March 7, 2024 • 25 mins
In this edition of Current Market Insights, we expose the murky tactics many agents are using to manipulate and control vendors in the market. We also explore the current market conditions, and discuss the risks, or perhaps benefits of the use of A.I in real estate.
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Speaker 1 (00:00):
All down, all silent, going, going, going.
Go on, stop the black noise.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another episode of Current
Market Insights.
I'm your host, kiran O'Brien,and with me again this week is
Mr Peter O'Malley.
Peter, welcome, great to seeyou, kiran, good to see you,
peter.
I wanted to kick off ourepisode today talking about an
article I read in your latestnewsletter.
In fact, you talk about agents'tricks, traps and tactics used
(00:51):
to increase a vendor'smotivation.
I just thought it might be agood opportunity to break down
what those tricks are, whatthose traps are, and hopefully
educate our listeners on howthey can avoid that for
themselves.
Speaker 1 (01:02):
Indeed.
Well, the one thing that a realestate agent doesn't want on
their books, Kiran, is anunmotivated vendor.
Now, gone are the days whereagents will use tactics such as
mortgagee, sale in possession,deceased estate must sell,
bought elsewhere.
Agents won't use those crasslines in most instances now
where they have in the past.
But yes, agents understandablydon't want to work on a listing
(01:26):
for 90 days and not get paid atthe end of it, and the real
estate industry is commissiondriven, so we must understand
the structure that an agentworks under.
But when an agent has a meansof winning the business over
prices, the listing to use thatas a winning tactic to bring the
listing on board with his orher agency, they need mechanisms
(01:49):
then to work the price backdown to market price, and that's
what we're referring to in thisarticle.
Speaker 3 (01:55):
Okay.
So, to simplify, you'resuggesting that, in order to win
a listing with a seller, anagency is coming in and saying
look, we can get you this price,which they probably deem
unrealistic, and then theyemploy these tactics to try and
just chip it away until they getto a point where they can
actually close out.
That's right In the industryit's called buying the listing.
Buying the listing Okay.
So what are some of the commontricks used by some of these
(02:18):
agents who I'm going to go outand say this seems like a pretty
unethical kind of process toengage in for these agencies?
Speaker 1 (02:25):
Look, it's pretty unfortunate.
It's a horrible customerexperience from the vendor's
perspective.
Some of them are more subtlethan others.
So by making prospectivevendors aware of some of the
tactics that go on out there, ithelps people protect themselves
.
And the thing about some ofthese tactics that we're going
to talk about today you don'tactually realise it until the
(02:46):
end of the campaign that you'vebeen played.
The first one there is prettyobvious, and you can see it
coming when you know what thetactic is, and that's the low
ball pre-oction offer.
So you might be going to auctionwith a reserve price of $2
million.
The agent told you that youcould expect at least $2 million
, if not $2.2 or $2.3 for thishome because of the buys that
(03:06):
we've got in our books at themoment.
And then the week or two beforeauction, you're faced with a
written offer of $1.8 million.
It's like, hang on.
How did we end up here whereyou said that I'm sort of nearly
certain of achieving two?
You were hopeful of $2.223 andnow you're serving us up with an
offer of $1.8.
And what that's designed to dois soften the vendor up so that
(03:29):
on auction day, if the pricegets close to $2, you're looking
at the bidding being close to$2 relative to the $1.8 million
offer that you received a fewdays ago.
You're not looking at the offer.
That's just shy of $2 relativeto the agent's suggestion that
on a good day they could get youpossibly $2.3.
Speaker 3 (03:49):
So is there any way for a vendor to differentiate
between a local pre-oction offeras a tactic and a buyer who's
just trying to be opportunisticand put forward an offer on a
property they know is probablyworth more?
Speaker 1 (04:02):
It's all in context.
There's not one right answerthere.
I think you're in the hands ofyour agent from that point,
because the agent, by and large,is controlling the information
that you receive.
So there needs to be some heavyquestioning of the agent.
Okay, you've brought me theoffer of $1.8 million.
You're hiding behind compliancethat you must pass all offers
(04:22):
onto us, but you've suggested bythe same token that you think
we're a chance of $2.2 million.
Why are you now bringing anoffer of $1.8 million to us
before the auction, and what isyour advice on what we should do
now?
Speaker 3 (04:36):
Yeah, okay.
So put it back on the agent tojustify their position.
And if they've got the legs tostand on, then they should be
able to say well, you know,we're just doing compliance.
We suggest you don't accept theoffer.
Or if they try and say, well,you know, this isn't a bad offer
in the context of the campaign,Perhaps that's a sign that
something is going on.
Speaker 1 (04:53):
If your agent overpromises to win your listing
and you allow them to win yourlisting on that basis.
It will unravel in a normal ora falling market at some stage
during the campaign.
In rapidly rising markets,agents can afford to overprice
and the strength of the marketconditions will compensate them
(05:13):
the agents that is for theiroverquote.
But not in a stable market oreven a falling market.
The gap between the promise andthe reality is widened and
continues to widen throughoutthe campaign.
Speaker 3 (05:28):
Yeah, certainly, certainly everyone to keep your
eyes out, for You've got anothertrick here is or trap
potentially is moving thetenants out.
Explain to me how that can beconsidered a trap, when I would
have thought you know, sellingyour house, you might want it
vacant so it looks moreappealing to a potential buyer.
Speaker 1 (05:44):
Sometimes it does look appealing, more appealing,
vacant, and sometimes it doesn't.
What we need to ask ourselvesis if we leave the tenant in for
the campaign and we sold theproperty tonight that was
teneted for the entire campaignand the owner enjoyed rent for
the entire sales campaign,didn't have to hire furniture
for the sales campaign and willnow enjoy rent for all of the
(06:05):
settlement period.
So it's really easy to say ifwe move the tenant out we'll
have an improved presentation ofthe property, and sometimes
that is the case, but it's by nomeans always the case, as some
agents would have their clientsbelieve.
