Succeeding in today’s market: Advice for buyers and sellers

The amount of property on the market in Perth has ballooned over the past six months. There are now 17,000 homes, units and town houses for sale on any given day. Although buyer demand is positive, it has not grown to match the recent dramatic increase in sellers coming on to the market. But as we know, the market can change from one week to the next. So how can buyers and sellers stay ahead of the curve?

At the height of the Western Australian property boom in 2006, there were as few as 5000 properties on the market day to day. This lack of supply, along with low interest rates, played a large part in creating the dramatic price increases that saw the median Perth house price soar above $500,000.

Today there is more than triple the number of properties for sale creating an abundance of housing, and with a steady number of properties entering the market every day, last quarter’s statistics show a current median sale price of $457,000.

This is having a flow on effect for sellers – their homes are staying on the market for an average duration of 71 days. This is far from ideal and leads to a compromised sales price.

So what can both sellers and buyers do in this current market to maximize their position. Here's some tips for both groups:

Sellers

Ideally, your property should sell while it is still “fresh” on the market, i.e. between 30-45 days. To ensure your agent is focused on this outcome, employ the following tactics:

• Insist on a bold, multi-media marketing campaign that showcases your property and generates buyer excitement – quickly in a crowded market

• Only sign up with your agent for 60-day authority. This is the prime window of opportunity in which to achieve a premium price. After 45 days on the market, your property will appear “stale” against new stock in your area

• Insist that your agent provide detailed written reports on buyer feedback and interest each week. This will help you tailor your campaign and make any necessary adjustments to the price or presentation of your property.

Buyers:

The current market is well suited to buyers, even if interest rates are the highest they’ve been for 10 years. Here’s what prospective buyers should be thinking about:

• There is a unique range of choice in Perth’s property market today with 50% more stock on offer than “normal”. Properties and opportunities that would not normally be available are being flushed into the market place

• Sellers are more likely to be reasonable in their price expectations and terms and conditions. Opportunities to buy “fairly’ are increased.

• There has been a lot of talk about interest rates and their steady increase over the past year, but with median prices decreasing at 2.7%* last quarter buyers need to see the clear offset in house price (savings that may be in the tens of thousands) against the interest rates which are now likely to remain steady for some time going forward.

Both buyers and sellers need to have a clear plan when entering the property market. A good agent will provide sellers with the most up to date information and statistics enabling the vendor to make realistic pricing decisions.

And buyers need to remember that the market can change very quickly – almost from one weekend to the next. The data we are seeing today is already “old” and if demand builds up again, the next rise in the cycle will kick in. Now is the ideal time for buyers to capitalise.

* Source: REIWA

Demand more from your agent

Realmark has bucked the trend for lengthy sale periods in the current slow market conditions, selling properties almost a full month quicker than their competitors – scoring an average 44 days on market for March.

Realmark properties are averaging just 44 days on the market while REIWA recently announced that the average home is taking 71 days to sell.

I believe that while the Perth real estate market is in a period of uncertainty, sellers should not accept a slowing market as an excuse for lengthy sales periods.

At Realmark we are selling homes in a third less time than our competitors because we have adapted to the changing climate.

Seller’s really need to be aware that time on market is a critical factor in terms of achieving a favourable selling price, a lengthy sale period can result in the loss of tens of thousands of dollars.

The best advise I can give is sellers need to make their agent accountable, when signing an agent, do not issue them with an authority of longer than 60 days, if they can’t find the right buyer in that time, you need to reconsider your position.

Many agents use the market as an excuse, but the fact is for an agent to survive they need to be able to sell in both the good times and the hard times – unlike Perth’s recent boom years, homes no longer sell themselves.

Agents have to employ a strategic range of initiatives which takes the market situation into account and offer sellers effective solutions.

My 5 key points of advise for sellers;

1. Only issue your agent with a 60 day period to sell your home to ensure they retain focus and remain accountable.
2. Do not accept that market conditions are an excuse for lengthy sales periods – time on market is critical to price.
3. Find an agent with a strong track record, a detailed knowledge of your suburb and positive seller testimonials
4. Understand the value of investing in good quality, strategic buyer attraction marketing with a point of difference.
5. Expect weekly written reports from your agent detailing buyer feedback

Your comments and/or questions regarding this post are most welcome.

