Unrealistic vendor hopes the single biggest problem in Melbourne real estate market: Ian James

The year 2012 is moving into the rear view mirror.

With only five auction weekends to go this year, the necessity for good negotiation becomes paramount. With another 69% clearance rate from 733 auctions that were listed by the REIV and over 3,000 auctions listed for the next three weekends, vendors and purchasers will be frantic to do deals.

If clearance rates continue around 60% then in the next three weeks 40% of 3,000 properties will still be sitting on the market in the run-up to Christmas. Some 1,200 vendors will want to have their properties sold before relaxing through the Christmas hiatus. And it is up to the selling agents to assist the vendors to make this happen.

But too many agents are still massively overquoting vendors then low-quoting to prospective purchasers. It is not too difficult for professional buying agents to work out property values and have a very good idea where the auction will finish up. It really doesn’t matter to us where the agent quotes because we can use comparable sales data to get a very good idea of where the bidding will end up. We have heard from some selling agents that reserves should be published prior to auction. This is all well and good if they are accurate to what the final outcome of the auction will be. We have heard from plenty of selling agents who say that low quoting is necessary to bring plenty of people to the auction. But this usually annoys the inexperienced or those who are not getting professional counsel from a buying agent.

Neither of these situations is of any real issue if the vendor is selling at a realistic price. The single biggest problem in the Melbourne Real estate market is when agents let vendors dictate reserve. I know the vendor has the right to sell at whatever price they want and I know they can withdraw the property from market if they wish, but when prospective purchasers expend money on legal, building and pest inspections when the vendor wants 10% over market value and the selling agent does not advertise this, it is grossly unfair.

When excellent comparable sales data indicates the price point of a property as around $700,000 give or take $25,000, even if the agent quotes in the $600,000 range it doesn’t usually matter too much. Come auction if it is a good property it will have multiple interest and the bidding should get into the high $600,000s or low $700,000s and well within the target range of value for the vendor.

The problem occurs when the vendor wants $800,000 for the property.

This means the vendor either has extremely bad counsel from the selling agent, the selling agent has overquoted the property’s value in order to get the listing or the vendor was not really serious about selling their property. Unfortunately, it is usually one of the first two reasons.

Consumer Affairs should step in to protect both the vendor and buyer. If the agents’ appraisal is more than 10% from the vendor’s reserve either publish the reserve at the beginning of the campaign or if the property does not sell at auction reimburse prospective purchasers for their time and expenditure on purchasing the property. Most professional real estate agents who are competent will know what a property is genuinely worth. There will always be a little low-quoting, but value is value and if the vendor wants well above the market value the agent should have a responsibility to let every prospective purchaser know before they expend time and money on due diligence.

Over the next five weeks we will see more and more of this issue and it will be exaggerated as we get closer to the Christmas slowdown. Agents who are desperate for listings may have been “buying the listing” (telling vendors they will get more for their home than it is truly worth), and when the agent comes up short at the auction, they should be held accountable. After the auction, there is no reason why the compulsory appraisal that the agent did for the vendor should not be published for all passed-in properties. If the reserve set by the vendor is more than 10% above this number then this should be seen as unreasonable for prospective purchasers. The prospective purchasers should be able to make a claim against the agent or vendor marketing the property.

Ian James is director of JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiate more than $100 million worth of property each year for clients.