And what you've got to keep inmind when you move the tenants
out there might be two weeks ofprep before you get to market.
(06:25):
The hoped for four-week auctioncampaign might turn into a more
drawn-out process, whether thecampaign takes eight weeks and
then the buyer who eventuallybuys your property might say I'm
happy to buy it at the priceyou want, but I'm going to need
12 weeks to settle the salebecause I'm waiting on another
sale to come through for me.
So suddenly you've got an emptyinvestment property for
(06:48):
somewhere to the tune of 20weeks.
And if you times the weeklyrent by 20 weeks, is it still a
good idea to move the tenant out?
What you've also got to keep inmind that I've seen this many
times is if you spend $8,000 onan advertising campaign, or
$10,000 on an advertisingcampaign, you move the tenants
out, so you're forfeitpotentially somewhere between 10
(07:10):
and 20 weeks rent, and then yougo and spend $6,000 or $7,000
staging the property.
You're in the hole to the tuneof $30,000 before you've even
had your first open house.
Speaker 3 (07:22):
Yeah, unbelievable.
And I think even $30,000 ispretty conservative estimate.
When you think about the rentthat's happening at the moment,
you know we could be talking$1,000 a week, in some cases by
20 weeks.
That's a lot of money thatthey're missing out on for sure.
Speaker 1 (07:35):
Yeah.
So we're not saying here inthis article never move the
tenants out.
We're just saying be wary ofanyone whose advice is purely
about move the tenants out atall costs and not try and make
it work with them.
Sometimes it can work,sometimes it can't.
We prefer to offer sittingtenants a rent reduction in
return for an appropriatepresentation of the subject
(07:57):
property.
There are instances where Ihave gone to the prospective
vendor and said look, in thiscase this particular tenancy
devalues your property and youshould not be expected to sell
it under those conditions.
Therefore, I'm advising you tomove them on.
But there's many other timeswhere we've achieved full market
price and better by workingwith the tenants and all its
cost.
The landlord is a 10% rentreduction rather than 100% rent
(08:20):
reduction.
Speaker 3 (08:21):
Yeah, look, really, really great advice, and you
touched on one of the othertopics so we won't address it,
but that's having to hirefurniture which in many cases,
as you say, you don't need to.
One of the other ones you talkabout is a deadline.
Now that's I mean assumingrelated to an auction campaign.
Primarily it's a tactic we knowagencies do use to sort of say
to the vendor well, look, it'sall going to wrap up in this
(08:42):
very short window.
Can you expand a little bit onwhat the real risk is to the
vendor in that scenario?
Speaker 1 (08:47):
Well, as the auction date gets closer, if there's
insufficient number of biddersin the subject property, it's
very hard to have an auctionwith one buyer.
So if there's an insufficientbidding a week or two out from
the auction, the agentsnaturally going to come to their
client and say look, we've hada guide on your home of 1.8
million but nobody's engaging init.
(09:07):
So we feel like you need toadjust the price to attract more
bidders to the auction.
That's how the auction systemworks.
It relies on multiple bidderstrying to buy the one property
at the one point in time.
This has further convolutedthis particular issue, kiran,
because some agents underquoteby 5% below the reserve price.
Other firms will underquote by10% below the anticipated
(09:30):
reserve price or market priceand others now are quoting as
much as 20, 25% below thevendor's reserve price.
And we've heard an instancerecently where the vendor wanted
just over $3 million for hishome and he had an auction guide
at the agents advice of $2.35million.
Speaker 3 (09:49):
Oh, that's unbelievable.
That's, you know, by allaccounts, well and truly illegal
, right.
Speaker 1 (09:55):
Completely if the authorities knew how to catch
them.
Speaker 2 (09:58):
Yeah right, which which they don't.
Speaker 1 (10:00):
But the point being is that the closer you get to
the deadline, if the agentdoesn't have sufficient interest
, they're gonna put pressure onthe, on the vendor, to reduce
the price guide in order toattract more people to it, and
the lower the price is, theharder it is to bring it back up
.
We've seen many properties thathave been undersold because the
(10:21):
hoped for buyer competitiondoesn't build and Then suddenly,
if you start low and you finishlow, it's very hard after the
auction to get the price back upto where it should be.
Speaker 3 (10:33):
Yeah, we certainly can't forget that vendors are
selling one property in themarket at any one time, most
likely whereas buyers have theopportunity to sit back, watch
this chaotic campaign unfold andthen.
Disagrease take advantage or gosomewhere else I mean, they
don't have to engage, right.
And it seems like a really goodopportunity in in that instance
where those agents that are alittle Less scrupulous,
(10:55):
potentially, can then come inwith that low ball pre-oction
offer and say, well, look onthis deadline, here's our,
here's what the market's sayingto you and it's not where you
want to be.
So really you should just takethis and move on.
As we sort of move to the endof the article.
You talk about upselling in theadvertising space and you gave
an example a minute ago of avendor potentially spending you
know, eight to ten thousand on acampaign.
Tell me what, what's the upsellin in advertising that some of
(11:20):
the agencies are engaging in andhow that can be a problem for a
seller.
Speaker 1 (11:23):
Well, it's all paid for up front by the vendor.
So it's great for the agent tohave this elaborate list of
recommendations for what aneffective Marketing campaign
looks like here and.
But at the end of the day, it'sthe vendors money where the
agent's mouth is, because theagent is is coming up with all
the ideas that there are, allthe expensive ideas that are
paid for by the vendor.
(11:44):
Now, if the property has beenpriced correctly in the market,
conditions are good a sale or,more often than not, follow from
that point on.
But, as we've been discussingfor the last few weeks, the
auction clearance rate is 55%across Sydney, consistently at
the moment, including the lastweek.
That's a 45% failure rate.
(12:04):
When you're talking about 1300properties going to auction, of
45% of failing to sell on theday as anticipated, you're
talking about, you know,millions of dollars being torn
up in advertising campaignsright there and then.
