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ROB’S BLOG – “It’s a number’s game” or is it ?

Friday, April 20th, 2012

At a dinner party I attended recently, the topic of median house prices came up in general conversation….some were delighted with the increase in the “value” of their homes and others were confused why their homes had gone down even though they lived in virtually the same area. So, after a heated debate discussing why the median price was an inaccurate measure of value, the question was asked…. Does anybody know how the median price is calculated ? There was dead silence. Do you know ?

To begin with , the median prices that are released by the REIV & other statutory bodies throughout the year are not what your property is worth or it’s value as most people wrongly believe, it is purely one of a number of measurements used to interpret value. It is a summary of a large amount of data as a solitary figure.

The median price is the middle figure when all the data is lined up from the lowest to the highest price. If the data has an odd number of figures, then the median price is the middle figure when sorted. If the data has an even number of figures, the median price is the average of the two middle numbers. Obviously, the greater the amount of data, the more meaningful this measurement is. So, now that you know what the median price is and know that it is not what your property is worth, why all the hoohaa ?

It’s all about the average !

Confused ? Don’t be. Whilst the average ( mean ) is the easiest measurement to calculate, it is not suitable when the data is skewed. A good example would be when the data contains an abnormal no. of high end of the market sales. This will effect your average but not the median. So when compared with each other, you can identify how far the data is skewed from what it really should be. The same applies if there is insufficent data but this will cause any measurement to be inaccurate. Another useful indicator is the mode which is the most frequently occurring figure contained within the data ( safety in numbers).

In summary, none of these measurements are useful in isolation but when compared over a longer period of time, trends can be identified which support changes in the value of property. So, next time the median or average house prices are announced for the quarter, don’t rub your hands with glee or pull your hair out in frustration, compare the data to the previous year , then it will make some sense. And…. next time the topic of median prices is raised, a good question to ask might be… How does the median price for the last quarter compare with the median price for the previous 3 quarters ? or What is the average median price for the previous 12 months ? Now you’re talking !

FOOTNOTE :

The most relevant data to assess the value property for buyers and sellers alike is comparable sales which will be the topic of my next blog.

Rob Millar – 0414 330 179

Advocate – Domain Property Advocates

Tags: advocacy, auction results, Auto, Buyer Advocate, Draft, house, median house prices, median price, median prices, number, property, property prices, summary, topic, vendor advocate
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LOVE ME TENDER, LOVE ME TRUE – ROB’S BLOG

Tuesday, February 21st, 2012

In the past 12 months, clearance rates at auction have fallen dramatically. Without the prospect of competition and the stigma that follows from a failed auction, many agents are pushing the tender process. WHY ? Unlike an auction which needs competition to be successful, the tender process only requires one buyer and the agent still get’s their appearance money (advertising ).

From a buyer’s perspective, the tender process is like a secret maze, it’s a nightmare. Here’s why….Most people associate tenders with government bodies or business organisations who require specific goods and services. Whilst there are special terms and conditions in all tenders, it is widely accepted that the lowest quote is successful. In regard to real estate, it is not a matter of highest and best as there will always be a notional reserve price. The other difference is that if the reserve price has not been inserted on the authority and with tenders they never are, to comply with statutory guidelines the agent is required to disclose their estimate of the likely selling price and whilst this sounds good, what if the vendor’s expectations are higher or if the agent’s estimate is inaccurate?

So herein lies the problem, there is no transparency. Because the tender is confidential – sealed bids, locked boxes, security measures, closing dates etc other than the agent advising you with their estimate, there is no means of knowing what level of interest the agent has in the property or what the reserve price is unless the agent is willing to help you and why should he / she? It’s supposed to be confidential remember and to expect anything less would destroy the integrity of the tender process. At least with auctions you get to see who you are bidding against, face to face! For these reasons it is not uncommon for the successful tender to be significantly higher than the other bids ( that’s if there are any ) because of the fear of missing out and the mindset of many home buyers – What’s another $100,000 going to matter in 10 year’s time? Heard it before? Imagine how uneasy you would feel if you found out afterwards that you were the only buyer who submitted an offer?

The most disturbing aspect of the tender system is what occurs after the tender process has closed. If the highest bid is not accepted and there are other bidders what happens? Does the agent deal exclusively with the highest bidder, conduct a board room auction, ask all buyers to re-submit their best offers or simply hope that somebody will pay the reserve price? The answer is all of the above…What a nightmare!

