Monthly Archives: February 2017

Battle of the disrupters – No agent v cheap agent

The traditional real estate agent is under attack from the left and the right. On the one hand, companies such as Buy My Place are teaching consumers how to sell without a real estate agent. On the other, UK outfit Purple Bricks hit Sydney in recent times to offer home sellers a real estate agent whose total fees are under $6000.

The traditional full service, full fee agent is coming to realise the real estate office next door and down the road is not their only competition.

Removing the traditional agent from the equation, it does set up a very interesting discussion. Are consumers better off giving their listing to a cheap agent or doing it themselves and no paying no fees?

Selling with a cheap agent

The main benefit in dealing with a cheap agent is you save on the commission. However, consumers must first and foremost decide if they are getting value for money in their $6000. If the agent undersells the home, the commission savings are simply transferred to loss in sale price. It is completely in correct to suggest Purple Bricks are the Uber of real estate. It sounds catchy, but the facts don’t support it.

Uber is an automated web transaction that competes in service and cost with the humble taxi driver. The risk for a consumer is essentially zero. Conversely, Purple Bricks take their fee upfront regardless of the result. If you drive the car from west from Balmain on Victoria Rd you will get to Drummoyne, guaranteed. If you list your house on the market, it may or may not sell for a price that you are happy with. Last year in a boom, the auction clearance rate was 80%. That means 1 in 5 failed. There are no guarantees in selling anything. Ask a fruit shop. So the risk is $6000 before the starters gun has gone off.

Finally, good real estate agents don’t work for $6000 a sale. If you are selling a home, its nice to think you will get a high level service for $6000, but you won’t.

Selling without an agent

A great way to look at the difference between selling without an agent v a cheap agent is to run the maths. On the one hand, you have a self acting, self interested home seller looking to save $20,000 to $50,000 in commission. Aside from the sale proceeds, that is the reward if the owner achieves a sale.

On the other hand, you have a real estate agent that will get about 35 to 40% of the $6000 fee in their hand after the costs and split with their boss.

A self-acting owner is saving $20,000 to $50,000 in commission and acting from self interest aligned with the sale.

The cheap agent is relying on a low fee with high turnover in a small time frame.

Time will tell whether Australians adopt the sell without an agent strategy. The cheap agent strategy has been tried many times and failed miserably.

Signals and signposts. The key indicators that will determine the 2017 market

The 2017 property market could see a continuation of the boom. Predictions across a range of analysts predict growth anywhere between 5 and 15%. Conversely, the correction that many have felt was imminent for the past few years could occur.

The key to anticipating the market whether you are buying or selling is to follow the relevant signals and signposts that are likely to determine the market.

Interest rates – there are two interest rates to follow. Firstly, the Reserve Bank of Australia’s (RBA) cash rate, which is currently set at an all time low. Make no mistake, the RBA cash rate is at a record low and house prices are at an all time high. There is a direct correlation here. The second key interest rate setting is the retail banks rate movements. In the past few years, the retail banks have moved rates, up and down, independently of the RBA.

Employment/Unemployment – The national economy is struggling, the NSW economy is booming. In the short term, following the NSW unemployment rate is more important to the Sydney housing market than the national unemployment rate. The respective state economy is a better immediate indicator of how the property market is likely to perform that the broader national economy.

Rents – If property prices continue to rise as rents stagnate, investors will shun the Sydney market in favour of regional centres and interstate capitals. Newcastle and Hobart are just two examples of where investors have looked to in recent times in favour of Sydney. All stable property markets appeal to a broad range of buyers. Low yields that fall further will cause Sydney investors to focus solely on capital growth. After 5 years of strong growth, that’s a big call.

Time on market – how long does it take for a property to sell? In a strong market, sales occur in a rapid timeframe and vice versa. By anecdotally following time on market for properties in your immediate area, you will gain an insight into how easily (or not) buyers and sellers are coming together on price.

Apartments – for the first few years of the current boom cycle, apartments performed equally well as houses, in terms of price growth. As high rise after high rise came up for completion, apartments subtly begun to underperform houses. Sydney does not seem to have the apartment oversupply that Brisbane and Melbourne does. But if rampant oversupply of apartments were to occur, it could easily weigh on rental returns and house prices. It is worth noting that the new NSW Premier Gladys Berejiklian plans to address the housing affordability crisis through development/supply. The

Black Swan event – Regardless of the apparent strength in the property market, its wise to be aware that Black Swan events occur. They are rare but they exist. A Black Swan event is usually rapid (like the collapse of Lehmans Brothers in 2008) and have dramatic knock on effects. Given the amount of debt swooshing around the world at present, systemic risk is real.

Bidders per property – the market depth is more accurately reflected in bidders per property as opposed to buyers at open inspections. It costs nothing to walk through an inspection. To place an unconditional bid on a property means the buyer is serious. The more bidders per property, the stronger the market and the deeper the buyer pool. Attend auctions and see for yourself the vigour in the bidding.