Case Studies

Today’s Melbourne real estate market is tough for vendors. Who you choose to list your property is critically important.

When selecting a selling agent, recognise that this is one of the most important financial kdecisions you’ll make. You’re probably selling your biggest asset – is he/she treating it with the seriousness it deserves?

I’m forever blown away by how casual some selling agents can be when pitching for a multi-million dollar sale. When I consider a $40k+ account, I do my bloody homework! Too often, I interview agents who think they can bullshit me…

My permitted property is worth mid-to-high $2ms. I know it is because I study the market, I know the comparable sales, and I take these things very seriously. After trading a few emails with an agent who had sold a similar property to mine in the recent past, I decided to meet with him in his office. Surely, he’d have analysed recent sales and consulted his colleague who I specifically mentioned.

After a bit of small talk at the beginning of our meeting, he asked me what I wanted to talk about?! Wow, not a good start. I launched into a series of questions:

• Which specific properties had his team sold in the last 12 months that are comparable to mine?
• Is he in contact with suitable buyers? Who exactly?
• How does my property compare to this one that sold at $2m? This one at $1.8m?
• What can he and his team bring to the table that another agency can’t?
• Tell me how we should market this property? Auction, Sale by Set Date, Private, Off-market?
• Where does he see value? How will he maximise the perceived worth when dealing with buyers?
• What statistical information does he have that explains the current market to me and to buyers?
• Who does he think will end up buying this property (age, gender, life stage, ethnicity, profession)?
• How will he leverage his office network, and what does that mean for his commission?

A deer in bloody head lights. I couldn’t be more disappointed, and when he told me he didn’t appreciate the way I was speaking to him, I told him I didn’t appreciate my time being wasted. The guy didn’t even shake my hand when I got up to leave.

This is example is far from typical, but it does illustrate the degree of preparation you should rightly expect when calling in an agent to appraise your home. Sales volumes are down ~20% year-on-year, and good agents are hungrier than ever.

Gone are the days when you should simply list your property with the agent who you like the most, the one who remembers your dog’s name, or the one who’s been in the most consistent contact with you over recent years. Get hard-headed, and treat the decision of who represents you in selling your biggest asset as a business decision.

The key criteria that I consider when interviewing sales agents are:

Market share of similar properties in the immediate and surrounding areas. I want an agent who understands local conditions and prices best, and who is regular contact with active buyers. I don’t want an agent who’s meeting interested parties for the first time at the first open, I want him/her to have intel on buyers before our property is advertised.

Auction success rates. While you may not choose an auction as the best way to sell your particular property, auction success rates are good indicators of how good the agent is in managing a campaign: setting a suitable price, managing vendor and buyer expectations, promoting the key property characteristics, enticing offers, etc. Related to this, I want an agent who can negotiate prior to and after auctions.

The team behind the agent. I want an agent who can bring passive buyers (sometimes from out of area), and who can create multiple touchpoints with buyers throughout the campaign. Many agencies have shared commission structures that encourage non-listing colleagues to introduce buyers to properties, and assist with negotiations. That’s a good thing.

I admit that I’m a hard taskmaster, but I reckon I’m fair. I work very hard for my clients, and I expect the same level of dedication and professionalism from those who work for my interests.

Above all, demand that a bit of homework has been done prior to meeting. And, of course, trust your instincts, but use your head.

The heat has absolutely come out of the Melbourne housing market.

Dynamics between Sellers and Buyers have changed dramatically over the last 12 months. For much of the five years between 2012-2017, the dominant, underlying emotion at auctions and during private sale negotiations was one of fear – Buyers feared missing out. With price growth flat, and auction clearance rates lower than they have been for years, the tables have turned, and now it’s the Sellers who are feeling a bit of fear.

For those who study and understand Melbourne real estate, these market dynamics will deliver great buying opportunities. Savvy developers with strong balance sheets are already capitalising…

I first saw this property when it hit the market in November 2017.