But agents love to see Vendorsspend a lot of money up front,
whether it's forfeiting incomeby letting the tenants go,
(12:26):
spending money on Styledfurniture or overspending on the
advertising campaign in thename of.
We've got to get it out there.
We've got to give the propertya strong profile, because the
more the vendor is invested inthe outcome of the sales
campaign, the more likely it isthey'll meet the market on the
day.
Speaker 3 (12:43):
One of the industry's favorite phrases you make a
suggestion that if Agent reallybelieves in the sale and they
believe in the property andeverything around it, they'll
put their own money where theirmouth is.
They won't ask for all thisupfront marketing.
I really feel like that's thekey here, that if they are
willing to back themselves as anagent to begin with, they're
not going to overpriced to getthe listing, they're not going
(13:04):
to underquote to get theattention, they're going to
price it right, they're going tomarket it properly and they're
going to sell it for the pricethey, they promise the vendor or
close enough to, without any ofthe hassle.
Does that sound fair?
Speaker 1 (13:15):
It does.
There's others that would arguedifferently to that, which we
can go into another time, butwhat happens is that when a
vendor and a real estate agentare agreeing to do business,
they're all friendly, it's ahigh point, an emotional high
point.
They're wishing each other welland and it's and no one's
contemplating the campaign notfailing.
Speaker 3 (13:36):
Yeah, of course.
Speaker 1 (13:37):
But as we've just said that, we'll repeat it again
, 45% of auctions are failingweek in, week out in Sydney at
the moment.
So there's only a slightlybetter than one in two chance
that you'll sell under thehammer in Sydney at the moment.
Speaker 3 (13:52):
Yeah, well, as we've expanded on before, not even all
of those are under the hammerand quite often, you know,
vendors are meeting the marketto get the sale done.
That's right Now, really goodarticle, Peter, and I encourage
everyone to have a bit of a lookif they are interested.
I want to move the conversationalong and do our market rap to
become a bit of a staple here onthe podcast where we have a
look at what is the clearancerate, what's happening across
(14:13):
Sydney.
So, Peter, if you can take usthrough the numbers from our
favourites, Hopefully we can seesome trends continuing to
evolve.
Speaker 1 (14:20):
Yeah, well, look, one of the trends that we've been
seeing all year is heavy auctionvolumes, heavy listing volumes
happening across the Sydneymarket here and so on Saturday
just gone there was 1392scheduled auctions.
For the same week last yearthere was 914 auctions.
So that's a 50% uplift in thenumber of properties going to
(14:44):
auction last weekend comparedwith the same weekend in 2023.
About 1,259 properties aregoing for auction this weekend.
So again, in comparison to lastyear, they're heavy volumes.
So the auction clearance rateafter all auction campaigns have
been calculated by SQM Research, was 55.6% for the week Last
(15:11):
week, on 1,413 auctions, it was55.1%.
So Louis Christopher will tellyou that if the auction
clearance rate is stubbornlyperforming above 50%, it
represents a stable market.
If it's sort of aggressivelyabove 65%, it's probably a
(15:31):
rising market, and if it'sstubbornly stuck below 50%, then
it's clearly a falling market.
So this is suggesting, on thatone metric, that we're in a sort
of a stable market at themoment.
So some people are gettingprices they're delighted with.
Some are coming up a bit short,but the majority of people can
transact if they want to, andthat segues with our experience
(15:53):
on the ground.
Speaker 3 (15:54):
Yeah, so that's really interesting.
So 50% uptick is sizable andfor the auction clearance rate
to be holding at 55 might soundlike well to me.
It sounds like it's stablecompared with this time last
year, but really says the samerate on a much higher volume
indicates that there is eithersome desperation, some
opportunism.
There's certainly more listingson the market for whatever the
(16:14):
motivation may be, and there'snot enough buyer demand to meet
it.
Speaker 1 (16:18):
Yeah, well look the clearance rate is actually
stronger at the moment than itwas in 2023.
At the same time, but keepingin mind, even though property
prices rose 11%, house pricesrose 11% in Sydney for 2023, the
first quarter was very weak.
So, yeah, you've touched on areally good point there about
the markets doing really well tocontinue a 56% clearance rate
(16:44):
on such high volumes.
The question that I'm lookingto see answered over the next
month is can that 56, 60%clearance rate be sustained on
such heavy volumes.
Speaker 3 (16:58):
So typically we've talked about seasons in the past
and we often talk about how, aswe head towards the middle of
the year, it does slow down alittle bit.
I want to touch on one of ourregular listeners contacted me
and had a question about what'sgoing to happen over the next
month or so, and their interestwas around listing numbers in
particular and whether or notthe prices would sort of hold,
(17:20):
go up or go down.
Now, given we're coming towardsa traditionally quieter period
in real estate.
What do you think is going tohappen in the next, say, four to
six weeks in terms of that veryhigh listing volume and that
relatively stable clearance rate?
Do you think that that islikely to hold or do you think
the jury's still a little bitout on where it's going to go?
Speaker 1 (17:40):
There's still enough time to squeeze a campaign in
before Easter Kieran.
So Easter Saturday, I thinkfalls on, is March 30 or 31?
Speaker 3 (17:51):
30th?
I think yeah 30th of March.
Speaker 1 (17:53):
So I don't think anyone will be running an
auction campaign on the 30th ofMarch.
But in the markets that weservice we've seen a lot of
stock come to market and we'vegot a lot of listings in the
bank coming through ourselves.
So I think in the next fourweeks we'll continue to see
abnormally high seasonal listingvolumes coming through, as just
discussed.
It'll be interesting to see onthese higher volumes whether
(18:16):
clearance rates can hold.
Any seller that is planning forsome time to sell would have
been wise to do their very bestto avoid April.
So April starts with the tailend of the Easter weekend, then
there's a clean weekend, if youlike, and then we go into two
weeks school holidays with AnzacDay at the back end, and then
(18:36):
as you come through the back endof April the weather is
starting to turn in a bit of achill in the air as we ready for
winter through May and intoJune.
