Read the full interview here:
– G’day everybody, James from mrkts.com.au here and today we are very lucky to be joined by Mr. Mitchell Lambert from Lambert Willcox. How are you, Mitchell?
– Good, thanks for having me.
– Thank you for coming in. So Mitchell, to begin why don’t you give us your CV in under one minute?
– Sure. I started my real estate tenure under Dane Atherton at Harcourts Coastal which has now grown into the largest real estate agency in the Gold Coast in terms of volume of sales people, and number of sales, and turnover. From there, I shifted to McGrath Estate Agents in their Broadbeach location which is a company owned office and I worked there for a major prestige player for a number of years before I ventured out and started my own business which is now Lambert Willcox Estate Agents with my business partner, Jesse. And then, between that period I undertook my auctioneer’s license as well. So I went from that transition from administration to sales associate, to residential agent, to auctioneer, to now, principal, selling principal.
– Wow, so the whole journey. And it’s really interesting because there’s so much complexity I think, that people don’t understand about the breakdown of those roles.
– There sure is, yeah.
– And then where the auctioneer comes into it.
– For now I thought we’d just quickly touch on some of definitions of agency and types of appointment that can be allocated.
– Sure, yeah.
– And then maybe the benefits and drawbacks of each.
– So, when people sign in Queensland a form 6 which is an appointment of an agent there is something called exclusive agency, sole agency, open listing, and an auction.
– So, can you run us through then, the benefits and drawbacks of those?
– Sure, so the three types, the major ones that you usually find are exclusive or open, sole agency was bigger in the 90s but how it really transpired is, during the 80s and 90s most agents operated on an open listing basis, right? So an agent would carry 20 or 30 pieces of stock, another agent would also hold that piece of stock as well, they would show it in the window, a buyer would come in, they would show a lot of properties. That was how real estate used to transact. As the business became more sophisticated, digital disruption et cetera, what ended up happening is, owners decided to appoint agents on an exclusive basis. So an exclusive agency means that you appoint only a single agent to sell your property. Now, you’re effectively entering into a contract. Only that agent can sell that property during that period of time. Now, what happens from there is, you can also tick a box on the agency agreement where it will go into what’s called an open agreement which is a traditional real estate agent’s agreement which basically is a contract to say that if you produce a buyer for my property you are entitled to your commission but I can also sell my own property, I can sell it, another agent can sell the property, or you can also sell it. So it’s a very open, not a very legally binding document. All it does is entitle the agent to the commission if they sell the property. A sole agency is quite interesting, where the owner can sell the property, or you appoint the agent to sell the property. Only the two parties. So it works in different areas, exclusive agency usually has a time period. A sole agency usually has a time period as well. The maximum in Queensland is 90 days but an open listing operates on an open basis for as long as deemed necessary. Now, an exclusive agency, drawbacks are, well of course, you’re contractually obligated to pay that agent, example being, if you list your property with me for sale and then the neighbor knocks on your door and says “I want to buy your property,” and we’ve been dealing with each other you are still legally, you have to pay that agent for…
– You’d still have to pay the commission for their services
– because you’ve appointed them.
– If you’ve appointed them, you’ve entered into a legally binding contract and then in that period if you’ve dated a contract or the property sold within the tenure of that 90 days then they are effectively entitled to their commission. Now, with an open agreement you can of course, anyone can sell the property and then when you go through that sole agency that’s why a lot of owners opt with a sole agency because they can sell it to, either a friend or a neighbor, or through the marketing that the agent may generate or the inquiries. The benefits of the exclusive agency are, you have one agent operating and working exclusively for you. Now, they work on your property, they’ll market it effectively, they’ll drive traffic to the home, they’ll hopefully provide you feedback, indications of price, and offers from the marketplace. So you usually have an agent who is incentivized to work because then they know they’ve got, basically their first crack for 90 days and they can produce you a sale, they can get paid. Now, the benefits of an open listing, of course, is you have no contractual obligation, that you’re open to anything, anyone brings you a contract or an offer to purchase, you’re able to accept that. You might not have any commission liable at any point if you sell it yourself. However, the dangers of an open listing are, if you appoint four or five different agents of course they’re no longer incentivized to work for you. It’s a very logical sequence. If an owner appoints me exclusively, another appoints me on an open basis, who do you think the agent is more incentivized to work for?
– Correct. It sort of breaks down to, what is going to motivate the agent?
