The five key questions spring property buyers must ask: Mal James

Mal JamesAugust 8, 20120 min read

Right now, values, pricing and results should be a little inconclusive to all. Anyone telling you she knows for sure what the market is going to do up until Christmas is a lot smarter than we are, Gunga Din.

The current mid-winter 2012 market is best characterised as being historically low in terms of exciting new stock. Another key characteristic is that it is a significantly falling market in terms of expectations for B- and C-graders (or properties that have some faults in terms of floorplan, presentation and location), and a gently falling market in terms of expectations for A-graders (or well-presented properties with sensible layouts in prime positions, the most sought-after class of the property market). See our graphical representation below:

In some of our pricing recommendations, we are using 2007 to 2009 comparables to support where we feel market sentiment may be for any particular home right now.

In 2008 everything was negative. In 2012, there are buyers out there, but we haven’t been seeing them because they are not interested in the poor-quality stock currently being offered in the $1 million to $2.5 million range. This winter the transacting market above the $2.5 million price point is so small that commentary, in our opinion, is supported by best guesses rather than factual evidence. Bidders in big numbers are generally only acting when a good home appears, and then they are aggressive on price in two ways:

  • Up – if there is proven competition and there is a reasonable reserve (although competition is not as strong as it was in 2007 or 2010).
  • Down – if there is no proven competition or if the reserve is courageous.

There are five key property buyer questions:

    1. How long will this lack of quality stock continue? Buyers are wondering whether they should buy now and take second best, because they really don’t want to be looking for another year. Another sub-thought is: if stock is going to be so weak for a long time, we might as well buy a B- or C-grader now rather than wait another year and then still only have B- or C-graders to choose from.

 

    1. Falling prices mean – How do I, as a buyer, catch a falling star (price)? How do buyers get an A-grader against some competition while minimising the burn marks on their hands if prices continue their re-entry from the once seemingly unstoppable surge into the stratosphere that was  inner Melbourne early 2010?

 

    1. How do I assess risk to me and my family going forward? The first decade of this millennium was all about playing market offence and looking for homes that would grow most strongly in value. Remember the words capital growth? This second decade looks to be all about playing market defence. As in, how do buyers look to best protect their family interests in a flat or falling market?

 

    1. How do I deal with bank and sworn valuations that are historic pieces of information? In many cases these values are no longer reflective of the sudden and significant change in the market. How do I deal with an official valuation in a future that may well be different from my purchase price now?

 

  1. How do I buy a home when I am the lone ranger (the only bidder) on the property? How do I hang my hat on a value when all I can see is an agent quote that seems lacking in substance and supporting current data? How do I take comfort and keep my sanity when I can’t get surety and vindication through seeing competitive transparent auctions?

This fifth question is really a compilation of the above four. If you are informed, you can get it right and you can make good decisions and you can sleep OK going forward.

Mal Jamesis principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.

Mal James

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million.
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