So I think part of the highlisting volumes is A people were
squeezed by the November raterise on the one hand and then on
the right On the other handthey were.
They're looking at where thecalendar falls with Easter and
(18:58):
the school holidays are lookingto get sorted in mid-February to
late March, being Easter.
Speaker 3 (19:04):
So do you think it would be fair to say that, given
there's no interest rate risessince November and it's looking
relatively safe that we may notsee another one?
Do you think that any potentialvendors at the moment are just
keeping an eye on these listingvolumes and the clearance rate
and just waiting for anopportunity to capitalise, if it
suits their plan, theirmovements, their future activity
(19:26):
?
Speaker 1 (19:28):
No, we saw some GDP numbers for the Australian
economy today, which showed thatit only grew by 0.2% in the
December quarter, and DeloitteAccess Economics had a great
quote that they put out in theirstatement commenting on this
today.
They said Australia's not inrecessions, but many Australians
are, and we're increasinglyseeing people who are saying
(19:51):
holding this subject propertyand paying this amount of
interest on it, even though therent's gone up, it still goes
nowhere near to compensating usfor the way interest rates have
gone.
Just sell it.
I've had lots of thoseconversations consistently over
the last six months and expectthem to continue doing so.
We just cannot underestimatethe impact on people's finances
(20:14):
where interest rates have movedfrom 2% to 6%.
When you look at what's goingon in the US, the markets are
moving back, the anticipatedrate cuts there, so I think
listing volumes will probably behigher throughout the year, not
just in the next four weeks, aspeople's finances are further
stress tested by these elevatedinterest rates.
Speaker 3 (20:38):
I think that's really fair and it certainly ties in
with everything you've talkedabout this year, where one of
the first things that stressedowners are doing is pairing down
on the car, the holiday, theinvestment property.
I certainly know myself thatour mortgage is so much harder
to service now than it was twoyears ago, and it's one of those
things where we can continuefor a while.
But how long can we stay atthis level without a significant
(21:00):
uptick in income or decreasingcosts?
Really really great market wrap, peter, and hopefully to our
listeners out there, containsthe information you are after to
help guide your own decisionsas we move towards the end
tonight.
I really wanted to touch onsomething in the news which, I
have to admit, I found a littlebit amusing, but really is a bit
of a sad story.
Real estate agent down inVictoria trying to use AI to
(21:23):
enhance her activities orcapability at work got herself
in a bit of a sticky situation.
Can you shed a bit of light onthat for us?
Speaker 1 (21:30):
Yeah, well, it was the lead story.
Why this is a lead story?
I don't know why it's theheading reads they are so lazy.
Real estate agent blasted forunbelievable mistake.
And her mistake was she made acolossal error trying to use AI
and she gave AI the instructions.
Please help me rewrite herrental advertisements.
(21:52):
And they put a picture of theyoung lady there on basically
the front page of Australia'spremier news website and said a
real estate agent has beenslammed for an embarrassing
blunder in a listing for a $900a week rental in Victoria.
Ai is going to become a part ofour system.
This young lady was probablytold by her boss to start
(22:13):
working with AI and work outwhat it's all about and how it
can improve the business, andinstead she's become a
newsworthy article for making amistake at work I think we've
all made mistakes at work here.
Speaker 3 (22:25):
In the past, peter and I'm pretty sure I've done
plenty myself in real estate,that's for sure.
Speaker 1 (22:30):
I just found it really, really unfair.
You know, like we, you know onour podcast, here we there's
certain practices that agentsadopt that we don't agree with.
But you know, making some,making some young lady who's
just doing her job and making anhonest mistake and making it
newsworthy, and you know, usingwords such as slammed,
(22:50):
embarrassing blunder, uh,blasted for unbelievable mistake
.
You think she'd committed somecrime out there.
Speaker 3 (22:57):
Yeah, it actually.
It really bothers me, I'll behonest, that an article like
this gets the front page ofnewscom and people online are
berating her.
You know social media channelswhere she's being attacked.
Yet at the end of the day, thisis just an honest
administrative error, not somekind of underquote or something
that's illegal in real estate,and those people don't get
(23:18):
slammed.
But this poor young girl isprobably now getting, you know,
potentially abused online andshe, you know who knows how she
feels that.
Speaker 1 (23:25):
Imagine who's quoting 2.35 million for the house
where the owner wants over three.
If they're named and shamed inthe press, I say fair enough too
, but this yeah it'sunbelievable.
Speaker 3 (23:37):
And look, I'll be honest, I think for myself.
Anyway, I'm at the forefront oftech.
I'm always looking foradvancements in my job here and
in everything I do.
I use AI all the time to helpout.
It's an incredible tool forefficiency.
It's a great way to justimprove on your own experience
and your own skills.
It really is, you know, as faras I see the future, because it
is the collective knowledgethat's the idea.
(23:59):
Ai is bringing togethereveryone's experience,
everyone's insight, everyone'syou know own take on a situation
and the ability to utilize thatin business is an incredible
tool, and I say power to her.
That's right.
Speaker 1 (24:10):
It'll be mistakes made across the board, not just
in the real estate industry.
As we know, ai is is coming.
There's no doubt it's here.
It's going to change the way weall, we all operate.
But yeah, I just don't thinkthat a real estate agent and a
young lady needed to be treatedlike that way in the press.
Speaker 3 (24:29):
No, I certainly agree , and I must have been a find it
very cute that she she askedthe bot to please help her
rewrite this as opposed to justgiving instructions.
She's probably got a good soul.
Speaker 1 (24:39):
Indeed.
Speaker 3 (24:39):
All righty.
Well, look, thank you, peter,for today's episode.
It's been a really good recapon a whole bunch of things that
are happening across the market.
If anyone listening does have aquestion, we always encourage
you to reach out and ask us sothat we can address it here on
the podcast.
But otherwise, peter, thanks somuch for your time.
Yeah, thank you to Karen, andthank you to everyone for
listening to current marketinsights.
