by record low interest rates.

Best wishes

Peter & the team at Harris Partners

60 Foucart St Rozelle sold within 6 days on the market with more than 60 groups through the property.

404 Darling St, Balmain NSW 2041p: (02) 9818 2133 f: (02) 9810 6432e: info@harrispartners.com.au www.harrispartners.com.au

Does the agent follow up and follow through? If you asked for information, did they get it to you? Were you followed up after the inspection for feedback and a second inspection? Were you informed of similar properties being listed the week after you inspected? Is a senior or listing agent handling your enquiry or was it the office junior that started in real estate last week? Once you mystery shop an agent, what happens from that point can offer all of the information you need to make a listing decision.

Enthusiasm – Was the agent enthusiastic about the property and you as a buyer?

Knowledge – The best agents have thorough knowledge of the property and the local area. If there is a question the agent cannot answer on the spot, the agent chases the answer and responds.

Assertiveness – Look for agents that are pleasant but assertive. When you ask probing questions to test the agents, they confidently and assertively protect their clients. A pleasant pleaser won’t help you when the negotiating gets down to the pointy end of proceedings.

What you don’t want to see when you mystery shop an agent

Personal details disclosed – If you walk into an inspection and leave feeling as though you know the owners life

story, because the agent divulged all, that’s not a good thing. It is a terrible betrayal actually. When you are mystery shopping agents, ask probing questions of the agent to see how they handle them.

If you find out that the owners are selling because ‘the job loss caused financial difficulties that led to stress in the marriage, that saw one of the owners begin an affair which was the cause of the divorce’ then don’t hire the agent.

Short, rude or unavailable – The best sales - people know that the next enquiry could be the best buyer. Conversely, if the agent is abrasive and pre-judges buyers, they are likely to turn buyers off the home.

What other buyers have offered – Some agents will freely disclose the

Continued from page 1 The best way to find the right agent

offers that have been made by other buyers. This breeds instant mistrust in buyers. If offers are disclosed to you, expect yours to be disclosed to others. An agent that freely discloses offers during the campaign is effectively running a ‘Dutch auction’.

The property will be ‘sold to the buyer that offers the best price’ is a simple and assertive response that negates a messy Dutch auction.

There are many elements to selecting the right agent. The most dangerous (and lazy) selection method is to request 3 agents to inspect your home and send a written sales proposal through.

Given $50,000 or $100,000 can be easily made, won or lost by the agent during the campaign, it is worth finding the right agent.

2 John St Glebe sold after 16 days on market. Over 100 enquiries were made during the campaign.

20 Arthur St, Croydon ...........................$ Confidential

68/82 Mary Ann St, Ultimo .........................$690,000

60 Foucart St, Rozelle ................................. $1,915,000

2 John St, Glebe ......................................$ Confidential

14/175 Trafalgar St, Stanmore ..............$ Confidential

12 May St, Lilyfield ..................................$ Confidential

172 Glebe Point Rd, Glebe ..........................$1,650,000

63 Hereford St, Forest Lodge ...............$ Confidential

2/174 Bridge Rd, Glebe ...........................$ Confidential

1 Reuss St, Glebe .........................................$ 1,030,000

7/12 West St Croydon ......................................$535,000

1/1 Hordern Ave Petersham ..........................$765,000

Harris Partners Recent Sales

Investors entering the property market need to protect themselves against overzealous rental quotes.

Often the agent spruiking the proposed rental return is a sales agent and not a property manager.

To protect yourself against an unwanted and unexpected shortfall in the income on your new investment, disregard a selling agent’s rental assessment.

That’s not to say that every agent will inflate the rental estimate to make a sale. The reality is that there is an incentive to do so, though.

To get a true read on the market, have an experienced independent local property manager assess the property’s respective rental value, before you buy it.

Property investors often make purchasing decisions and value assessments on the return a property produces. This is particularly relevant in the commercial property market and a common theme in the residential market.

Any time a real estate agent can inflate the good news in order to make a sale, there is a risk for the consumer on the receiving end of that promise.

In the commercial property market, the lease arrangement has a huge bearing on the likely sale price of the property.

A vacant property will often sell for 10% less than fair value. A leased property to a quality tenant on a secure fixed tenancy with lease extensions will sell for 10% or more above fair market value.

Commercial tenants are much harder to secure than residential tenants. The upside being that commercial tenants tend to stay a lot longer than residential tenants.

The impact of the rental return on the asset’s value is not as extreme with residential property, but it is still a component of the value offering.

Given finding a return on cash is so difficult in the modern world, many investors will and are taking cash out of the bank to invest in property. Investors are likely to play a crucial role in supporting the market against a severe price drop as the market eventually cools in the years ahead.

The most common trick used to dupe investors in the market is developers offering fixed guaranteed rental returns. Investors are reassured about the merits of the apartment in the high rise due to the developer’s promises to lease it back for 2 years, at a very generous price.

The apparent security of a high rental return compels the investor to pay a purchase price relative to the inflated rental income.

Two years after completion of the apartment block, all the rental guarantees expire, leaving the investors exposed to the open market.

Unsurprisingly, the open market is significantly lower than where the developer’s price guarantee was set at.

While this happens in the world of off plan apartment sales, investors looking to buy in the open property market also fall victim to rental over quotes. It is common for properties to lease for $100 to $150 per week, less than what the sales agent told the buyer.

The loss goes beyond the weekly shortfall though. If you buy a property believing that it will lease for $800 p/w and its true value, unbeknown to you, is $650 p/w, it takes time for you to discover the disconnect.

The property will undoubtedly sit vacant for whatever period you leave it priced at $800 p/w. This vacancy period can quickly run into thousands of dollars in lost rent if you wait a month or two looking for that $800 p/w tenant.

At a time that feels as though everyone is making pots of money from property, it pays to remain clear headed and prudent.

HOW MUCH WILL IT LEASE FOR?

If a selling agent provides you with a rental appraisal when you are buying, ask who will fund the shortfall if the agent has over quoted the rental return.