The fundamental difference between a tender for commercial purposes and the sale of real estate is that one depends on a commercial outcome and is fairly simplistic whereas, the other is governed by strict statutory guidelines in regards to the agent’s duty of care ( to the consumer ) which are severely compromised by the confidential nature of the tender process. Are you feeling lucky? If not, then get help from the people that do know, Domain.

Rob Millar

Advocate

0414 330 179

Domain Property Advocates

www.domainadvocates.com.au

Tags: advocacy, Agent, Auction, auction results, Buyer Advocate, Domain, estimate, LOVE, property prices, reserve price, vendor advocate
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THE VALUE OF ADVOCACY, WE’LL SAVE YOU PLENTY !!

Wednesday, July 6th, 2011

As is the case in many businesses, occasionally, we are challenged or questioned about the fees we earn. If I could tell you how to save tens of thousands of $$$ and more, would you believe me ? Before I answer this question let me start by giving you an analygy. In most sporting disciplines, the difference between winning and losing can often be put down to the no. of skill errors you make; and it is a fact that there is a direct correlation between the no. of errors you make and the amount of time you spend practising those skills. As they say,” practise makes perfect” and it shows on the scoreboard !

Imagine if Buddy Franklin could kick straight, or if Steve Waugh hadn’t put away the hook shot what would his average have been when he finished. Tiger Woods had a golf stick in his hand at the age of 2 years and Sir Donald Bradman as a child would spend hour after hour hitting a golf ball against a rain tank…. would they have become the legends they now are without the practise they put in ? Whilst ability matters, it is all about the practise and the end result is that it eliminates errors. Buying or selling a house is no different, the less mistakes you make the more money you will save and believe me, the stakes are high.

For many people buying or selling a home only occurs once or twice in their lifetime so, it is almost impossible to develop the skill sets necessary to eliminate the chance of making a mistake/s. And who is going to tell you ? If you are not aware of the mistakes you have made or are about to make, how will you ever know how much money you have squandered ? and given the long term nature of property transactions for long term gain, you will never know as it is buried in a time capsule. It is not like buying shares where the value of the share is monitored daily.

I bet if I asked you for $10,000 for every mistake you made or were about to make your answer would probably be no because you don’t have the experience to identify what those errors are likely to be and herein lies the answer…. The true value or worth of an advocate is their experience and knowledge to eliminate the human errors that people make over and over again and by doing so, saving their clients tens of thousands of $$$ and often more.

To qualify how much money we save our clients is purely subjective because by removing the chance of human error, the saving or cost benefit is not visible like on a scoreboard but here are some good examples of how things can go so terribly wrong :

Do we really need to spend that much in advertising ? How can I be objective when all the agent’s submissions are identical….
I thought the asking price was a bit steep. The agent suggested we meet halfway which I thought was reasonable. Right ? Wrong. The price you paid was the reserve price, not the vendor’s bottom line.
Am I getting the best price in a changing market ? Is the price I am being asked to accept the same price that I was told at the beginning? If not, who do I turn to ?
We knew we should have sold our house before we purchased, now we are being pressured by the banks to sell our house for less than what we were told we could get
Why did we keep on bidding ? Now we have to put off our trip to Europe with the family….There goes my new car too.
We thought buying a beach house was a good idea at the time, now we can’t give it away
I will never ever buy off the plan again

And so it goes on…the list is endless but it does highlight the skill sets you require. Will you be the next victim ? Let’s face it, the stakes are extremely high, in most cases, buying or selling a property will be the most expensive transaction you ever make so why not let Domain help you through the process and give you the peace of mind you deserve.

Rob Millar

Advocate

0414 330 179

Domain Property Advocates

www.domainadvocates.com.au

Tags: advocacy, answer, auction results, Auto, Buyer Advocate, chance, Draft, golf stick, hook shot, mistake, practise, property, property prices, rain tank, scoreboard, sir donald bradman, steve waugh, vendor advocate
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Auctions in Winter and Spring

Wednesday, June 29th, 2011

It is traditionally the case that auction volumes reduce over winter in Melbourne and that is expected to be the case again this year.

Many people prefer to sell in spring–summer: the weather is better, houses and gardens can be more inviting – and auctions are very much a part of Melbourne at that time of the year.

It is interesting to note that while there are fewer auctions, the clearance rate has not often differed substantially between winter and the spring selling season.