Private Treaty: Going, going, gone…

Western Australia, unlike its brother and sister states in the east, is fixated on Private Treaty as a method of selling property. But why? In today’s information age, buyers hold the power. So why haven’t sellers and agents adjusted their approach to make it work for them?

Ask most Perth real estate agents which method they recommend when selling a property and the answer will almost always be “Private Treaty.” But does it necessarily deliver the best result?

Western Australian’s have always been hooked on Private Treaty while most other states in Australia have a more balanced approach with at least 50 per cent of suburban property being marketed without a fixed price, culminating in an auction or tender process.

The essential difference between these two approaches comes down to setting the price.
Using private treaty requires the seller to set a fixed price for the property and making that price public knowledge. This sale price is often based on their real estate agent’s recommendation.

In fact, sellers often mistakenly select an agent purely based on the price that the agent forecasts and agents are tempted to quote sellers a price they want to hear!

Alternatively, going to market without revealing a set price means the market place (i.e. buyers) bid for your property to the maximum price they are willing to pay.

The Real Estate Institute of Australia lists the differences between the two approaches however, important issues for a seller include:

Set Price
also known as Private Treaty or Open Market
• No set settlement period
• No set terms of sale
• Price that is attacked by buyers
• Buyer is in control

No Set Price
also known as Auction, Tender or Offers Invited
• Set settlement date
• No price barrier
• Set sale terms
• Seller in control

I believe Perth’s fixation on Private Treaty is based on an era when buyers didn’t have easy access to market information and real estate agents controlled that data. Today, buyers are very well informed and have access to ample market data. They are capable of making their own decisions about the value of a property. The no set price approach, especially when combined with the auction sale process, brings a concentrated and defined marketing campaign to a climatic conclusion where buyers are forced to offer their best price.

Agents need to let go and encourage sellers to ‘take the lid off’ and let the market decide. You want buyers to compete. The result may exceed expectations.

And sellers remember, even at an auction, you don’t have to sell unless the result is right for you.

Don't follow the herd!

Despite economic uncertainty and a turbulent equities market, the real estate market continues to offer opportunity. Scratch the surface of the most recent statistics and you’ll find that the volume of property in WA exchanging hands has been consistent for the last three quarters signalling steady supply and demand. Smart buyers will stay ahead of the pack and look for opportunities – now.

There’s no doubt that any changes on the global economy and the local markets causes anxiety for both investors and the general Australian public. There is a general “sense” out there that things are “a little unstable.”

This might be causing some prospective real estate buyers to sit back, waiting for the bottom to fall out of the property market. I believe the data we are seeing is actually telling a different story. Since the June 2007 quarter, we have seen a consistently healthy level of supply and demand.

In fact, around 13,000* properties have changed hands each quarter, which equates to approximately 1000 per week. This indicates that there are still buyers out there. And if buyers are astute, they will move to buy now. There is a steady amount of stock offering excellent choice and the potential for good value as well as the potential to negotiate fair terms and conditions.

Interestingly, the type of buyer in the market place has changed a little over the past few months. The number of investors and first home owners has decreased by 5% while those buying their second or third home represent an increase of 5% in the market.

No doubt this is because the higher interest rates are impacting some investors who may be paying more to borrow money and may have been too confident in the value of their assets. But if people can get over the current sense of economic anxiety and affordability issues, it’s never been a better time to buy – and buy well!

The real estate market will always peak and trough and admittedly we have seen some very strong growth up until last year. But overall, the WA economy is very strong and is likely to be for the mid to long term. Furthermore, the demographic data indicates that housing demand will continue to grow. Similarly, the real estate market data tells us things are also consistently positive.

So our message to buyers is “don’t hold back" waiting for a dramatic negative change in the market that is unlikely to happen. Be confident and take the opportunity while it exists today.

“Stay ahead rather than follow the herd.”

* Source REIWA Market Update

"penny wise pound foolish"

Due to the slowing nature of the Perth residential property market sellers maybe tempted to consider private sale rather than engaging the services of a real estate agent. Cost saving is probably the principle motivation for such a decision.

Sellers may see this as a smart option to reduce the cost of marketing their property and avoid paying a selling fee to a real estate agent. However experience has shown that this is false economy. By entering into a private sale, sellers generally harm themselves in respect of the sale result.

Sellers may see it as an easy task to put a for sale sign on the property and place an advertisement in the newspaper. Experience has shown, however, that the buyer of today is a very different creature to that of the past. The methods of communication are far more diverse and buyers are generally much more informed prior to making enquiries about a property.

