May 1, 2024 • 25 mins
In this weeks episode of Current Market Insights we discuss the downside to engaging with non binding offers and how sellers can protect themselves throughout the negotiation that is property sales? What is happening in the rental market as we move closer to the winter cycle, and we catch up on all the latest in our Sydney market wrap.
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Episode Transcript
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Speaker 1 (00:00):
All down, all silent, going, going, going, go on son
Congratulations.
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 edition of Current
Market Insights.
I'm your host, and with me thisweek is my good friend and
co-host, mr Peter O'Malley.
Peter, hello.
Speaker 1 (00:37):
G'day, kieran, great to see you and thanks for having
us along.
Speaker 3 (00:40):
Look.
Always great to have you, Peter.
It's been a couple of weekssince we spoke.
We obviously had Anzac Day inthe middle there, which is an
important time in Australia, butnow that we've come out the
other side, it's all real estateagain and it's all guns blazing
.
So I was hoping we could talktoday about another one of your
articles.
Actually, You've written oneabout the non-binding offer and
(01:06):
I would love for you to explainto our listeners what a
non-binding offer is and thenhopefully we can have a bit of a
chat about what it actuallymeans for a seller and a buyer
through a sales campaign.
Speaker 1 (01:12):
Well, in simple terms , kieran, a non-binding offer is
an offer that you can't take tothe bank because it's not
contractually secure.
So, whether that is a verbaloffer, an email offer, a letter
offer, a contract that can't beexchanged or a contract with a
cooling off period although acontract with a cooling off
period is a little bit morebinding in the sense that the
(01:34):
buyer has a financial incentiveto complete the contract because
they've put down anon-refundable deposit but, by
and large, all of those verbals,emails, letters, contracts that
can't produce a gesture or aletter from a prospective
(02:12):
purchaser and say I've sold myhouse or my apartment because
you simply haven't.
Speaker 3 (02:17):
Okay.
So if we could clear up someterminology, just to make sure
that we're all 100% certain,non-binding is as you say.
You can't take it to a bank andshow it and say I've sold my
house.
Can you please secure againstthis offer?
Does that mean that non-bindingoffers are invalid or maybe not
as important or not as valuable?
Speaker 1 (02:38):
to an owner.
It's up to the vendor and thevendor's agent how they treat a
non-binding offer.
Kieran, I'm shocked at how manyagents will take an email offer
, for example subject to a rangeof terms sometimes and wave it
around in front of their clientsand say I've got you an offer,
I've got you an offer.
What's more painful about thenon-binding offer is that
(02:58):
usually the buyer, who's talkingthe biggest game, may put the
highest price down on an emailsaying tell the owners, I'll pay
$2 million for this $1.8million home.
But if that $2 million offerdoesn't materialise in the form
of a contract, it was never anoffer.
So it's up to every individualto decide what they define as an
(03:20):
offer.
As a real estate agent, I onlyconsider an unconditional signed
contract an offer for thevendor's consideration.
I do, in fairness, acceptoffers from time to time with
cooling off periods, because thebuyers in New South Wales have
to put down a non-refundable0.25% to enable them to enter
(03:41):
into a cooling off period.
So on $2 million, the buyerwould put down a non-refundable
$5,000.
And if they did pull out of thecontract, that $5,000 goes to
the vendor as compensation forthe contract falling apart.
So I think it's fair to saythat an offer with a cooling off
period is somewhat legitimate,but everything else outside of
(04:04):
that is really just a gesture oran expression of interest and
certainly cannot be consideredan offer.
Speaker 3 (04:10):
Okay.
So does that mean if I'm abuyer and I send through an
email offer or I fill out a formon an agency website making an
offer and I get a response fromthe agent that the vendor has
accepted and they do so viaemail, so I've got a paper trail
does that not count in my eyesas a buyer?
Would that not be a bindingoffer for me?
Or would that not be, then,some kind of contractual
(04:31):
agreement that we can?
Speaker 1 (04:33):
proceed to sale?
Absolutely not.
Great question, kieran.
As a purchaser, another buyercan still come along and
exchange contracts with thevendor at or above the price
that you've offered.
Even below the price you'veoffered on more favourable terms
, it's up to the vendor todecide who they sign a contract
with, even if they've accepted anon-binding offer.
(04:53):
Equally, the vendor can't callthe buyer's offer binding and
that buyer can equally go offand make an offer on another
property, have it accepted andsay to the original vendor who
they made an offer on, thanksfor considering our offer.
Thanks for considering ouroffer and accepting it, but
we've moved on and purchasedanother home.
Speaker 3 (05:14):
Okay, so throughout a campaign, what are the things
that typically might cause abuyer to not make a binding
offer in the first place?
Speaker 1 (05:21):
They're making offers subject to a range of
conditions, kieran, what we'reseeing a lot of in the market at
the moment, particularly nowthat the interest rate story is
back on the boil.
They're making offers subjectto finance, subject to valuation
, sometimes it might be subjectto strata reports, subject to
pest and building inspection,subject to their mother, father,
builder, architect having alook, whoever it might be, be a
(05:44):
person of support to thepurchaser.
Sometimes it might be just, youknow, subject to plain old
contract review.
But every contract is different.
There is no such thing as astandard contract in New South
Wales, and what the vendorssolicitor deems is a reasonable
contract.
A purchaser's lawyer canequally deem that contract
(06:05):
unacceptable and advise theirclient not to go ahead with it
on the basis that the vendor'slawyer's prepared the contract.
So there's a range of measures,as you can see there, which a
non-binding offer can fall overon and why vendors must not call
non-binding offers a genuineoffer.
It is nothing more thanexpression of interest
(06:25):
non-binding offers, a genuineoffer?
Speaker 3 (06:26):
It is nothing more than expression of interest.