We look forward to talking toyou next time.
Speaker 2 (25:00):
Thanks for joining us on the current market insights
podcast brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
All down, all silent, going, going, going.
Go on, stop the black noise.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another episode of Current
Market Insights.
I'm your host, kiran O'Brien,and with me again this week is
Mr Peter O'Malley.
Peter, welcome, great to seeyou, kiran, good to see you,
peter.
I wanted to kick off ourepisode today talking about an
article I read in your latestnewsletter.
In fact, you talk about agents'tricks, traps and tactics used
(00:51):
to increase a vendor'smotivation.
I just thought it might be agood opportunity to break down
what those tricks are, whatthose traps are, and hopefully
educate our listeners on howthey can avoid that for
themselves.
Speaker 1 (01:02):
Indeed.
Well, the one thing that a realestate agent doesn't want on
their books, Kiran, is anunmotivated vendor.
Now, gone are the days whereagents will use tactics such as
mortgagee, sale in possession,deceased estate must sell,
bought elsewhere.
Agents won't use those crasslines in most instances now
where they have in the past.
But yes, agents understandablydon't want to work on a listing
(01:26):
for 90 days and not get paid atthe end of it, and the real
estate industry is commissiondriven, so we must understand
the structure that an agentworks under.
But when an agent has a meansof winning the business over
prices, the listing to use thatas a winning tactic to bring the
listing on board with his orher agency, they need mechanisms
(01:49):
then to work the price backdown to market price, and that's
what we're referring to in thisarticle.
Speaker 3 (01:55):
Okay.
So, to simplify, you'resuggesting that, in order to win
a listing with a seller, anagency is coming in and saying
look, we can get you this price,which they probably deem
unrealistic, and then theyemploy these tactics to try and
just chip it away until they getto a point where they can
actually close out.
That's right In the industryit's called buying the listing.
Buying the listing Okay.
So what are some of the commontricks used by some of these
(02:18):
agents who I'm going to go outand say this seems like a pretty
unethical kind of process toengage in for these agencies?
Speaker 1 (02:25):
Look, it's pretty unfortunate.
It's a horrible customerexperience from the vendor's
perspective.
Some of them are more subtlethan others.
So by making prospectivevendors aware of some of the
tactics that go on out there, ithelps people protect themselves
.
And the thing about some ofthese tactics that we're going
to talk about today you don'tactually realise it until the
(02:46):
end of the campaign that you'vebeen played.
The first one there is prettyobvious, and you can see it
coming when you know what thetactic is, and that's the low
ball pre-oction offer.
So you might be going to auctionwith a reserve price of $2
million.
The agent told you that youcould expect at least $2 million
, if not $2.2 or $2.3 for thishome because of the buys that
(03:06):
we've got in our books at themoment.
And then the week or two beforeauction, you're faced with a
written offer of $1.8 million.
It's like, hang on.
How did we end up here whereyou said that I'm sort of nearly
certain of achieving two?
You were hopeful of $2.223 andnow you're serving us up with an
offer of $1.8.
And what that's designed to dois soften the vendor up so that
(03:29):
on auction day, if the pricegets close to $2, you're looking
at the bidding being close to$2 relative to the $1.8 million
offer that you received a fewdays ago.
You're not looking at the offer.
That's just shy of $2 relativeto the agent's suggestion that
on a good day they could get youpossibly $2.3.
Speaker 3 (03:49):
So is there any way for a vendor to differentiate
between a local pre-oction offeras a tactic and a buyer who's
just trying to be opportunisticand put forward an offer on a
property they know is probablyworth more?
Speaker 1 (04:02):
It's all in context.
There's not one right answerthere.
I think you're in the hands ofyour agent from that point,
because the agent, by and large,is controlling the information
that you receive.
So there needs to be some heavyquestioning of the agent.
Okay, you've brought me theoffer of $1.8 million.
You're hiding behind compliancethat you must pass all offers
(04:22):
onto us, but you've suggested bythe same token that you think
we're a chance of $2.2 million.
Why are you now bringing anoffer of $1.8 million to us
before the auction, and what isyour advice on what we should do
now?
Speaker 3 (04:36):
Yeah, okay.
So put it back on the agent tojustify their position.
And if they've got the legs tostand on, then they should be
able to say well, you know,we're just doing compliance.
We suggest you don't accept theoffer.
Or if they try and say, well,you know, this isn't a bad offer
in the context of the campaign,Perhaps that's a sign that
something is going on.
Speaker 1 (04:53):
If your agent overpromises to win your listing
and you allow them to win yourlisting on that basis.
It will unravel in a normal ora falling market at some stage
during the campaign.
In rapidly rising markets,agents can afford to overprice
and the strength of the marketconditions will compensate them
(05:13):
the agents that is for theiroverquote.
But not in a stable market oreven a falling market.
The gap between the promise andthe reality is widened and
continues to widen throughoutthe campaign.
Speaker 3 (05:28):
Yeah, certainly, certainly everyone to keep your
eyes out, for You've got anothertrick here is or trap
potentially is moving thetenants out.
Explain to me how that can beconsidered a trap, when I would
have thought you know, sellingyour house, you might want it
vacant so it looks moreappealing to a potential buyer.
Speaker 1 (05:44):
Sometimes it does look appealing, more appealing,
vacant, and sometimes it doesn't.
What we need to ask ourselvesis if we leave the tenant in for
the campaign and we sold theproperty tonight that was
teneted for the entire campaignand the owner enjoyed rent for
the entire sales campaign,didn't have to hire furniture
for the sales campaign and willnow enjoy rent for all of the
(06:05):
settlement period.
So it's really easy to say ifwe move the tenant out we'll
have an improved presentation ofthe property, and sometimes
that is the case, but it's by nomeans always the case, as some
agents would have their clientsbelieve.
And what you've got to keep inmind when you move the tenants
out there might be two weeks ofprep before you get to market.