At first glance, an asking price of $3.0m for 3,057 square meters was about right for the suburb, but a closer look showed otherwise – awkward shape and slopes, potentially unusable portions of land, main road location, restrictive zoning, trees, etc. I saved it as a future prospect, but didn’t spend any more time on it.

Fast forward 6 months to April this year, and I noticed that it had been re-advertised with a different agent. Interesting. I booked a private inspection with the new guy, walked the block, and talked a bit about real estate in general and the block specifically. As you’d expect, I broke the agent’s balls a bit about price, with reference to all the issues listed above.

It was clear that the vendors hadn’t yet moderated their price expectations much, but the agent was genuinely keen to get feedback with the aim of educating them. He wrote down my comments, and didn’t baulk at my estimation of value around low $2m.

Do I want the Contract and Vendor Statement?

No thanks, not until the vendors show a genuine willingness to drop their price.

Well, what about putting in an offer and going from there?

No, I don’t make offers lightly, and at this point, it’s a waste of time really. Call me if it’s still on the market in 4-6 weeks.

Time and Silence are important – but often overlooked – factors in effective negotiation.

After meeting the agent on-site, I rang the previous listing agent to get the low-down on his 6month campaign. Turns out there was a conditional offer accepted on the property at about $2.7m, but just before it became legally-binding, the Council applied a strict Vegetation Protection Overlay to the site which impacted potential design and yield. That offer was withdrawn, but not long after another buyer emerged at $2.4m. As a Deceased Estate sale, the beneficiaries didn’t all agree, and after a few weeks of indecision, the offer was withdrawn. The agent departed shortly after.

With all this knowledge, and an intuition that a great deal could be on the cards, I ran the property through a preliminary feasibility, and saw good profits at a purchase price of $2.2m – $2.3m. Apart from making a couple of my clients aware of the property, I kept my counsel and refrained from future contact with the agent.

Five weeks to the day that I inspected, I got a text from the agent. Massive price price reduction! Vendors now asking $2.25m for all properties combined. Am I interested? Bloody oath!

Time cuts both ways in negotiations. A strategy to keep silent has to be coupled with a capacity to move very quickly when needed.

I quickly took measures of all significant trees and calculated their associated Protection Zones. I mocked up the below mud map to help confirm potential yield (e.g. number of properties that we could put on the site). I asked my Town Planner for advice. I met with Council to get their impression. I had my Arborist out to assess retention values of all trees. I spoke to a couple local agents to confirm estimated resale values. Etc. Etc.

The client I had in mind for this project had asked me to be a Joint Venture partner in any subsequent project he did (we’ve known each other for a while, and we have runs on the board together), and we were intending to purchase another property at auction in the coming weekend. Once I collated all info and advice, I sent him the final project feasibility, and we agreed it was a ripper.

Up to this point, I had a) used time to my advantage by waiting for the vendor to drop his price without my urging, and b) powered through a mountain of feasibility work in a very short period of time so that we were in a position to jump on a great opportunity before anyone else had a chance to.

Finally, I used time to apply maximum pressure in an aggressive negotiating strategy.

I wrote up an unconditional offer of $2.125m at 5pm on a Friday, with the following nasties:

We’d settle on the smaller of the 3 blocks in 60 days for $0.65m, but we’d need a 12-month settlement on the other 2 blocks for the remainder $1.475m.

The offer must be accepted in writing by 10am the following day, as we intended to bid at auction for another property.

The offer was accepted that same evening (we were ready to up it to $2.185m but didn’t have to). In the week following, I’ve organised a land survey, an arborist report, and we’re near to appointing a design team and town planner.

By capitalising on the changing market dynamics, and by using time to our advantage, we secured a property at a price 29% lower than the $3m price initially advertised, 21% lower than the first accepted offer, and 13% lower than the $2.4m the vendors should have agreed to just 3 months before. Several local agents I’ve since spoken to have confirmed that we got a tremendous deal.