– The agent.
– As much as anything.
– It’s a commercial business, yeah. It’s a commercial decision for these people. Agents know, if you don’t sell you starve. It’s really that simple. So of course, they’re going to place more emphasis and more work, onto the owner who is going to appoint them exclusively.
– So, is an auction then an appointment as well?
– An auction is actually, it’s very misconstrued. A lot of people say, is an auction… It’s a very common question for us. Auctions are just a method of sale which are independent of the type of agency appointment that you opt with.
– So it’s somewhat of a strategy.
– Absolutely, it’s just a method of sale. It has nothing to do…
– However, you’d be hard pressed to find an agent who would conduct an auction strategy for you on an open basis.
– They’re likely to be exclusive.
– Very likely.
– Okay. So then, when we discuss auctions, or really in real estate in general, there is some terminology that I think we should cover off just so everybody is clued in and on the same page. So, what is, we’ll start simply, what is a vendor?
– A vendor, vendors, agents usually refer to the vendor, which is the owner of the property.
– Okay. When people offer terms, or, what are the settlement terms, what are the terms, generally?
– Very common question. With most purchases or new purchases I deal with, they don’t actually realize that a number of things need to be negotiated, they only think that it is the price but in fact, most contracts in a residential set are quite simple, but they do have a number of components. Of course, the biggest one is usually the price. The next one is, when are you going to move into the property? AKA the settlement date. So, what will happen is, that the contract is entered into by both parties and then they will nominate a time at which the transfer of the title will be completed and then you become the effective owner of the property and move in if it’s a vacant possession.
– And that is negotiable?
– Absolutely negotiable.
– Settlement time is a negotiable thing?
– Yeah, in the prestige market you usually find longer settlement periods but you know, in your more sort of, sub one million dollar range it’s usually about 30 days in the state of Queensland.
– Okay. And then there’s chattels and all the other inclusions that you’re able to negotiate if you want someone’s couch for example and they’re willing to part with it, then maybe there’s a negotiation in there.
– Absolutely, very common.
– Okay. We also push our members to do as much research as they can.
– And when they’re having a look around there’s a couple of terms that we’ve been asked by our members to cover off, so I thought I’d get your opinion on them.
– Clearance rates, what are they and why are they important?
– Clearance rates are a really interesting concept and very misunderstood and can almost paint a picture of what’s not the reality of the market.
– So, the clearance rate, particularly in markets that are incredibly buoyant, like Sydney and Melbourne, an auction clearance rate is basically the amount of auctions that have sold either prior, or under the hammer, that are going up for auction over a certain period. An example, so, the auction clearance rate for the month of January in the city of the Gold Coast. If you have 100 auctions and 50 of them sell under the hammer, or sell prior, of course, that would be a great weekend or a great month.
– It would!
– And that would be 50% auction clearance rate. So, in Brisbane and the Gold Coast we usually range between 18 to 33%.
– On average?
– On average, that’s pretty common. But it changes with the market, very seasonal as well. And then you also find in Sydney and Melbourne auction clearance rates can jump all the way up to 70, 75%. What ends up happening is, though, people jump on board, you cannot just rely on auction clearance rates as a parameter for the performance of the market and why I say that is because sometimes it is not a case of, auction clearance rates it hasn’t sold because there might have actually been active bidding on the property. However, the owner’s expectations on price were inflated due to shifts in the market. Typically the buyers are more encouraged, or more involved in what’s happening with the market where the owners would like to stay put. So an example being, if you look at 100 auctions and out of all hundred of those there are no bidders you would say the market’s absolutely flat.
– No sales. But if you looked at 100 auctions and had zero sales, but had active bidding on every single one of those properties, all that actually means is that the seller’s expectations were out of alignment with the market. So that’s why I always advise my buyers, don’t always be so focused on the clearance rates because you aren’t actually sure of what’s happening in the back end because if there is active bidding on those properties however the owners haven’t decided to accept the market it’s not always a demonstration of what’s actually happening in the marketplace.
– Very good. So then stamp duty or transfer duty, what are they about?
– Stamp duty, most people always misconstrue the amount of stamp duty they have to pay. I know I did, I got a little bit of a shock when I redid my numbers. So, stamp duty is effectively the fee you pay to the government to transfer the property into your name. So, you pay a number of different types of stamp duty, either if you’re going to live in it as a residential property to live in, or as an investment property. So you’ll pay different rates of stamp duty whether you’re going to be an owner-occupier, or if you’re going to rent the property out, you know, it’s usually, a very basic rule of thumb is, between 2 to 3.5%.