Yeah, really interesting, peter, I have told you this story
before, but I've got a very goodfriend who was selling his
house and had received a numberof offers over a period of the
sales campaign via email in mostcases and one verbal and he
called me excited every timesaying, hey, we've sold the
house, we're finally going tomove on, and in one instance
actually went and placed anoffer on a house, only to find
(06:47):
out that in fact a contractualoffer had never materialized on
any of these and they had justwasted their own money and put a
contract down on a propertythat they then had to back out
of at a financial penalty, asyou say.
Speaker 1 (06:59):
Yeah, look, it's a really unfortunate situation
when that happens and the waythat the agent should be dealing
with non-binding offers issaying to the prospective
purchaser my vendor is happy atthe price that you've offered,
but it is incumbent on you toproduce an unconditional
contract for the vendor to signand until that happens, the
(07:21):
vendor will continue to showother prospective parties
through the property and youmust consider the property as
still being on the market.
In order to shorten thetimeframe between making a
non-binding offer and producingan unconditional contract, the
vendor has provided a stratareport.
The vendor has provided a pestand building inspection.
(07:41):
The vendor has provided anoccupation certificate in the
contract so that there's lessdue diligence required on behalf
of the buyer, meaning thatthings can turn around fairly
quickly.
What you'll find when you'retrying to progress as a real
estate agent?
What you'll find the time fromtrying to progress a buyer from
a non-binding offer to acontract offer.
(08:02):
The shorter it is, the morelikely it is that the sale will
proceed, and the longer it takesfor the buyer to get their
affairs together, the morelikely the sale will fall over
for some reason.
Speaker 3 (08:15):
Okay.
Do you think?
In scenarios like that it's thebuyers potentially testing the
owner with an offer, saying,look, we'll pay 2 million, as
per your example earlier,knowing that actually they're
going to go through the duediligence and they're probably
not going to come to that markanyway?
Speaker 1 (08:28):
Look, unfortunately some buyers do play that and
that's really dirty play and wedon't like to see that, but it's
a reality of what happens inthe marketplace.
Sometimes buyers get buyer'sremorse, kieran, before
contracts are exchanged.
Sometimes they get buyer'sremorse after contracts are
exchanged and they can't changetheir mind, but it doesn't stop
them from getting buyer'sremorse.
(08:48):
So that is why, again, managingemotions and keeping the
timeframe between non-bindingoffer being submitted and
contracts being exchanged theshorter that period is, the more
likely it is the sale will goahead.
The due diligence can bring upsome unwanted issues that change
the colour of the transactionfor the prospective purchaser.
(09:10):
Again, that's why we alwaysencourage vendors now to provide
pest and building alldocumentation and a strata
report, if required, up front,so there's less room for wriggle
room between an offer beingaccepted and contracts being
exchanged.
Speaker 3 (09:26):
Yeah, really interesting discussion, Peter,
and a great article, andhighlights the importance if you
are a buyer, if you do want tobuy a property, you need to
seriously take steps to do thatand luckily, as you say, here in
Sydney vendors are providing asmuch information as they can.
They're front-loading thecampaign to make sure that
you've got everything you needso you can sit with your
solicitor or your conveyancerand just structure an offer and
(09:49):
get the deal done so that youcan buy your new home.
Speaker 1 (09:51):
We ask this question every time a buyer submits a
non-binding offer and we askthem to turn that non-binding
offer into a contract offer andthe buyer says no, I don't want
to do that.
There's only one question toask there why not?
Yeah, exactly, and that flusheseverything out.
If you genuinely want to buythe property and the agent asks
you to submit your offer on asigned contract and you say no,
(10:14):
well, there's only one questionwhy not?
What's wrong with doing that?
It's a fair and reasonableexpectation, particularly if the
vendor has gone to the effortand the goodwill of providing
all the due diligence upfront.
Speaker 3 (10:25):
Yeah, absolutely.
And, as you say, with coolingoff periods there's really no
inherent risk for the buyers ifthey're serious and they've done
their research about theproperty.
Speaker 1 (10:33):
Look, they do have the 0.25% deposit at risk.
That's non-refundable if theypull out after contracts are
exchanged for the cooling offperiod.
But by the same token they doget to control what happens with
the property for the fivebusiness days and that gives
them time to make a fulldecision on it without the risk
of being gazumped.
Cooling off periods are verycommon in a slow market.
(10:54):
In the market that we'veexperienced since COVID, where
stock on market's been reallylow and competition's been
largely high, I'd say over 80%of all transactions have been
happening on 66W certificates,which 66W certificate in New
South Wales waives thepurchaser's cooling off rights.
(11:15):
If the market were to slow overthe winter you might see the
return of the cooling off period, particularly if interest rates
do go up and finance becomes alot more challenging.
We may see purchasers asking fora cooling off period so they
can get their finances in order.
And if they're the best buyerit may be prudent for the vendor
to grant that cooling offperiod so they can get their
finances in order.
And if they're the best buyer,it may be prudent for the vendor
to grant that cooling offperiod.
(11:35):
If a buyer makes you a coolingoff period offer that you accept
on a Saturday or a Sunday, andthe cooling off period is five
business days.
It's strategically outlined asfive business days, so by the
following Friday the vendor hasachieved a sale, sale and the
purchaser has completed all oftheir due diligence, including
finance, or the purchaser hascrashed on the sale, meaning the
(11:56):
property's back on the marketfor the following Saturday and
the vendor hasn't actually lostanything in terms of time or
momentum in the campaign becauseit was showing on Saturday to
Saturday, if that makes sense.
Speaker 3 (12:08):
Yeah, yeah, look it does.
Really great topic, peter, andone that we encourage everyone
to do some more reading on, andcertainly look out for our
newsletter coming out in thefuture which may cover this in a
little bit more detail.
Switching, then talking aboutgetting your due diligence
together and organising yourselfto purchase a property.
I read some commentary thisweek from Domain regarding the
(12:29):
median house price in Sydneyhaving eclipsed 1.6 million.