In 2010 the clearance rate in winter was 68 per cent compared to 63 per cent in spring-summer. There were 647 auctions per weekend in winter and then 778 auctions per weekend in spring–summer. The winter months last year saw an unseasonably high volume of auctions.

In 2009 the clearance rate in winter was 85 per cent compared to 82 per cent in spring-summer. From a volume perspective, there were 419 auctions per weekend in winter and 679 auctions per weekend in spring–summer.

In 2008 the clearance rate in winter was 63 per cent compared to 59 per cent in spring-summer, with an average of 456 auctions per weekend in winter and 663 auctions per weekend in spring–summer.

Finally, in 2007 the clearance rate in winter was 85 per cent compared to 81 per cent in spring-summer, with an average of 554 auctions per weekend in winter and 790 auctions per weekend in spring–summer.

With this recent history in mind, it is important to remember that your selling real estate agent will be best placed to advise you on the optimum time to sell your home. They will be able to take into account local demand and supply conditions to suit your needs and devise a marketing campaign to maximise the outcome for you.

Tags: advocacy, Auction, auction results, Auto, Buyer Advocate, cent, clearance, clearance rate, Draft, houses and gardens, optimum time, property prices, spring, spring summer, Time, vendor advocate, winter and spring
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Rob’s Blog – Why the Code of Silence and What is “Caveat Emptor”

Thursday, April 22nd, 2010

Why the Code of Silence and What is “Caveat Emptor” ?

Caveat Emptor is a latin term for “buyer beware”. In the consumer age that we now live in, governments at both ends of the political spectrum have rolled out bundles of legislation designed to protect the interests of consumers and buyers alike. Amendments to the Sale of Land Act include the introduction of cooling off periods, disclosure statements, the abolition of “dummy bidding” and an outright war on under quoting.

The end result is “the code of silence” from the selling agent for fear of prosecution and or litigation. In other words, the less said the better and this mindset extends to providing any kind of advice albeit well meaning unless the agent is qualified to do so. What a nightmare ! and to make matters worse for the buyer, the agent’s primary duty of care is to the vendor so don’t expect the agent to highlight defects , faults and any other negative aspects that are not required to be contained in the disclosure statements or check lists provided by the vendor.

For example, if the heating system for the swimming pool doesn’t work and there was no representation written ( advertising ) or otherwise by the vendor or his agent, then it is the responsibility of the buyer to satisfy themselves that what they are buying is what they thought they were buying. Caveat Emptor ? Absolutely ! Whilst one could argue that a reasonable person could assume that by it’s existence the equipment should be in working order, are you going to take legal action once settlement has occurred ? Most unlikely and even then there is no guarantee you will be successful.

Here are some tips on what to look out for :

1. Minor title defects, the obvious being that the existing fences are on the wrong property. Recently, I heard of a property owner being required to remove a brick retaining wall because it was built across the next door neighbour’s boundary line.

2. Ensure that all the fixtures, fittings & equipment are in working order. If in doubt call in an expert.

3. Is the property located in an area known for termite infestation ?

4. Do I need to engage the services of an architect ? Remember it is what you can’t see that could be crucial. Often structural issues will be obvious to the trained eye but what if the property has had a “face lift”, what then ? Don’t accept the standard response that the property is over 100 years old and is not about to fall down !

5. Has your solicitor approved the documentation you have been asked to sign ? Particularly scrutinise the special conditions.

6. It is a good idea to try and find out who your neighbours are, particularly if you are buying a flat – remember the code of silence. Vendors have been known to sell their homes purely because they live next door to “the neighbour from hell” so don’t expect the agent to tell you.

7. Are there any future planning issues that may affect the property which are not contained in the disclosure statement. The best place to start is by contacting the council or somebody you know that lives in the area. Often, planning changes are initiated by vigorous public discussions which are not included in the documentation but could have serious implications if approved at some later date and I am not just talking about what is proposed for the run down house next door but issues such as multi storey re-developments in your neighbourhood where there are currently existing single & double storey homes.

So, you thought buying a property was easy ? This check list is by no means exhaustive but highlights the care you need to take buying real estate. Will you be the next “horror story” ? Probably not, but the stakes are high so why not let Domain Property Advocates help you through the process

Tags: caveat emptor, check, code of silence, cooling off periods, disclosure statements, door, dummy bidding, equipment, property, Vendor
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