(06:25):
The hoped for four-week auctioncampaign might turn into a more
drawn-out process, whether thecampaign takes eight weeks and
then the buyer who eventuallybuys your property might say I'm
happy to buy it at the priceyou want, but I'm going to need
12 weeks to settle the salebecause I'm waiting on another
sale to come through for me.
So suddenly you've got an emptyinvestment property for
(06:48):
somewhere to the tune of 20weeks.
And if you times the weeklyrent by 20 weeks, is it still a
good idea to move the tenant out?
What you've also got to keep inmind that I've seen this many
times is if you spend $8,000 onan advertising campaign, or
$10,000 on an advertisingcampaign, you move the tenants
out, so you're forfeitpotentially somewhere between 10
(07:10):
and 20 weeks rent, and then yougo and spend $6,000 or $7,000
staging the property.
You're in the hole to the tuneof $30,000 before you've even
had your first open house.
Speaker 3 (07:22):
Yeah, unbelievable.
And I think even $30,000 ispretty conservative estimate.
When you think about the rentthat's happening at the moment,
you know we could be talking$1,000 a week, in some cases by
20 weeks.
That's a lot of money thatthey're missing out on for sure.
Speaker 1 (07:35):
Yeah.
So we're not saying here inthis article never move the
tenants out.
We're just saying be wary ofanyone whose advice is purely
about move the tenants out atall costs and not try and make
it work with them.
Sometimes it can work,sometimes it can't.
We prefer to offer sittingtenants a rent reduction in
return for an appropriatepresentation of the subject
(07:57):
property.
There are instances where Ihave gone to the prospective
vendor and said look, in thiscase this particular tenancy
devalues your property and youshould not be expected to sell
it under those conditions.
Therefore, I'm advising you tomove them on.
But there's many other timeswhere we've achieved full market
price and better by workingwith the tenants and all its
cost.
The landlord is a 10% rentreduction rather than 100% rent
(08:20):
reduction.
Speaker 3 (08:21):
Yeah, look, really, really great advice, and you
touched on one of the othertopics so we won't address it,
but that's having to hirefurniture which in many cases,
as you say, you don't need to.
One of the other ones you talkabout is a deadline.
Now that's I mean assumingrelated to an auction campaign.
Primarily it's a tactic we knowagencies do use to sort of say
to the vendor well, look, it'sall going to wrap up in this
(08:42):
very short window.
Can you expand a little bit onwhat the real risk is to the
vendor in that scenario?
Speaker 1 (08:47):
Well, as the auction date gets closer, if there's
insufficient number of biddersin the subject property, it's
very hard to have an auctionwith one buyer.
So if there's an insufficientbidding a week or two out from
the auction, the agentsnaturally going to come to their
client and say look, we've hada guide on your home of 1.8
million but nobody's engaging init.
(09:07):
So we feel like you need toadjust the price to attract more
bidders to the auction.
That's how the auction systemworks.
It relies on multiple bidderstrying to buy the one property
at the one point in time.
This has further convolutedthis particular issue, kiran,
because some agents underquoteby 5% below the reserve price.
Other firms will underquote by10% below the anticipated
(09:30):
reserve price or market priceand others now are quoting as
much as 20, 25% below thevendor's reserve price.
And we've heard an instancerecently where the vendor wanted
just over $3 million for hishome and he had an auction guide
at the agents advice of $2.35million.
Speaker 3 (09:49):
Oh, that's unbelievable.
That's, you know, by allaccounts, well and truly illegal
, right.
Speaker 1 (09:55):
Completely if the authorities knew how to catch
them.
Speaker 2 (09:58):
Yeah right, which which they don't.
Speaker 1 (10:00):
But the point being is that the closer you get to
the deadline, if the agentdoesn't have sufficient interest
, they're gonna put pressure onthe, on the vendor, to reduce
the price guide in order toattract more people to it, and
the lower the price is, theharder it is to bring it back up
.
We've seen many properties thathave been undersold because the
(10:21):
hoped for buyer competitiondoesn't build and Then suddenly,
if you start low and you finishlow, it's very hard after the
auction to get the price back upto where it should be.
Speaker 3 (10:33):
Yeah, we certainly can't forget that vendors are
selling one property in themarket at any one time, most
likely whereas buyers have theopportunity to sit back, watch
this chaotic campaign unfold andthen.
Disagrease take advantage or gosomewhere else I mean, they
don't have to engage, right.
And it seems like a really goodopportunity in in that instance
where those agents that are alittle Less scrupulous,
(10:55):
potentially, can then come inwith that low ball pre-oction
offer and say, well, look onthis deadline, here's our,
here's what the market's sayingto you and it's not where you
want to be.
So really you should just takethis and move on.
As we sort of move to the endof the article.
You talk about upselling in theadvertising space and you gave
an example a minute ago of avendor potentially spending you
know, eight to ten thousand on acampaign.
Tell me what, what's the upsellin in advertising that some of
(11:20):
the agencies are engaging in andhow that can be a problem for a
seller.
Speaker 1 (11:23):
Well, it's all paid for up front by the vendor.
So it's great for the agent tohave this elaborate list of
recommendations for what aneffective Marketing campaign
looks like here and.
But at the end of the day, it'sthe vendors money where the
agent's mouth is, because theagent is is coming up with all
the ideas that there are, allthe expensive ideas that are
paid for by the vendor.
(11:44):
Now, if the property has beenpriced correctly in the market,
conditions are good a sale or,more often than not, follow from
that point on.
But, as we've been discussingfor the last few weeks, the
auction clearance rate is 55%across Sydney, consistently at
the moment, including the lastweek.
That's a 45% failure rate.
(12:04):
When you're talking about 1300properties going to auction, of
45% of failing to sell on theday as anticipated, you're
talking about, you know,millions of dollars being torn
up in advertising campaignsright there and then.
But agents love to see Vendorsspend a lot of money up front,
whether it's forfeiting incomeby letting the tenants go,
(12:26):
spending money on Styledfurniture or overspending on the
advertising campaign in thename of.