Now, I assume this figure isfor standalone houses and not
the average for all dwellings,but given that we apparently
have crossed the 1.6 milliondollar mark in Sydney, what does
that mean for the averageperson who really needs to live
and work in Sydney as a city?
Speaker 1 (12:51):
Well, look, the first point I'd make there is that
CoreLogic, who are a competitorto Domain on the data front,
have the average house price inSydney at 1.414.
So there's a really bigdiscrepancy there.
That's what 200,000?
Speaker 3 (13:06):
That's huge.
Speaker 1 (13:07):
Really big discrepancy between what Domain
and CoreLogic are calling themedian house price, in terms of
which one is more accurate.
Um I.
I.
I feel intuitively that 1.6seems really high yeah, it
certainly seems high to me.
Speaker 3 (13:23):
Uh, they they go on to say in the article that let's
say off a base of 1.6, thatthey're tipping that within two
years time the median houseprice in sydney will pass two
million dollars.
Now, given how long you've beenin real estate, how you've seen
market conditions ebb and flowover the years, do you think
it's likely that we're going toget anywhere near the two
(13:45):
million dollar mark within thenext two years?
Speaker 1 (13:47):
I think that's how that comes down to how the
Reserve Bank and the governmenthandle the inflation story.
So we touched on about a monthago the whole inflation win
story.
So inflation, as we felt washappening, is continuing to push
up.
That's now an accepted story.
And if the RBA were to seeunemployment increasing and
(14:12):
inflation remaining stubborn andincreasing and they said we've
got a choice between highinflation or high unemployment?
We don't want high unemploymentso we're going to run an
accommodative rate setting, ifnot cut rates, meaning
inflation's one.
Yes, you may see a kick inhouse prices that takes you to
(14:35):
unfathomable levels.
There's no doubt about that.
But on the messaging that'scoming from the government and
the RBA, I don't see them takinga position where they allow
inflation to win the battle.
And it's money markets havegone from pricing in a rate cut
at the beginning of April to nowpricing in a rate hike at the
(14:55):
end of April.
So that's pretty extraordinary.
Speaker 3 (14:58):
So, based off what you've said, it does seem that
we need some prettyextraordinary market conditions
for this to occur.
What do you think, then, is thelikely trajectory of the house
price or the median house pricein Sydney, say, over the next
five to 10 years?
Do you think and the reason Italk about it is obviously I
have plenty of friends in my agebracket who may or may not have
bought property in Sydney.
(15:18):
Almost all of them work here,though, and complain
consistently about what you canafford here.
It's a common topic.
If prices continue to increaseat a pretty steady rate, what
does that mean for the workforceof Sydney into the future?
Does it mean that you knowgovernment are constantly
chasing their tail trying toaccommodate people, or do we
just conclude that, in fact,sydney is for those who can?
(15:40):
You know the haves and thehave-nots.
Speaker 1 (15:43):
I really hope that Sydney doesn't get to that point
where it's the haves and thehave-nots, but unfortunately
we're on that path.
There's no doubt about that.
The Sydney market is very, veryprone to corrections and the
corrections that we've had inrecent times.
The commentarian tenderoverlooked that, and there's no
doubt that over the long term,sydney has rewarded homeowners
(16:06):
very, very generously.
I do accept that.
But there's been some prettyvicious corrections in there.
We mustn't forget that in 2022,we experienced a 15% price
correction.
In 2020, we had a crash of 10%when COVID first kicked off, and
then we had a 5% recovery toclose the year out.
(16:26):
Between 2017 and 2019, theSydney market did experience a
15% correction.
So Sydney property is not goingup in a straight line.
I just saw a sales result inGlebe today where the people
paid 1.455 for it in 2021 andjust resold it for 11.5 million,
(16:49):
meaning that in gross terms itwas a $45,000 gain.
But that wouldn't have evenrecaptured the stamp duty that
they paid at the time ofpurchase, which would have been
about $50,000, combined with theagent's selling fees, combined
with the strata levies for threeyears, combined with the
interest payments for threeyears of levies for three years,
(17:11):
combined with the interestpayments for three years.
So not everyone wins big inSydney property.
And to suggest that Sydneyproperty will go from 1.4 or 1.6
to2 million in was it two years?
You said they said two years,yeah, yeah, look, good luck to
whoever said that if they areproven to be right.
But I wouldn't be putting myname to such a prediction.
Speaker 3 (17:30):
Now look reasonable position.
I you know not to flog a deadhorse, but I feel like the, the
current market, the growth we'veseen over the last few years,
the government's policies, the,the just trajectory of of cities
like Sydney seems like it is alosing battle for a lot of
people, and for those, though,that got into the market 20, 30
(17:51):
years ago, it's a fantasticfuture ahead.
I don't really know how wetemper this and how we correct
in a way as you say, there havebeen corrections, but how we
correct in a way that canfacilitate access for more
people.
Speaker 1 (18:03):
Yeah, look, it is a tough one.
But the Sydney property marketbeing tough for many doesn't
mean that it'll go up 20% fromwhat is already lofty heights,
If you ask me.
I think the resilience of theproperty market to be operating
where it's currently operatingis phenomenal, given that it has
had 14 rate hikes in a row andis now possibly steering down
(18:25):
the barrel at further rate hikes.
And if the government and theRBA are true to their word and
they say we will do what needsto be done with interest rates
to crush inflation, that meansthat homeowners and home
borrowers are faced with eventougher finance conditions.
I do not see that as a scenariowhere house prices then jump 20
(18:46):
percent yeah, certainlypersonally I hope it's 25.
It's a big growth?
Speaker 3 (18:51):
no, it certainly is.
I personally, I hope they don'tgo, uh, I hope they don't go up
again, otherwise I may be inthe rental market and I'm going
to use that as a hell of a segueto uh, to get your sense on
what the rental market's lookinglike at the moment.
I I haven't done rental opensfor a few weeks, so I've been a
little bit out of touch, uh.
But I'm always reading, alwaysreading stories of just how
(19:12):
tough it is to get a place andhow high prices are.