Similar opportunities will present themselves in coming months. The advice I give to my clients – be patient, but be ready to pounce on good buys when they materialise.

How much can I get for it?!

When selling your property, that’s the first and most obvious question you’d ask an agent. But, how often do you get a straight answer? Not often.

I’ve sold more than a few properties over the years, and whether acting for myself or as an advisor to my developer clients, I never leave it to others to do the research I can do myself:

1. I study results online,
2. I attend opens to see firsthand what the buyers do, and
3. I call agents to understand the specific campaigns

I invested 3-4 hours in learning as much as possible about recent sales. The knowledge gained meant I could negotiate patiently, and with confidence, to ultimately make an extra $30k in development profits.

We’ve written before about the different seasons in Melbourne real estate, and why selling in Spring can be a risky proposition, but sometimes there are factors at play that force your hand (e.g. build schedules, holding costs, holidays, etc). Against my better judgement, I tried to auction a property just before Christmas last year, and was disappointed by the turnout – only one bloody bidder on the day!

After passing in the property at $1.22m, my agent brought in the prospective buyers, and began the one-on-one negotiations.

It was in these stressful and emotional circumstances where my research became so important.

I studied some recent sales in the surrounding streets, which pointed to a market value of about $1.30m for mine. But, it can be hard to put your finger on what exactly is a comparable property… Block size, number of beds and baths, new v old construction, orientation, and other factors come into play. Online advertisements don’t usually give you a feel of properties and the characteristics that have the biggest impact on price, and that’s why it’s important to actually attend open for inspections of other properties prior to selling your own!

And, in addition to building my geek spreadsheet and inspecting firsthand my competition, I also spoke to each listing agent… Has the lack of a downstairs master impacted demand? If this was newer construction, how much more do you reckon it would sell for? Have you had many comments about the small yard? How did the auctions go on the day (e.g. how many bidders, what were their ages/demographics, what was the reserve price)?

I struck gold with a property that sold 2 weeks before mine for $1.465m. It was an older single story detached dwelling on a similar sized block, on the same side of the street. Should I expect mid $1.4m instead of $1.3m? A good chat with the agent had me thinking no. The auction saw one of those heated bidding competitions between just two downsizers who each placed great value on the single level nature of the property (mine had a downstairs master, but is a two-story). In other words, it was an unusual result attained through a highly emotional auction. But, it was a great one for me to point to in post-auction negotiations, and it made me feel confident that the right buyer could come around after Christmas!

Back to the post-auction negotiations…

I instructed my agent to stress to the bidders that I was hoping for mid $1.4m based on the result down the road, but I’d be willing to accept a discount on that and ‘meet the market’ so to speak. They went from $1.22m to $1.28m to $1.30m in the space of 10 minutes, all without me making a firm counter-offer. My agent is a great bloke, but was naturally encouraging me to think seriously about accepting. Nope. I knew that a lot of prospective buyers had checked out of the market before Christmas, and I was confident that a renewed Sale by Set Date in the new year could bring me a better offer.

Sure enough, a few weeks later, we had two more interest parties show their hands. The original bidder came up to $1.32m, a second came to $1.325m, and I finally accepted an unconditional offer of $1.330m with a 60 day close.

As much as I liked and respected my agent, I didn’t rely on him to tell me how much my property was worth.

I invested a few hours’ time into becoming a local area expert, through tracking results online, attending opens, and speaking with other agents. Despite the stress, I recognised that a bit more time in market was a worthwhile punt, and I netted an extra $30k.

Walter emailed me in March last year, enquiring about our property development services.

He’s an Australian citizen living overseas, and is widely experienced in property development across the globe. Intending to settle back in Melbourne in a few year’s time, Walter (not his real name – he’s a private guy) wanted to get some projects going.

He respected and understood our aversion to apartment developments, and was enthusiastic about our analytical approach and real-life experience.