We've got to get it out there.
We've got to give the propertya strong profile, because the
more the vendor is invested inthe outcome of the sales
campaign, the more likely it isthey'll meet the market on the
day.
Speaker 3 (12:43):
One of the industry's favorite phrases you make a
suggestion that if Agent reallybelieves in the sale and they
believe in the property andeverything around it, they'll
put their own money where theirmouth is.
They won't ask for all thisupfront marketing.
I really feel like that's thekey here, that if they are
willing to back themselves as anagent to begin with, they're
not going to overpriced to getthe listing, they're not going
(13:04):
to underquote to get theattention, they're going to
price it right, they're going tomarket it properly and they're
going to sell it for the pricethey, they promise the vendor or
close enough to, without any ofthe hassle.
Does that sound fair?
Speaker 1 (13:15):
It does.
There's others that would arguedifferently to that, which we
can go into another time, butwhat happens is that when a
vendor and a real estate agentare agreeing to do business,
they're all friendly, it's ahigh point, an emotional high
point.
They're wishing each other welland and it's and no one's
contemplating the campaign notfailing.
Speaker 3 (13:36):
Yeah, of course.
Speaker 1 (13:37):
But as we've just said that, we'll repeat it again
, 45% of auctions are failingweek in, week out in Sydney at
the moment.
So there's only a slightlybetter than one in two chance
that you'll sell under thehammer in Sydney at the moment.
Speaker 3 (13:52):
Yeah, well, as we've expanded on before, not even all
of those are under the hammerand quite often, you know,
vendors are meeting the marketto get the sale done.
That's right Now, really goodarticle, Peter, and I encourage
everyone to have a bit of a lookif they are interested.
I want to move the conversationalong and do our market rap to
become a bit of a staple here onthe podcast where we have a
look at what is the clearancerate, what's happening across
(14:13):
Sydney.
So, Peter, if you can take usthrough the numbers from our
favourites, Hopefully we can seesome trends continuing to
evolve.
Speaker 1 (14:20):
Yeah, well, look, one of the trends that we've been
seeing all year is heavy auctionvolumes, heavy listing volumes
happening across the Sydneymarket here and so on Saturday
just gone there was 1392scheduled auctions.
For the same week last yearthere was 914 auctions.
So that's a 50% uplift in thenumber of properties going to
(14:44):
auction last weekend comparedwith the same weekend in 2023.
About 1,259 properties aregoing for auction this weekend.
So again, in comparison to lastyear, they're heavy volumes.
So the auction clearance rateafter all auction campaigns have
been calculated by SQM Research, was 55.6% for the week Last
(15:11):
week, on 1,413 auctions, it was55.1%.
So Louis Christopher will tellyou that if the auction
clearance rate is stubbornlyperforming above 50%, it
represents a stable market.
If it's sort of aggressivelyabove 65%, it's probably a
(15:31):
rising market, and if it'sstubbornly stuck below 50%, then
it's clearly a falling market.
So this is suggesting, on thatone metric, that we're in a sort
of a stable market at themoment.
So some people are gettingprices they're delighted with.
Some are coming up a bit short,but the majority of people can
transact if they want to, andthat segues with our experience
(15:53):
on the ground.
Speaker 3 (15:54):
Yeah, so that's really interesting.
So 50% uptick is sizable andfor the auction clearance rate
to be holding at 55 might soundlike well to me.
It sounds like it's stablecompared with this time last
year, but really says the samerate on a much higher volume
indicates that there is eithersome desperation, some
opportunism.
There's certainly more listingson the market for whatever the
(16:14):
motivation may be, and there'snot enough buyer demand to meet
it.
Speaker 1 (16:18):
Yeah, well look the clearance rate is actually
stronger at the moment than itwas in 2023.
At the same time, but keepingin mind, even though property
prices rose 11%, house pricesrose 11% in Sydney for 2023, the
first quarter was very weak.
So, yeah, you've touched on areally good point there about
the markets doing really well tocontinue a 56% clearance rate
(16:44):
on such high volumes.
The question that I'm lookingto see answered over the next
month is can that 56, 60%clearance rate be sustained on
such heavy volumes.
Speaker 3 (16:58):
So typically we've talked about seasons in the past
and we often talk about how, aswe head towards the middle of
the year, it does slow down alittle bit.
I want to touch on one of ourregular listeners contacted me
and had a question about what'sgoing to happen over the next
month or so, and their interestwas around listing numbers in
particular and whether or notthe prices would sort of hold,
(17:20):
go up or go down.
Now, given we're coming towardsa traditionally quieter period
in real estate.
What do you think is going tohappen in the next, say, four to
six weeks in terms of that veryhigh listing volume and that
relatively stable clearance rate?
Do you think that that islikely to hold or do you think
the jury's still a little bitout on where it's going to go?
Speaker 1 (17:40):
There's still enough time to squeeze a campaign in
before Easter Kieran.
So Easter Saturday, I thinkfalls on, is March 30 or 31?
Speaker 3 (17:51):
30th?
I think yeah 30th of March.
Speaker 1 (17:53):
So I don't think anyone will be running an
auction campaign on the 30th ofMarch.
But in the markets that weservice we've seen a lot of
stock come to market and we'vegot a lot of listings in the
bank coming through ourselves.
So I think in the next fourweeks we'll continue to see
abnormally high seasonal listingvolumes coming through, as just
discussed.
It'll be interesting to see onthese higher volumes whether
(18:16):
clearance rates can hold.
Any seller that is planning forsome time to sell would have
been wise to do their very bestto avoid April.
So April starts with the tailend of the Easter weekend, then
there's a clean weekend, if youlike, and then we go into two
weeks school holidays with AnzacDay at the back end, and then
(18:36):
as you come through the back endof April the weather is
starting to turn in a bit of achill in the air as we ready for
winter through May and intoJune.
So I think part of the highlisting volumes is A people were
squeezed by the November raterise on the one hand and then on
the right On the other handthey were.