– But, consult an accountant.
– Or consult your legal team.
– Usually the mortgage broker or the bank will provide it in your breakdown when you are in your finance period.
– If you’ve got a finance period.
– When we discuss options then, there’s some terminology that people will hear.
– What is a vendor bid? And how do they work?
– Vendor bids are really really interesting. Vendor bids, the legislation for vendor bids is different in every state in Australia.
– I’ll focus on Queensland because it’s relevant. What I find, so a vendor bid is not a level that is an indication of the reserve price which is very often misconstrued. So a vendor bid is usually a level that is above the active bidding within the market or within that auction that the vendor would usually consider or consider negotiating from however there is no set parameter on what an actual vendor bid is. So a vendor bid, in the legislation a vendor bid is a representation by the seller either made by themselves or by their representative exclusively being myself, as the auctioneer. So, what I can do is, on a day, I can, to get the auction going in the right level I can place in a vendor bid, or let’s call it an indication on behalf of the seller, of where the property needs to be in terms of price. So, it’s not a reserve price, it’s not a price that they’ll accept, but it’s usually within the realms of what they’ll begin to have a discussion with the marketplace around acceptance.
– And so people will see, let’s say that the bidding begins at 400, and the auctioneer will say, “That’s not where I want it to be,” and then he can place a vendor bid to push it up to 600, for example.
– To sort of get it in a ballpark where it’s going to be the right situation.
– It’s an indication that has a spirit of commerciality because you’re not revealing the reserve price but you’re providing an indication to market as to where the property needs to be but in the state of Queensland you need to be very careful because, you can actually have unlimited vendor bids where in some states it’s one or two, in the state of Queensland it’s unlimited vendor bids but these need to be, they’re never done in excess of the reserve price, I make that very clear, and they also need to be represented clearly to the market. So, what I might say is, if the bidding is at four hundred thousand live from the floor, and I’ve been instructed by the owner to place a vendor bid at 500, I might simply say, “Well ladies and gentlemen, “I’ll place a bid on behalf of the seller “at five hundred thousand dollars, “against you now sir, five hundred thousand dollars,” we would usually refer to it as a seller’s bid or a vendor’s bid.
– Now, some auctioneers are very transparent around it, others not so much, so always be aware of what’s happening at the time, it would be very unlikely to find someone still operating in this state, without the ethics around vendor bids because most auctioneers are very high profile, there’s a lot of filming and, et cetera. And you know, it’s just the right thing to do.
– Yeah, very good, very good. So, a reserve, what is a reserve price?
– So, the reserve price is a level that which, if the bidding exceeds, or reaches, that the property will be sold under the hammer to the highest registered bidder there on the day.
– And who sets that?
– The owner.
– The owner, so the vendor.
– The vendor, the vendor or the owner and they will choose that with the agent. They will also, on the reserve letter, provide it to the agent and the auctioneer, they’ll set out the terms of the auction, the settlement date, the deposit amount, and any other terms that are available to the market.
– Okay. And if you’re asking the agent on the buildup to the sale, can you ask what the reserve price is going to be?
– You can ask whatever you want, but it’s actually illegal for the agent to disclose the price.
– The agent cannot disclose.
– The agent cannot disclose the reserve price in the state of Queensland we aren’t actually allowed as auctioneers or agents, we aren’t actually allowed to provide a price guide. The only time we’re able to provide a price guide is when the property has reached the reserve, or it’s called on the market.
– Under auction terms.
– Under auction terms.
– Okay, very interesting. And so, on the market then, when you said “called on the market,” what does that mean? What is the difference?
– On the market is another interesting term that is, nothing in the legislation provides that the auctioneer must call it on the market, however it’s very common practice. It’s just an unwritten law, so to speak. But on the market essentially means that the auction has reached the reserve price of the owner. Now mind you, that reserve price may be adjusted as the owner is absolutely able to do whatever they like, it’s their property. During the auction if they’d like to lower their reserve then they’re more than entitled to do so to get the property on the market however they may not go above, and raise that reserve. So once it’s on the market, essentially the only people in control of that process are the buyers.
– Are the bidders, yep.