A purchase budget of +/- $1.2m was agreed. Plan A was to fully develop a site and sell upon completion of construction – about 24 months. Plan B was to offload the site with Planning Permissions – about 12 months.

A profit motive in development is quite different to an investment motive. To achieve a 20% Return on Investment in 24 months, we look to specific areas > suburbs > neighbourhoods; some of these aren’t as suitable for long-term investment as others. But that’s for another day…

Development sites that have been on the market for a long time are often overpriced or difficult.

When searching online portals, I’m a big fan of sorting properties from ‘Older to Newer’ to find a good buy. The number one reason that properties languish on the market is overpricing. Too many vendors have unrealistic price expectations, particularly when their properties are suitable for development; the uninitiated tend to arrive at a price by doing some quick maths around sale price, build cost, and resale price, failing to account for things like stamp duty, holding costs, council contributions, professional fees, selling fees, GST, etc. An inflated price at the beginning of a campaign almost always leads to a long campaign.

Some properties can languish on the market because they’re ‘difficult’. Sites can be deemed difficult for a wide range of reasons: required street and neighbour setbacks, vegetation on and around the site, slope of block, neighbourhood character, onerous planning overlays, limited site access (think busy streets), etc, etc. Inexperienced developers either don’t take these difficulties into account, in which case they overpay for the site, or are scared off by them. Experienced developers can identify and log them in minutes, and any offers made are usually heavily discounted.

I examined about 12 sites for Walter, and recommended 2 as worthy of further consideration. He ruled one out immediately due to proximity to freeway and powerlines (I factored these into prices, but hey, if the client doesn’t like something, then best to move on). I conducted a full feasibility on the second, but ruled it out together with him at the last hurdle because the return just wasn’t there.

For months, I’d been tracking a particular property, but didn’t initially consider it for Walter because it was out of his price range. I made contact with the agent, and long-story short, purchased it for Walter – after conducting a full project feasibility, complete with council feedback, informal advice from a Town Planner I know well, and a valuation from a non-listing selling agent.

We bought in mid-April, and, as agreed previously with Walter, I began immediately assembling a team required to design the development and attain planning permissions. [All quotes and invoices from team members were sent to Walter, with my payment only coming once permits were achieved.]. Development design is a challenging, iterative process, that, if done with appropriate consideration and deliberation, takes a few months.

We lodged our formal application with council in early August.

Council took months to reply with a Request for Information. They later raised some concerns with flood levels that delayed things. But, after considering a couple minor objections from neighbours regarding window screening, our plans were finally approved last month – just under a full year since purchase.

At the time of purchasing, I shared some analyses with Walter that demonstrated the high level of demand in our suburb for permitted sites (i.e. properties that a builder can purchase, and begin building immediately). This high demand, coupled with very low supply, means that a significant premium could be achieved.

I caught up with Walter over lunch a couple weeks ago, to discuss this project amongst other things. I ran him through some recent sales of permitted sites, as well as feedback I had quietly attained from two local agents.

The numbers speak for themselves:

PURCHASE: $1.155m (including stamp duty, buyer advocacy fee, legal)

PLANNING: $50k (including professional fees, holding costs, and my project management fee)

SALE: $1.60m (less selling fees)

Walter is seriously considering cashing in now, and why wouldn’t he?! Over $340,000 profit in 12 months equates to a 30% Return on  Investment and a 78% Return on Equity after GST.

The keys to achieving this amount of profit in such a short time…

Buy in an area that is statistically likely to see above-market Median $ Price Growth in the near-term.

Buy in an area where demand for permitted sites is high, but supply is low.

Conduct a comprehensive feasibility quickly.

Negotiate effectively, to attain the property at below market value.

Design well, with a mind towards end buyer demographics and wants.

Manage the planning process diligently but respectfully, ensuring your team and Council are on top of things.

And (I would say this), consider appointing a Buyer’s Agent who understands development and where best to find suitable sites in Melbourne.