They're looking at where thecalendar falls with Easter and
(18:58):
the school holidays are lookingto get sorted in mid-February to
late March, being Easter.
Speaker 3 (19:04):
So do you think it would be fair to say that, given
there's no interest rate risessince November and it's looking
relatively safe that we may notsee another one?
Do you think that any potentialvendors at the moment are just
keeping an eye on these listingvolumes and the clearance rate
and just waiting for anopportunity to capitalise, if it
suits their plan, theirmovements, their future activity
(19:26):
?
Speaker 1 (19:28):
No, we saw some GDP numbers for the Australian
economy today, which showed thatit only grew by 0.2% in the
December quarter, and DeloitteAccess Economics had a great
quote that they put out in theirstatement commenting on this
today.
They said Australia's not inrecessions, but many Australians
are, and we're increasinglyseeing people who are saying
(19:51):
holding this subject propertyand paying this amount of
interest on it, even though therent's gone up, it still goes
nowhere near to compensating usfor the way interest rates have
gone.
Just sell it.
I've had lots of thoseconversations consistently over
the last six months and expectthem to continue doing so.
We just cannot underestimatethe impact on people's finances
(20:14):
where interest rates have movedfrom 2% to 6%.
When you look at what's goingon in the US, the markets are
moving back, the anticipatedrate cuts there, so I think
listing volumes will probably behigher throughout the year, not
just in the next four weeks, aspeople's finances are further
stress tested by these elevatedinterest rates.
Speaker 3 (20:38):
I think that's really fair and it certainly ties in
with everything you've talkedabout this year, where one of
the first things that stressedowners are doing is pairing down
on the car, the holiday, theinvestment property.
I certainly know myself thatour mortgage is so much harder
to service now than it was twoyears ago, and it's one of those
things where we can continuefor a while.
But how long can we stay atthis level without a significant
(21:00):
uptick in income or decreasingcosts?
Really really great market wrap, peter, and hopefully to our
listeners out there, containsthe information you are after to
help guide your own decisionsas we move towards the end
tonight.
I really wanted to touch onsomething in the news which, I
have to admit, I found a littlebit amusing, but really is a bit
of a sad story.
Real estate agent down inVictoria trying to use AI to
(21:23):
enhance her activities orcapability at work got herself
in a bit of a sticky situation.
Can you shed a bit of light onthat for us?
Speaker 1 (21:30):
Yeah, well, it was the lead story.
Why this is a lead story?
I don't know why it's theheading reads they are so lazy.
Real estate agent blasted forunbelievable mistake.
And her mistake was she made acolossal error trying to use AI
and she gave AI the instructions.
Please help me rewrite herrental advertisements.
(21:52):
And they put a picture of theyoung lady there on basically
the front page of Australia'spremier news website and said a
real estate agent has beenslammed for an embarrassing
blunder in a listing for a $900a week rental in Victoria.
Ai is going to become a part ofour system.
This young lady was probablytold by her boss to start
(22:13):
working with AI and work outwhat it's all about and how it
can improve the business, andinstead she's become a
newsworthy article for making amistake at work I think we've
all made mistakes at work here.
Speaker 3 (22:25):
In the past, peter and I'm pretty sure I've done
plenty myself in real estate,that's for sure.
Speaker 1 (22:30):
I just found it really, really unfair.
You know, like we, you know onour podcast, here we there's
certain practices that agentsadopt that we don't agree with.
But you know, making some,making some young lady who's
just doing her job and making anhonest mistake and making it
newsworthy, and you know, usingwords such as slammed,
(22:50):
embarrassing blunder, uh,blasted for unbelievable mistake
.
You think she'd committed somecrime out there.
Speaker 3 (22:57):
Yeah, it actually.
It really bothers me, I'll behonest, that an article like
this gets the front page ofnewscom and people online are
berating her.
You know social media channelswhere she's being attacked.
Yet at the end of the day, thisis just an honest
administrative error, not somekind of underquote or something
that's illegal in real estate,and those people don't get
(23:18):
slammed.
But this poor young girl isprobably now getting, you know,
potentially abused online andshe, you know who knows how she
feels that.
Speaker 1 (23:25):
Imagine who's quoting 2.35 million for the house
where the owner wants over three.
If they're named and shamed inthe press, I say fair enough too
, but this yeah it'sunbelievable.
Speaker 3 (23:37):
And look, I'll be honest, I think for myself.
Anyway, I'm at the forefront oftech.
I'm always looking foradvancements in my job here and
in everything I do.
I use AI all the time to helpout.
It's an incredible tool forefficiency.
It's a great way to justimprove on your own experience
and your own skills.
It really is, you know, as faras I see the future, because it
is the collective knowledgethat's the idea.
(23:59):
Ai is bringing togethereveryone's experience,
everyone's insight, everyone'syou know own take on a situation
and the ability to utilize thatin business is an incredible
tool, and I say power to her.
That's right.
Speaker 1 (24:10):
It'll be mistakes made across the board, not just
in the real estate industry.
As we know, ai is is coming.
There's no doubt it's here.
It's going to change the way weall, we all operate.
But yeah, I just don't thinkthat a real estate agent and a
young lady needed to be treatedlike that way in the press.
Speaker 3 (24:29):
No, I certainly agree , and I must have been a find it
very cute that she she askedthe bot to please help her
rewrite this as opposed to justgiving instructions.
She's probably got a good soul.
Speaker 1 (24:39):
Indeed.
Speaker 3 (24:39):
All righty.
Well, look, thank you, peter,for today's episode.
It's been a really good recapon a whole bunch of things that
are happening across the market.
If anyone listening does have aquestion, we always encourage
you to reach out and ask us sothat we can address it here on
the podcast.
But otherwise, peter, thanks somuch for your time.
Yeah, thank you to Karen, andthank you to everyone for
listening to current marketinsights.
We look forward to talking toyou next time.
Speaker 2 (25:00):
Thanks for joining us on the current market insights
podcast brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
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