Speaker 1 (19:16):
The rental reporting is not in sync with the rental
market.
At the moment the rental marketis very seasonal and we do find
in the middle of the year thatoff the beginning of the
calendar year, if you like thatpeople are settled by and large
for the forthcoming year andthat numbers at open inspections
do drop.
(19:36):
I ran into a client down thestreet today when I was grabbing
some lunch and he wasexplaining about a boarding
house that he's got and he wasgetting really, really good
inquiry and applications asrooms became available at the
beginning of the year and therewas, you know, nice increases as
far as he was concerned, beinga landlord on on the room rate
(19:56):
that he was achieving.
But then suddenly in the lastmonth it just tailed off and he
asked if there was a structuralchange in the rental market and
I said no, there's not, it'sjust seasonal.
Speaker 3 (20:08):
That raises a question I've got for you that I
haven't asked you yet in all ofour rental discussions.
But we've talked about theseasonality of the market.
We've talked about how there'stypically peaks from, say,
november through January, maybeearly February, and then it
slows down for most of the restof the year.
When do you think if you are aninvestor who has property let's
(20:28):
say your property is around auniversity, in a school or
something like that I wouldassume the best time to try and
renew your leases is that end ofyear period, that November
through February, right?
But what kind of investor orwhat homeowner out there would
be best suited to trying to gettheir leases done around this
middle of the year to try andboost their return and ensure
(20:50):
they get good quality tenants in?
Do you think?
so a sydney side, are you mean?
Speaker 1 (20:54):
yeah, yeah, I, I think you uh need to have the
property presented correctly.
You need to have a pricecorrectly, um, for the current
market and, unless I don't think, I can't think of any property
other than something down injindabyne or queenstown, um,
that is actually suited forwinter conditions, if you like.
So based on that, I would sayyou've got to try and have a
(21:18):
lease term that gets you backonto the calendar year term.
So any landlord that we havecome to market in the middle of
the year, we'll aim to do ashortened lease term to get us
to the beginning of the calendaryear so we can then capture
that new year cycle, which iswhen most growth happens yeah,
it makes sense.
Speaker 3 (21:38):
It's interesting you mentioned Queenstown.
I saw an ad just this weekactually for a company selling
studios in Sydney, in Sydneyselling studios in Queenstown
for for an even better pricethan you can buy here in the
inner west, which I thought wasa very appealing offer yeah,
well, apparently the Queenstownand New Zealand markets under a
lot of pressure at the moment.
Speaker 1 (21:54):
I heard a report today that there is something
like 45 percent more listings onmarket in new zealand at the
moment than there has been overthe previous two years and the
way the new zealand propertymarket has operated has been a
little bit in in front of thecurve as to what we've seen here
in Australia.
They do have a higher interestrate setting than Australia.
(22:16):
I think their cash rate's fiveand a half.
Speaker 3 (22:18):
It's about 5.3, 5.5, something like that.
Yeah yeah.
Speaker 1 (22:20):
So it's well up and they've taken some pretty tough
measures to block internationalbuying in New Zealand.
I don't know if that's a causefor the spike in listings and
the drop in sales.
So there you go, and now youtell me that they're selling
Queenstown apartments in Sydney.
So that would suggest thatthey're having to be creative to
(22:41):
get their sales.
Speaker 3 (22:42):
Yeah, well, I do know that a lot of New Zealand's
property market was bolstered bythe Belt and Road Initiative.
Coming out of China, as you say, the government's blocked
foreign ownership.
That will put a big dent in theeconomy.
Look as we move towards a closetoday, peter, we don't have our
usual SQM research figuresgiven when we're recording this,
(23:02):
but I thought if you could justgive us a sense of what
information you do have from theweekend's auction clearance
rate and how that's looking forthe week ahead.
Speaker 1 (23:10):
Yes, for Saturday 27 April there were 666 auctions
scheduled.
We don't know the result of 132of those, but of the 534 that
we know of 353 sold, so that'sreasonably healthy 89 were
passed in, 92 withdrawn.
The true clearance rate becomesmuch more accurate, of course,
(23:33):
when we find out what happenedto the 132 unknown results.
Look, not easy.
Picking what the market's doingat the moment.
I see a couple of sales and Igo, hey, this is, these are
pretty good results.
It's the markets in in a goodspace here.
And then you see some reallygood properties that don't clear
on the day and or they sell andthey don't get the price that
you thought they should have.
(23:54):
So it's pretty fair to say thatthe market the Sydney market
that is, is sort of ebbing andflowing.
You might say.
Some sales seem in favour ofthe buyer, some sales seem in
favour of the vendor, andthere's no rhyme or reason to
how it's playing.
Speaker 3 (24:10):
Just looking back at the averages, the clearance rate
since the first week ofFebruary has been above 50%,
according to SQM research.
As a final question, do youthink that we are likely to stay
above that 50% mark for themoment, or are we looking at a
bit of a correction in light ofsome of the recent commentary
from the RBA around interestrates?
Speaker 1 (24:30):
I suspect, when we get the SQM research numbers for
this weekend, that it'll bearound 50%.
So it'll be somewhere.
I'll take a guess and saysomewhere between 48 and 51%.
That's what I'm thinking forthe weekend just gone.
But if the RBA do hike ratesnext week, or tell us that
they're hiking rates next week,and you get a lot of commentary,
(24:51):
that follows that you may seethe auction clearance rate dip
for a cycle below 50%, and below50% suggests that there's more
sellers coming into the marketand sales being made and that
historically has suggested thatthen there is some price
pressure on the vendors.
Speaker 3 (25:12):
Yeah, really great recap, peter.
I think very interesting weekto come in real estate with, as
you say, the RBA.
Some discussions next week aregoing to be very important.
I appreciate your time andthanks so much for joining us on
the podcast.
Great to be with you.
Thanks, kieran, and thanks toeveryone for listening to
Current Market Insights.