– That’s it, because it’s on the market, it’s accepted by the owner and upon the fall of the hammer after the first, second, third and final call, the property is, bang down, the contract falls, the property is then placed under contract, an unconditional sales contract.
– And so those terms of that contract, as you said, unconditional, does that mean that you can have a building and pest during an auction?
– Absolutely not, an auction contract in most scenarios, unless the terms have been varied, is a cash unconditional contract. So, no calling off period, no finance clause, no building and pest inspections, no due diligence phase, no subject to sale, usually the settlement period will be, there will be a number of settlement times you can opt with, either 30 or 60 days and then in most cases you’ll usually pay a small holding deposit via electronic funds transfer on the day and then the balance by Monday close of business of that full deposit, five or 10%, whatever it may be.
– When it’s negotiated.
– Or the owner may accept a personal cheque, or the agent on the day.
– Okay, excellent. That’s really really comprehensive. So Mitchell, moving on to a couple of your processes.
– Your understanding of the process of the auction. So, what should people know before arriving at an auction?
– Well, they should absolutely know that it is a cash unconditional sale and any bid they make is irrevocable unless the auctioneer deems it to be so. So once they place their hand in the air on the day, any bids they make are irrevocable.
– So if they change their mind… We’ll go through a couple. So if they change their mind, it’s up to the auctioneer to say if they’re allowed to or not?
– And what if there was a mistake made, someone misheard something, what happens there?
– Uncommon but does happen. Then the auctioneer would probably have a discussion with the party and then explain the situation and then they can choose to revoke that bid. It’d be very hard to enforce.
– Does the vendor get involved in that portion?
– No, that’s between the auctioneer and floor.
– And it would be a very… Again, the auctioneer usually controls the set bids and the agent is usually having a discussion there as well to keep the lines of communication very clear because it is a very high pressure forum usually designed to psych out most parties. Not designed for, but by its design. Most people are already afraid of public speaking, most people are already afraid of negotiating to buy real estate, so how about we just put them together? And that’s a really comfortable environment.
– Well, there’s a reason and strategies, you choose them for a specific purpose. And then, I assume, knowing your budget?
– Other things to know, you’ll need to bring some sort of identification.
– ID, very important.
– To be registered.
– If you’re registering on behalf of another person or bidding on behalf of another person you need to have that authority form filled out, usually the agent will provide one to you or you can find one on the REIQ website or the Office of Fair Trading. If you’re bidding on behalf of a company you need to have a form there from ASIC usually which demonstrates that you’re the sole director or are able to make decisions on behalf of that company. So that’s more the technical aspects of it. What’s really important is to know the budget or, what you’ve sort of set yourself to spend on the day. Get there nice and early, take a lot of deep breaths, advise the agent, if you intend to bid there on the day, if you’re not very comfortable with speaking of course you don’t have to speak at all as the auctioneer might register some numbers and all you need to do is either nod your head, just place that numbered identifier nice and high.
– So there needs to be acknowledgement between the auctioneer and the person making the bid.
– And the buyer, correct.
– Okay, very important.
– And that’s all, that’s basically all you would need to know, turn up, you’ll register there on the day, and then the auctioneer will explain the terms and conditions in the contract of sale which has usually been on display throughout the duration of the campaign, and at that particular time it’s all taken to be read and understood. So make sure you have reviewed the contract.
– Very important.
– If you’ve sought legal advice from some sort of conveyance or a solicitor that can run you through the contract to make sure you’re comfortable with all of the terms that are within it because if you misconstrue anything and you buy it under the hammer you create a hard time for yourself.
– Because you’re unconditional.
– That’s right.
– Okay. So for yourself, how did you become an auctioneer? What drove you down that path?
– Yeah, so my father was an auctioneer in the 90s, and I always enjoyed the buzz, I wasn’t a very good counter so I had to work on that, adding up numbers. But I enjoyed the buzz of the auction, the excitement, it’s actually really nice when you can bring buyer and seller together. Most auctions that we sell under the hammer are very very happy experiences because there’s been this 30 day lead up period and then you’re successful, you bought your home, the seller’s finally sold it, so you know, you do get that really nice sense of, you’re helping people, genuinely.
– You’re facilitating the entire procedure and I just think there was a little bit of a gap in the market, to understand from an agent’s point of view where the lines of miscommunication can pop up between agent and auctioneer and I found, having been an experienced agent, I could really bring, what I thought were shortcomings of other auctioneers, I could work on those myself.