By decreasing the extent of buyer exposure in the market place sellers in effect reduce the number of buyers attracted to their property and also dilute the focus of buyers. This combines to reduce buyer competition for the seller's property. Buyer competition is all about generating a better sale price for the property.

New consumer
Accordingly it is important that a marketing campaign be assembled to create market impact around the property and generally this can only be done through the extensive resources offered by a progressive real estate agency. In particular, marketing not only via the internet but also b direct presentation to a buyer database is probably one of the most beneficial ways of focusing buyer attention to a seller's property.

Another consideration is that sellers do not have the expertise to apply the different selling methods employed in today's real estate market. Historically Perth sellers have became overly familiar with the private treaty sale with set asking price method, however, this is not necessarily the best method to employ especially in the current market conditions. Furthermore over the course of a property being on the market various different marketing and selling methods can be employed by a professional real estate agent for the benefit of the seller.

Having yourself as the client
The other failure of the private sale comes from the sale negotiations. When sellers negotiate directly with a buyer they are more likely to agree to the buyer's terms, because they do not have the advantage of an independent and impartial person standing between themselves and the buyer to negotiate the best seller result.

So, as a seller it's smarter for you to choose a real estate agency and take full advantage of all it can offer, so you get a better sales result because it will be worth the investment...a few $1000 in commission and marketing can deliver tens of $1000's in sale price!

Watch those days on market

When a property market slows (as it is occurring now in various sectors of the Perth property market), both real estate agents and sellers adopt an attitude that it will simply take longer to get a result.

When a property market slows it is important for a seller to seek a result within good time because the longer the property is on the market it is increasingly less likely to attract the seller's price expectation.

Why?...because prices are falling rather than rising and also because buyer interest will be diluted the longer the property is on the market, especially with increased buyer choice continuing to enter the market weekly. The result is the seller often finds itself chasing the market (price) down!.

Put more simple, a longer time on market means a decreasing opportunity for a premium price.

Unfortunately, most real estate agents adopt a mindset that this "is just the market" and therefore ask for longer and longer listing periods to give them more time to let the market slowly "condition the seller". This in tern creates a mindset in both the agent and the seller that
it's going to take 80, 90, 120, 180 days or longer to get a result, rather than keeping a focus on trying to achieve the sale within the optimum 30 day selling period whilst the property is fresh to the market and buyer interest most acute.

In these circumstances sellers should consider only issuing real estate agents a tight selling appointment period of say not more than 45-60 days to keep the agent focused on achieving a result for the seller in the time period that is optimum for them in the current market conditions.

WA economy continues to boom, property market challenged...informed buyers & sellers will adapt & prosper

Market Realty

Notwithstanding that the WA economy will continue to be positive and strong for at least the next couple of years there are underlying turbulent world economic conditions that will affect us. The rising petrol price and interest rates are obvious examples of this impact.

The recent boom period in the Perth market is well and truly behind us. This market was driven by cheap easy credit, this is no longer going to be the case. In 2008 we are now faced with conditions were credit will become less available and increasingly more expensive. The single most influential factor on the property market is always interest rates (the cost of money). Some analysts will go as far to say that there is a pending debt crisis that is sitting like a set of poised dominos ready to fall.

The Financial Review on the 1/1/08 forecasted that only five (yes 5!) Perth postcodes were expected to avoid negative price adjustment in 2008.

Pricing Sensitivity Will Be Acute

In 2007 we saw that the Perth property market moderate but also splinter with various suburbs performing differently. In 2008 buyers and sellers will carry a sense of unease in relation the property market. Recent press has delivered a strong negative tone that both sellers and buyers would have absorbed. This sentiment will be fueled by;

1. affordability will tighten even harder (especially in Perth which is the second least affordable capital city in Australia)
2. tapering demand with upward interest rates will force a further correction in property values, particularly in outer suburbs or those not offering lifestyle attraction
3. mortgage sales will continue to increase

Conversely there are great opportunities in the top end of the market due to the lifestyle choices the wealthy and retiring baby boomers have the ability to pursue. In particular, coastal - water front and CBD will present the best opportunities. Under $500,000 especially on the outer fringes will be severely challenged and the $500,000 - $1m range will continue to moderate significantly. Facing price reality will be critical in 2008.