We look forward to talking withyou next time.
Speaker 2 (25:30):
Thanks for joining us on the Current Market Insights.
We look forward to talking withyou next time.
Thanks for joining us on theCurrent 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 son
Congratulations.
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 edition of Current
Market Insights.
I'm your host, and with me thisweek is my good friend and
co-host, mr Peter O'Malley.
Peter, hello.
Speaker 1 (00:37):
G'day, kieran, great to see you and thanks for having
us along.
Speaker 3 (00:40):
Look.
Always great to have you, Peter.
It's been a couple of weekssince we spoke.
We obviously had Anzac Day inthe middle there, which is an
important time in Australia, butnow that we've come out the
other side, it's all real estateagain and it's all guns blazing
.
So I was hoping we could talktoday about another one of your
articles.
Actually, You've written oneabout the non-binding offer and
(01:06):
I would love for you to explainto our listeners what a
non-binding offer is and thenhopefully we can have a bit of a
chat about what it actuallymeans for a seller and a buyer
through a sales campaign.
Speaker 1 (01:12):
Well, in simple terms , kieran, a non-binding offer is
an offer that you can't take tothe bank because it's not
contractually secure.
So, whether that is a verbaloffer, an email offer, a letter
offer, a contract that can't beexchanged or a contract with a
cooling off period although acontract with a cooling off
period is a little bit morebinding in the sense that the
(01:34):
buyer has a financial incentiveto complete the contract because
they've put down anon-refundable deposit but, by
and large, all of those verbals,emails, letters, contracts that
can't produce a gesture or aletter from a prospective
(02:12):
purchaser and say I've sold myhouse or my apartment because
you simply haven't.
Speaker 3 (02:17):
Okay.
So if we could clear up someterminology, just to make sure
that we're all 100% certain,non-binding is as you say.
You can't take it to a bank andshow it and say I've sold my
house.
Can you please secure againstthis offer?
Does that mean that non-bindingoffers are invalid or maybe not
as important or not as valuable?
Speaker 1 (02:38):
to an owner.
It's up to the vendor and thevendor's agent how they treat a
non-binding offer.
Kieran, I'm shocked at how manyagents will take an email offer
, for example subject to a rangeof terms sometimes and wave it
around in front of their clientsand say I've got you an offer,
I've got you an offer.
What's more painful about thenon-binding offer is that
(02:58):
usually the buyer, who's talkingthe biggest game, may put the
highest price down on an emailsaying tell the owners, I'll pay
$2 million for this $1.8million home.
But if that $2 million offerdoesn't materialise in the form
of a contract, it was never anoffer.
So it's up to every individualto decide what they define as an
(03:20):
offer.
As a real estate agent, I onlyconsider an unconditional signed
contract an offer for thevendor's consideration.
I do, in fairness, acceptoffers from time to time with
cooling off periods, because thebuyers in New South Wales have
to put down a non-refundable0.25% to enable them to enter
(03:41):
into a cooling off period.
So on $2 million, the buyerwould put down a non-refundable
$5,000.
And if they did pull out of thecontract, that $5,000 goes to
the vendor as compensation forthe contract falling apart.
So I think it's fair to saythat an offer with a cooling off
period is somewhat legitimate,but everything else outside of
(04:04):
that is really just a gesture oran expression of interest and
certainly cannot be consideredan offer.
Speaker 3 (04:10):
Okay.
So does that mean if I'm abuyer and I send through an
email offer or I fill out a formon an agency website making an
offer and I get a response fromthe agent that the vendor has
accepted and they do so viaemail, so I've got a paper trail
does that not count in my eyesas a buyer?
Would that not be a bindingoffer for me?
Or would that not be, then,some kind of contractual
(04:31):
agreement that we can?
Speaker 1 (04:33):
proceed to sale?
Absolutely not.
Great question, kieran.
As a purchaser, another buyercan still come along and
exchange contracts with thevendor at or above the price
that you've offered.
Even below the price you'veoffered on more favourable terms
, it's up to the vendor todecide who they sign a contract
with, even if they've accepted anon-binding offer.
(04:53):
Equally, the vendor can't callthe buyer's offer binding and
that buyer can equally go offand make an offer on another
property, have it accepted andsay to the original vendor who
they made an offer on, thanksfor considering our offer.
Thanks for considering ouroffer and accepting it, but
we've moved on and purchasedanother home.
Speaker 3 (05:14):
Okay, so throughout a campaign, what are the things
that typically might cause abuyer to not make a binding
offer in the first place?
Speaker 1 (05:21):
They're making offers subject to a range of
conditions, kieran, what we'reseeing a lot of in the market at
the moment, particularly nowthat the interest rate story is
back on the boil.
They're making offers subjectto finance, subject to valuation
, sometimes it might be subjectto strata reports, subject to
pest and building inspection,subject to their mother, father,
builder, architect having alook, whoever it might be, be a
(05:44):
person of support to thepurchaser.
Sometimes it might be just, youknow, subject to plain old
contract review.
But every contract is different.
There is no such thing as astandard contract in New South
Wales, and what the vendorssolicitor deems is a reasonable
contract.
A purchaser's lawyer canequally deem that contract
(06:05):
unacceptable and advise theirclient not to go ahead with it
on the basis that the vendor'slawyer's prepared the contract.
So there's a range of measures,as you can see there, which a
non-binding offer can fall overon and why vendors must not call
non-binding offers a genuineoffer.
It is nothing more thanexpression of interest
(06:25):
non-binding offers, a genuineoffer?
Speaker 3 (06:26):
It is nothing more than expression of interest.
Yeah, really interesting, peter, I have told you this story
before, but I've got a very goodfriend who was selling his
house and had received a numberof offers over a period of the
sales campaign via email in mostcases and one verbal and he
called me excited every timesaying, hey, we've sold the
house, we're finally going tomove on, and in one instance
actually went and placed anoffer on a house, only to find
(06:47):
out that in fact a contractualoffer had never materialized on
any of these and they had justwasted their own money and put a
contract down on a propertythat they then had to back out
of at a financial penalty, asyou say.