– Beautiful. And so what training was required, then?
– So, an auctioneer’s license is very very different to a real estate license. And it was actually separated when PAMDA, the Property and Motor Dealers Act, was changed to the Property Occupations Act. Which is now the legislation which governs agents. Now, there is a property auctioneer and a chattel auctioneer and you can receive that license when you do it, I think it’s an extra fee at the time. But all you’re required to do is go to an authorized or registered training organization by the Queensland government, you’ll be required to conduct a practice auction, understand all elements of the legislation when it comes to the auction, you’re usually required to fill out some sort of question and answer and then perform basically a mock auction in front of the person who is marking…
– Your adjudicator.
– Your adjudicator, for lack of a better term. Basically your teacher. And then they will ascertain whether they think you’re good enough or not. However, what’s misconstrued is, it’s not actually how well you can call an auction which decides whether you get the license or not. All it is is whether you understand the legislation around auctions.
– I think that is more important, at the end of the day.
– Your grasp of what you’re allowed to do.
– Of the law, yeah.
– Yeah, very good. So, are you paid for the service?
– We are.
– As an auctioneer service?
– Most auctioneers, the general rule of thumb on the Gold Coast and in Brisbane is about $550 including GST, for an on-site auction.
– For on-site, right.
– Now, there are two types, there’s an in-room auction event or in-room auctions, and then you have on-site auctions, very self-explanatory. For an on-site auction the benefit is that you’re there at the property, it’s an emotional experience, you can actually be, and visualize a property you’re trying to bid on. The benefit of an in-room auction is of course you control the weather, you have an air conditioned area, and you can sit comfortably in a private setting that’s not usually a public forum. Of course it is public, but you’re not going to have a huge amount of neighbors at an in-room auction for example.
– People driving past.
– That’s right.
– Okay, wonderful. As an auctioneer, who do you work for? In terms of, so you’re appointed, or, what is the relationship there? So how do you enter the piece?
– So, most of the time, depending on your marketplace, but the rule of thumb is, the auctioneer works for the owner. And the agent always works for the owner because who pays the fees? In most cases, the owner pays the fees.
– But even if the agent paid for the fee of the auctioneer, which sometimes does happen, you still work exclusively for the owner.
– The vendor, okay, yep.
– So, you have your fiduciary duty which is paid to, or is done for the owner, so you have to look after them and their very best interest as the auctioneer or the agent. But what usually happens is, the agent will tender a number of auctioneers, or usually have a prior relationship, and they will recommend that auctioneer to the owner and then the owner will make that decision.
– And how do people find an auctioneer? I mean, agents will have their relationship but what if someone wants to check if that’s the right auctioneer for them?
– Usually I would go and visit a number of other on-site auctions. That’s probably the best way.
– Market research.
– You could almost mystery shop your auctioneer which is very very common, I get a lot of people, unfortunately I work exclusively for my company but I find a lot of people who are about to auction their property, or who are considering auctioning their property, will come along and attend our auctions and they’ll ask me questions around fees, timing, and things of that nature, of course, a Google search, having a chat with some local agents, who seems to be the auctioneer who’s doing most of the business? You can also have a discussion with the local governing body like the REIQ, who is our registered fraternity body.
– In Queensland?
– In Queensland, yep. Real Estate Institute of Queensland and they run mock auction competitions every year and they will usually have a huge amount of contestants and then you have the REIQ auctioneer of the year.
– Okay, I think, if it’s your largest asset which it’s likely that it will be, doing your market research is very very important.
– Very important.
– Because you may get a premium price for your product if you use the right auctioneer.
– Well every auctioneer has to start somewhere but of course, you know, if you’re selling your house you want someone who is able to perform on the day because it’s a high pressure environment.
– Excellent. Mitchell, if you can, of course I’m sure you can, could you run us through the process of an auction from start to finish, for you arriving on the scene?
– Very very simple, I’ll usually arrive, sort of, 20 minutes, 25 minutes before.
– I’ll greet the agent, then I’ll go and greet the owner and then I’ll have a brief walk around the property. Usually 24 hours prior to the day I’ve contacted the owner and I’ve also contacted the agent to find out the estimated sale price, the likely reserve price and how much interest they have leading into the campaign.
