With change, comes opportunity. One of my favourite things to say in life (and a bunch of you would have heard me say it) is: ‘If it was easy…it’d be boring!’
I guess it’s my way of stepping up to challenges. When faced with a problem I take a deep breath, say this to myself and those around me, and go windmilling towards the problem with a grin.
But being in this set of market conditions, and then operating in Melbourne, I can’t help but notice that I’ve been saying this little phrase a lot more often recently.
And with the recent legislation changes to both sales and rentals that are locked in to start on October 1st, preserving my equanimity has been an interesting task.
‘Change is annoying, but certainty is absurd.’
This is the only time that I will publicly endorse a Frenchman. When Voltaire (French philosopher) wrote this to Frederik the Great, he made an amazing point that nothing in this life is certain. And as we’ve seen more recently, any attempt to plan anything beyond 12 months has to be done with a level of tolerance because of the certainty that things are likely to change.
But here’s the thing…as with the events of 2020, whenever the boat gets rocked with external changes that alter the fundamental operations of our businesses, it creates disruption that has every office stumbling while they work out how they’re going to navigate the new rules of the game.
What does that create? A chance for everyone to play on a level playing field, and an opportunity to pick up some wins, if you focus your energy on finding solutions, as opposed to bemoaning the way things were.
Melbourne, let’s talk!
So the changes to the rental side of things are a straight-up pain in the backside for residential investors, the biggest pain in my opinion being the capped penalties for lease breaks (seriously, what’s the point in having a lease beyond two months?).
But the sales side (as always) has been grabbing the headlines, with the biggest changes being the obligation to disclose the reserve at least 7 days before the auction or time-based deadline for expressions of interest/fixed date sales.
(Yes gang, this also affects private sales that have deadlines.)
Now there are other key changes that Victorian agents need to get across, such as the removal of the ‘Statement of Information’ (SOI) and the addition of the enhanced ‘Property Price Statement’ (PPS), but if you’re not sure then head to the REIV’s summary by clicking here.
And yes, there are still a number of mechanical issues that need ironing out by our beloved leaders in parliament.
Disclosing the reserve has caused a lot of fuss, with some agents initially suggesting that this could be the end of auctions in Melbourne. But when you think about it a little longer, and let the anxiety of change calm down, then this could well end up being a great move that drives interest further.
So let’s look at these changes critically from each perspective, how they affect our customers, and some adjustments that we could make to maximise the potential of this new landscape.
Vendors
The problem: getting this obvious statement out of the way, from the owners’ perspective these changes look like the world has officially turned against them.
The government has clearly positioned buyers as the ‘victim’ in all of this, and on the surface our owners have had their one trump card (i.e. the mystery of if it’s ‘on the market’) taken away from them.
Disclosing the reserve may have buyers seeing a figure, and deciding to stand firm on their position below that. It’s kind of like breaking negotiation rule #1 – giving your position away first can allow the other side to make the first challenge to the figure.
But the greater challenge we’ve had on the front line, especially recently, is getting buyers to do anything. Not only because buyers think that they are in the midst of a ‘buyer’s market’, but even with the attempt to prevent underquoting via the SOI our buyers have been conditioned to presume otherwise.
The reality: if you ask any buyer on the front line what they think a property is likely to sell for, then the majority of them will tell you that they add a 10% increase on whatever the advertised range is, even if the rules state that a reserve would need to be within said quote range.
Add that to the standard ‘can’t trust agents’ rhetoric, and buyers can have a natural aversion to making the effort to get financially organised to be able to bid unconditionally, which can chop off some potential interest.
The potential: the extra transparency pretty much removes the major psychological hurdle that causes a lot of the apprehension in buyers. If they see a reserve displayed (which will need to be in the range still by the way), showing them that there’s no need to be concerned about it being 10% over the quote, then the target for victory has never been more clear.
I’ve already conducted auctions that have either advertised the reserve directly, or in multiple cases the agents have advertised that the reserve was ‘in the quote range’, and in most cases the reactions have been tremendous.