Speaker 1 (06:59):
Yeah, look, it's a really unfortunate situation
when that happens and the waythat the agent should be dealing
with non-binding offers issaying to the prospective
purchaser my vendor is happy atthe price that you've offered,
but it is incumbent on you toproduce an unconditional
contract for the vendor to signand until that happens, the
(07:21):
vendor will continue to showother prospective parties
through the property and youmust consider the property as
still being on the market.
In order to shorten thetimeframe between making a
non-binding offer and producingan unconditional contract, the
vendor has provided a stratareport.
The vendor has provided a pestand building inspection.
(07:41):
The vendor has provided anoccupation certificate in the
contract so that there's lessdue diligence required on behalf
of the buyer, meaning thatthings can turn around fairly
quickly.
What you'll find when you'retrying to progress as a real
estate agent?
What you'll find the time fromtrying to progress a buyer from
a non-binding offer to acontract offer.
(08:02):
The shorter it is, the morelikely it is that the sale will
proceed, and the longer it takesfor the buyer to get their
affairs together, the morelikely the sale will fall over
for some reason.
Speaker 3 (08:15):
Okay.
Do you think?
In scenarios like that it's thebuyers potentially testing the
owner with an offer, saying,look, we'll pay 2 million, as
per your example earlier,knowing that actually they're
going to go through the duediligence and they're probably
not going to come to that markanyway?
Speaker 1 (08:28):
Look, unfortunately some buyers do play that and
that's really dirty play and wedon't like to see that, but it's
a reality of what happens inthe marketplace.
Sometimes buyers get buyer'sremorse, kieran, before
contracts are exchanged.
Sometimes they get buyer'sremorse after contracts are
exchanged and they can't changetheir mind, but it doesn't stop
them from getting buyer'sremorse.
(08:48):
So that is why, again, managingemotions and keeping the
timeframe between non-bindingoffer being submitted and
contracts being exchanged theshorter that period is, the more
likely it is the sale will goahead.
The due diligence can bring upsome unwanted issues that change
the colour of the transactionfor the prospective purchaser.
(09:10):
Again, that's why we alwaysencourage vendors now to provide
pest and building alldocumentation and a strata
report, if required, up front,so there's less room for wriggle
room between an offer beingaccepted and contracts being
exchanged.
Speaker 3 (09:26):
Yeah, really interesting discussion, Peter,
and a great article, andhighlights the importance if you
are a buyer, if you do want tobuy a property, you need to
seriously take steps to do thatand luckily, as you say, here in
Sydney vendors are providing asmuch information as they can.
They're front-loading thecampaign to make sure that
you've got everything you needso you can sit with your
solicitor or your conveyancerand just structure an offer and
(09:49):
get the deal done so that youcan buy your new home.
Speaker 1 (09:51):
We ask this question every time a buyer submits a
non-binding offer and we askthem to turn that non-binding
offer into a contract offer andthe buyer says no, I don't want
to do that.
There's only one question toask there why not?
Yeah, exactly, and that flusheseverything out.
If you genuinely want to buythe property and the agent asks
you to submit your offer on asigned contract and you say no,
(10:14):
well, there's only one questionwhy not?
What's wrong with doing that?
It's a fair and reasonableexpectation, particularly if the
vendor has gone to the effortand the goodwill of providing
all the due diligence upfront.
Speaker 3 (10:25):
Yeah, absolutely.
And, as you say, with coolingoff periods there's really no
inherent risk for the buyers ifthey're serious and they've done
their research about theproperty.
Speaker 1 (10:33):
Look, they do have the 0.25% deposit at risk.
That's non-refundable if theypull out after contracts are
exchanged for the cooling offperiod.
But by the same token they doget to control what happens with
the property for the fivebusiness days and that gives
them time to make a fulldecision on it without the risk
of being gazumped.
Cooling off periods are verycommon in a slow market.
(10:54):
In the market that we'veexperienced since COVID, where
stock on market's been reallylow and competition's been
largely high, I'd say over 80%of all transactions have been
happening on 66W certificates,which 66W certificate in New
South Wales waives thepurchaser's cooling off rights.
(11:15):
If the market were to slow overthe winter you might see the
return of the cooling off period, particularly if interest rates
do go up and finance becomes alot more challenging.
We may see purchasers asking fora cooling off period so they
can get their finances in order.
And if they're the best buyerit may be prudent for the vendor
to grant that cooling offperiod so they can get their
finances in order.
And if they're the best buyer,it may be prudent for the vendor
to grant that cooling offperiod.
(11:35):
If a buyer makes you a coolingoff period offer that you accept
on a Saturday or a Sunday, andthe cooling off period is five
business days.
It's strategically outlined asfive business days, so by the
following Friday the vendor hasachieved a sale, sale and the
purchaser has completed all oftheir due diligence, including
finance, or the purchaser hascrashed on the sale, meaning the
(11:56):
property's back on the marketfor the following Saturday and
the vendor hasn't actually lostanything in terms of time or
momentum in the campaign becauseit was showing on Saturday to
Saturday, if that makes sense.
Speaker 3 (12:08):
Yeah, yeah, look it does.
Really great topic, peter, andone that we encourage everyone
to do some more reading on, andcertainly look out for our
newsletter coming out in thefuture which may cover this in a
little bit more detail.
Switching, then talking aboutgetting your due diligence
together and organising yourselfto purchase a property.
I read some commentary thisweek from Domain regarding the
(12:29):
median house price in Sydneyhaving eclipsed 1.6 million.
Now, I assume this figure isfor standalone houses and not
the average for all dwellings,but given that we apparently
have crossed the 1.6 milliondollar mark in Sydney, what does
that mean for the averageperson who really needs to live
and work in Sydney as a city?