– Also, the level of market feedback and how many offers, if any, have been presented to the owner prior to. So I like to be nice and informed prior to arriving on the day. I’ll simply arrive, again, greet the agent, re-go over my numbers, usually get handed the reserve letter.
– They may have slept on it and changed their mind a little bit.
– Very common, very common. The other misconception with the reserve, you actually do, you’re legally required to set a reserve in Queensland because if you don’t, you are by law, you have to accept the highest bid on the day.
– Oh, really?
– Yes, even if it’s a dollar.
– So it’s in your best interest as an owner to of course set a reserve. So, I’ll get the owner, introduce myself, have a talk to them about strategy, what we’re likely going to do, what are the likely scenarios that’s going to happen on the day? Have a brief walk around the property that I think are the key selling features or the features and benefits I’d like to discuss in my tear jerking pre-event spiel. And then, get a brief understanding of the buyers, maybe introduce myself if a buyer is particularly nervous, I might explain to them that this is not an environment that we’re trying to put a sort of boiler and high pressure tactic, in fact it’s quite the opposite, it’s a very transparent, open, calm environment. It certainly won’t be sort of cattle style auctioneering. It’ll be very simple. And I also advice them, if at any point they’re uncomfortable, unaware of the bid, unaware of the amount of the bid, or would like to reduce the amount they’re about to bid, please be open with me there.
– Understood. Very good, and then, conduct?
– And then usually we’d do five minutes before the auction we do a pre-run to say we’ll be conducting the auction, where we’ll be conducting the auction, a brief summary of the terms and the conditions of the contract, a reminder that you need to be registered five minutes prior to, again I’ll meet with the agent, get a final summary of how many bidders and who I should be looking for and then we like to start absolutely sharp, get to work, midday auction, we start at midday on the dot as a courtesy to the buyers and their neighbors and of course our owner and the agent. We start there on the dot, we’ll read out the terms and conditions, the contract of sale, you don’t legally have to but we do it as a courtesy to the buyers to make sure there’s no confusion. Usually a bit of a discussion around the property, and then we open the floor to the bidding.
– That’s where the buyers will nominate a figure or alternatively, I’ll nominate a figure, at which we will enter into a negotiation with the owner.
– Excellent, so the process is completed and let’s assume, so there are two options really. There’s the passing in, or there’s the sale.
– So, either of those occurs…
– You are finished there, or do you have to sign something or what happens there?
– So when the property is passed in it means that the bidding hasn’t reached the reserve price and then it’s basically passed in and it goes to a normal negotiation for sale campaign, so to speak. If the property is sold under the hammer then the highest registered bidder who is sold to them, all they’re required to do is fill out the nominated forms that have been on display however, when they register to bid, they do warrant their ability to enter and complete the contract and I may sign on their behalf as the auctioneer and also on behalf of the seller very common with diseased estates and mortgagee and bankruptcy sales.
– So you would sign on behalf of the vendor because it’s unlikely that it’s a person.
– Correct, yes.
– It could be an entity or…
– Someone that doesn’t live in that area.
– Excellent. Now, from an involuntary perspective, we like to get a couple of points from the professionals we bring in for the people at home to sort of learn some tricks or strategies, or secrets.
– Sure, sure.
– So, what are your auction strategies or secrets that have shown success in your experience? Or noticed that other people have used, to effect in your auctions?
– The big one, the first and big one is research. So the number one thing for me is, I would usually find the address of the property, and then I would do like, a map search, so any properties that have sold within a kilometer radius within the last 12 months and then I would, if it’s a two bedroom apartment example or three, four bedroom house, and then I would do my research of what, and identify between three to five comparable sales. From those comparable sales you’ll usually be able to identify a range in which you believe the property is going to fall. The other thing that’s very important is, if you have interest in the property you need to make yourself known to the agent that you are interested. Now, that doesn’t necessarily mean showing your hand, but it would look like, along the lines of, “James, “I’m quite interested in 123 Jones Street, “I’m not sure at this particular stage, “however, if anything changes, or there are any updates “please make sure that you make that known to me.” Now the reason you do that is because if the property is potentially sold prior to auction or a negotiation is entered into without another party you may potentially miss out. So that’s my other second big one. Make sure that you have a discussion with the agent if you are interested, and let them know that you’d like to be kept in the loop. The third one, which leads in from the second, is to request a copy of the contract, understand when the auction is going to take place, what are the terms? What is the deposit amount? What is the settlement time?