Most recently was an auction in Carnegie, in which the range was $1M – $1.1M and the agent put ‘Reserve in the quote’ on the title of the ad.
The outcome? Around 100 people attended the auction, 7 bidders, and having gone onto the market at the top end of $1.1M, buyers took the thing up to a result of $1.35M.
But the best part beyond that was that normally, if a property goes that far past the quote then on-lookers tend to drift away before the end…but everyone stayed, and the agent picked up multiple appraisals on the spot.
Buyers
The problem: honestly…not a lot. They’re being given the target figure, they’ve not had any regulations placed on them to provide greater transparency on their side, and they can head out on a weekend feeling a lot more relaxed about whether they’re going to be wasting their time or not.
(Side note: why the government hasn’t introduced bidder registration is beyond me, and shows a real blatant bias towards one side of the deal)
The reality – this can actually cause a much greater concern for properties that run a standard private sale, on account of the simple fact that we don’t have to give a clear ‘will take’ like the other processes.
This could create a bit of a challenge for those who need financial approval, and generate a greater sense that their time is potentially being wasted by turning up to ‘private sale’ properties as opposed to viewing properties going to auction or time-based campaigns.
This is going to take some collaboration between agents, buyers and brokers, because it looks like more buyers will want to buy at auction now if they can get their loan approvals sorted.
The potential: more ‘clean’ deals, less time spent in negotiation, those disclosed reserves becoming more of a beacon of hope as opposed to a feared anxiety. Providing that brokers and banks pull their fingers out and provide full approvals in good time.
Agents
The problem: the psychological power of that reserve ‘trump card’ has gone, the mystique around the opportunity has dissipated, and so that initial anticipation will have to come from sheer competition rather than conjuring magic by squeezing the emotions of the situation.
For a number of brands and agents (and yes let’s be up front about this), the inability to be able to price ‘conservatively’ in order to generate interest, and drive the figure beyond expectations will also cause real concern when considering an auction for an owner.
If you’re too reliant on ‘buying listings’ at the listing presentation, then chances are that you’ll potentially see private sale as the ‘easiest route’ to get owners onto the market.
But because that will likely have more buyers shy away from your properties, you’ll be in a really tough spot when trying to generate interest anywhere near the right level, even if you do price it reasonably.
The reality: no getting away from it now, your price conversations are going to need to improve at listing presentations.
Going to private sale is ok, but if you do then you’re going to have to do much better with your marketing to make your properties stand out from the crowd if you do (to be honest, you probably need to do that anyway).
Auctioneers
The problem: during the auction, the dynamics may change dramatically.
Some buyers potentially seeing the figure and sticking the first bid right at it to try and stop the call from building momentum. Others will wait for the auctioneer to declare a drop in reserve, and the theatre of it all will become a lot more challenging to create (a bit like going to a movie when you already know the ending).
You’re also going to lose that ‘on the market’ power play, unless the owner decides to lower the reserve mid-auction.
The potential: nowhere to hide, for anyone. No aggravation about it being challenged for not being on the market by some flog who has nothing to do with the auction.
It could also speed up the process, if someone fires over the reserve early it may get done before anyone else gets involved.
The reality: whether you want to face it or not, we’re all going to have to re-work our craft to suit the new landscape. The pressure cooker we want to build is not going to happen just by running the same call as normal, and vendor bids will need to be more strategic.
How we put pressure on buyers will need to be looked at too – finding out their motivation beyond the transaction will be really useful, so work with your agents on that prior to auction day.
Lots of things to marinade on here, and yes there are a few unknowns that are still to be worked through. A number of supposed leaders are suggesting that auctions will die off, but all that shows is a lack of ability to change.
But if you get past the scepticism, look at how you can use these changes to the best of their ability, and get onto the practice ground for the call, bidding and build up, then this could be fuse that lights up a market that has been on its rear end for long enough!