Speaker 1 (12:51):
Well, look, the first point I'd make there is that
CoreLogic, who are a competitorto Domain on the data front,
have the average house price inSydney at 1.414.
So there's a really bigdiscrepancy there.
That's what 200,000?
Speaker 3 (13:06):
That's huge.
Speaker 1 (13:07):
Really big discrepancy between what Domain
and CoreLogic are calling themedian house price, in terms of
which one is more accurate.
Um I.
I.
I feel intuitively that 1.6seems really high yeah, it
certainly seems high to me.
Speaker 3 (13:23):
Uh, they they go on to say in the article that let's
say off a base of 1.6, thatthey're tipping that within two
years time the median houseprice in sydney will pass two
million dollars.
Now, given how long you've beenin real estate, how you've seen
market conditions ebb and flowover the years, do you think
it's likely that we're going toget anywhere near the two
(13:45):
million dollar mark within thenext two years?
Speaker 1 (13:47):
I think that's how that comes down to how the
Reserve Bank and the governmenthandle the inflation story.
So we touched on about a monthago the whole inflation win
story.
So inflation, as we felt washappening, is continuing to push
up.
That's now an accepted story.
And if the RBA were to seeunemployment increasing and
(14:12):
inflation remaining stubborn andincreasing and they said we've
got a choice between highinflation or high unemployment?
We don't want high unemploymentso we're going to run an
accommodative rate setting, ifnot cut rates, meaning
inflation's one.
Yes, you may see a kick inhouse prices that takes you to
(14:35):
unfathomable levels.
There's no doubt about that.
But on the messaging that'scoming from the government and
the RBA, I don't see them takinga position where they allow
inflation to win the battle.
And it's money markets havegone from pricing in a rate cut
at the beginning of April to nowpricing in a rate hike at the
(14:55):
end of April.
So that's pretty extraordinary.
Speaker 3 (14:58):
So, based off what you've said, it does seem that
we need some prettyextraordinary market conditions
for this to occur.
What do you think, then, is thelikely trajectory of the house
price or the median house pricein Sydney, say, over the next
five to 10 years?
Do you think and the reason Italk about it is obviously I
have plenty of friends in my agebracket who may or may not have
bought property in Sydney.
(15:18):
Almost all of them work here,though, and complain
consistently about what you canafford here.
It's a common topic.
If prices continue to increaseat a pretty steady rate, what
does that mean for the workforceof Sydney into the future?
Does it mean that you knowgovernment are constantly
chasing their tail trying toaccommodate people, or do we
just conclude that, in fact,sydney is for those who can?
(15:40):
You know the haves and thehave-nots.
Speaker 1 (15:43):
I really hope that Sydney doesn't get to that point
where it's the haves and thehave-nots, but unfortunately
we're on that path.
There's no doubt about that.
The Sydney market is very, veryprone to corrections and the
corrections that we've had inrecent times.
The commentarian tenderoverlooked that, and there's no
doubt that over the long term,sydney has rewarded homeowners
(16:06):
very, very generously.
I do accept that.
But there's been some prettyvicious corrections in there.
We mustn't forget that in 2022,we experienced a 15% price
correction.
In 2020, we had a crash of 10%when COVID first kicked off, and
then we had a 5% recovery toclose the year out.
(16:26):
Between 2017 and 2019, theSydney market did experience a
15% correction.
So Sydney property is not goingup in a straight line.
I just saw a sales result inGlebe today where the people
paid 1.455 for it in 2021 andjust resold it for 11.5 million,
(16:49):
meaning that in gross terms itwas a $45,000 gain.
But that wouldn't have evenrecaptured the stamp duty that
they paid at the time ofpurchase, which would have been
about $50,000, combined with theagent's selling fees, combined
with the strata levies for threeyears, combined with the
interest payments for threeyears of levies for three years,
(17:11):
combined with the interestpayments for three years.
So not everyone wins big inSydney property.
And to suggest that Sydneyproperty will go from 1.4 or 1.6
to2 million in was it two years?
You said they said two years,yeah, yeah, look, good luck to
whoever said that if they areproven to be right.
But I wouldn't be putting myname to such a prediction.
Speaker 3 (17:30):
Now look reasonable position.
I you know not to flog a deadhorse, but I feel like the, the
current market, the growth we'veseen over the last few years,
the government's policies, the,the just trajectory of of cities
like Sydney seems like it is alosing battle for a lot of
people, and for those, though,that got into the market 20, 30
(17:51):
years ago, it's a fantasticfuture ahead.
I don't really know how wetemper this and how we correct
in a way as you say, there havebeen corrections, but how we
correct in a way that canfacilitate access for more
people.
Speaker 1 (18:03):
Yeah, look, it is a tough one.
But the Sydney property marketbeing tough for many doesn't
mean that it'll go up 20% fromwhat is already lofty heights,
If you ask me.
I think the resilience of theproperty market to be operating
where it's currently operatingis phenomenal, given that it has
had 14 rate hikes in a row andis now possibly steering down
(18:25):
the barrel at further rate hikes.
And if the government and theRBA are true to their word and
they say we will do what needsto be done with interest rates
to crush inflation, that meansthat homeowners and home
borrowers are faced with eventougher finance conditions.
I do not see that as a scenariowhere house prices then jump 20
(18:46):
percent yeah, certainlypersonally I hope it's 25.
It's a big growth?
Speaker 3 (18:51):
no, it certainly is.
I personally, I hope they don'tgo, uh, I hope they don't go up
again, otherwise I may be inthe rental market and I'm going
to use that as a hell of a segueto uh, to get your sense on
what the rental market's lookinglike at the moment.
I I haven't done rental opensfor a few weeks, so I've been a
little bit out of touch, uh.
But I'm always reading, alwaysreading stories of just how
(19:12):
tough it is to get a place andhow high prices are.
Speaker 1 (19:16):
The rental reporting is not in sync with the rental
market.
At the moment the rental marketis very seasonal and we do find
in the middle of the year thatoff the beginning of the
calendar year, if you like thatpeople are settled by and large
for the forthcoming year andthat numbers at open inspections
do drop.
(19:36):
I ran into a client down thestreet today when I was grabbing
some lunch and he wasexplaining about a boarding
house that he's got and he wasgetting really, really good
inquiry and applications asrooms became available at the
beginning of the year and therewas, you know, nice increases as
far as he was concerned, beinga landlord on on the room rate
(19:56):
that he was achieving.
But then suddenly in the lastmonth it just tailed off and he
asked if there was a structuralchange in the rental market and
I said no, there's not, it'sjust seasonal.
Speaker 3 (20:08):
That raises a question I've got for you that I
haven't asked you yet in all ofour rental discussions.
But we've talked about theseasonality of the market.
We've talked about how there'stypically peaks from, say,
november through January, maybeearly February, and then it
slows down for most of the restof the year.
When do you think if you are aninvestor who has property let's
(20:28):
say your property is around auniversity, in a school or
something like that I wouldassume the best time to try and
renew your leases is that end ofyear period, that November
through February, right?
But what kind of investor orwhat homeowner out there would
be best suited to trying to gettheir leases done around this
middle of the year to try andboost their return and ensure
(20:50):
they get good quality tenants in?
Do you think?
so a sydney side, are you mean?
Speaker 1 (20:54):
yeah, yeah, I, I think you uh need to have the
property presented correctly.
You need to have a pricecorrectly, um, for the current
market and, unless I don't think, I can't think of any property
other than something down injindabyne or queenstown, um,
that is actually suited forwinter conditions, if you like.
So based on that, I would sayyou've got to try and have a
(21:18):
lease term that gets you backonto the calendar year term.
So any landlord that we havecome to market in the middle of
the year, we'll aim to do ashortened lease term to get us
to the beginning of the calendaryear so we can then capture
that new year cycle, which iswhen most growth happens yeah,
it makes sense.
Speaker 3 (21:38):
It's interesting you mentioned Queenstown.
I saw an ad just this weekactually for a company selling
studios in Sydney, in Sydneyselling studios in Queenstown
for for an even better pricethan you can buy here in the
inner west, which I thought wasa very appealing offer yeah,
well, apparently the Queenstownand New Zealand markets under a
lot of pressure at the moment.
Speaker 1 (21:54):
I heard a report today that there is something
like 45 percent more listings onmarket in new zealand at the
moment than there has been overthe previous two years and the
way the new zealand propertymarket has operated has been a
little bit in in front of thecurve as to what we've seen here
in Australia.
They do have a higher interestrate setting than Australia.
(22:16):
I think their cash rate's fiveand a half.
Speaker 3 (22:18):
It's about 5.3, 5.5, something like that.
Yeah yeah.
Speaker 1 (22:20):
So it's well up and they've taken some pretty tough
measures to block internationalbuying in New Zealand.
I don't know if that's a causefor the spike in listings and
the drop in sales.
So there you go, and now youtell me that they're selling
Queenstown apartments in Sydney.
So that would suggest thatthey're having to be creative to
(22:41):
get their sales.
Speaker 3 (22:42):
Yeah, well, I do know that a lot of New Zealand's
property market was bolstered bythe Belt and Road Initiative.
Coming out of China, as you say, the government's blocked
foreign ownership.
That will put a big dent in theeconomy.
Look as we move towards a closetoday, peter, we don't have our
usual SQM research figuresgiven when we're recording this,
(23:02):
but I thought if you could justgive us a sense of what
information you do have from theweekend's auction clearance
rate and how that's looking forthe week ahead.
Speaker 1 (23:10):
Yes, for Saturday 27 April there were 666 auctions
scheduled.
We don't know the result of 132of those, but of the 534 that
we know of 353 sold, so that'sreasonably healthy 89 were
passed in, 92 withdrawn.
The true clearance rate becomesmuch more accurate, of course,
(23:33):
when we find out what happenedto the 132 unknown results.
Look, not easy.
Picking what the market's doingat the moment.
I see a couple of sales and Igo, hey, this is, these are
pretty good results.
It's the markets in in a goodspace here.
And then you see some reallygood properties that don't clear
on the day and or they sell andthey don't get the price that
you thought they should have.
(23:54):
So it's pretty fair to say thatthe market the Sydney market
that is, is sort of ebbing andflowing.
You might say.
Some sales seem in favour ofthe buyer, some sales seem in
favour of the vendor, andthere's no rhyme or reason to
how it's playing.
Speaker 3 (24:10):
Just looking back at the averages, the clearance rate
since the first week ofFebruary has been above 50%,
according to SQM research.
As a final question, do youthink that we are likely to stay
above that 50% mark for themoment, or are we looking at a
bit of a correction in light ofsome of the recent commentary
from the RBA around interestrates?
Speaker 1 (24:30):
I suspect, when we get the SQM research numbers for
this weekend, that it'll bearound 50%.
So it'll be somewhere.
I'll take a guess and saysomewhere between 48 and 51%.
That's what I'm thinking forthe weekend just gone.
But if the RBA do hike ratesnext week, or tell us that
they're hiking rates next week,and you get a lot of commentary,
(24:51):
that follows that you may seethe auction clearance rate dip
for a cycle below 50%, and below50% suggests that there's more
sellers coming into the marketand sales being made and that
historically has suggested thatthen there is some price
pressure on the vendors.
Speaker 3 (25:12):
Yeah, really great recap, peter.
I think very interesting weekto come in real estate with, as
you say, the RBA.
Some discussions next week aregoing to be very important.
I appreciate your time andthanks so much for joining us on
the podcast.
Great to be with you.
Thanks, kieran, and thanks toeveryone for listening to
Current Market Insights.
We look forward to talking withyou next time.
Speaker 2 (25:30):
Thanks for joining us on the Current Market Insights.
We look forward to talking withyou next time.
Thanks for joining us on theCurrent Market Insights podcast
Brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
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