– I mean, to you or I who are in the industry it seems relatively self-explanatory but it’s very very important to read through all the documentation that’s made available because it’s there for you to look at.
– Absolutely, and you just need to know, I mean the big thing for me is, you need to be researched on the sales. You need to, you know, have a set budget in mind, in the spirit of commerciality always be ready to negotiate there and then on the day if you think it’s a good opportunity, but have a reasonable budget within a couple of percent of where you’d like to sit and just base that budget on the comparable sales.
– Now, the agent may provide some of the recent comparable sales to you or point you in that direction as well but it’s always good to inspect a number of other properties as well that seem to be comparable to a degree, so that you can know, X Jones Street, I’m looking at a four bedroom house, or this is a three bedroom house but it had a pool, in an inferior location so I think it’s, between X and Y.
– So you can put the pieces together.
– Have to, yep.
– Okay. And then, should the purchasers appear keen? Or should they play it cool?
– Another good question. Yeah, I much prefer when a buyer is more upfront with me as an agent if I’m conducting an auction campaign or an auctioneer because then I know I can keep them up to date particularly if you’ve had a high number of inspections it is very much a project management, there’s a lot of logistics, a lot of moving parts, interest coming from everywhere, it can be very difficult to monitor it from time to time so again, you don’t want to give away your hand and there needs to be an element of a poker face but you know, always demonstrate to the agent if you are keen. The big thing when it comes to bidding at auction that’s a really interesting one, so, it depends on the purchase price of the property, so, example, if you’re in a million dollar home, reserve price is a million and fifty, it’s likely the auctioneer will be going in fifty thousand dollar bids, or hundred thousand dollar bids so what you don’t want to do is, you don’t want to automatically bid over the reserve price if you haven’t been forced to do so by another party. So what I mean by that is, the only time ideally you’re bidding over the reserve price is if you are organically being pushed up by live bids from the marketplace. So an example of that is, two other parties are fighting it out with you, three bidders on the day, going in five thousand dollar increments until it’s sold. That is a true demonstration of the market.
– And it’s sold there on the day. On the other hand, what you don’t want to do is, be the only bidder there, you throw out a bid on the day that is just accepted instantly because you don’t know what the actual reserve price is. So you know, you’d probably want to be, again, indicate to the agent that you’re here to purchase a property and not play games, but you’re going to enter into a negotiation as well. And you know, if the agent wants to play the game, or the owner wants to play the game, you just play it with them. Alternatively if they’re being very upfront then you’re probably going to be more upfront in your behavior. It’s very much a quid pro quo style situation and usually you can pick up on the type of owner that you’re dealing with by the impression that the agent will give you.
– And don’t feel pressured to feel like you’re being forced. You stick to your guns and you back yourself and if it’s not in your budget, don’t break any rules. Do your research and stay within your means.
– That’s right, yeah.
– It’s very important. In our final question for today, Mitch, I thought I’d ask you about one experience that’s stuck with you on your 10, 15 year journey now, in real estate, specifically at auctions, what has stuck with you as an experience?
– Usually bring another party who is going to assist you there on the day advise them of what your budget is and make sure that they can sort of drill into you, don’t go above.
– Good idea.
– I bid on my very first auction and it was a very nerve-racking experience I walked in, it was a trustee auction in Mermaid Beach, of this great little two bedroom northeast facing unit in William street I walked in, chest beating agent and auctioneer, I’m going to outsmart everyone here because I know exactly what I’m doing. My budget was four hundred. I ended up bidding to 440 thousand because it went on the market then it subsequently sold for 465 to another party but you know, I had my parents there on the day, I could only go up to a certain level however, they were there on the day when I was a bit young and they said, you know, we’ll throw in, because my parents thought it was an extremely good buy at the time. So you know, understand that it’s the psychology of any purchase. Bracket creep will always be there. Whether you buy a car, you’re looking to spend 80 thousand dollars and a 120 thousand dollar car is reduced to a hundred, you’ll usually make that move, whether it’s a microwave or a TV, that simple bracket creep buyer behavior comes through to real estate. Be very careful, I always advise my friends when they’re buying property, make sure you’re protected by strong terms in the contract whether it be subject to sale or subject to finance. Emotion is a really funny thing and what basically drives most people to pay more than another person is usually fear of loss, or the emotion in being able to secure that property for you. There will always be another house come along. So don’t get too caught up in the day. However, if you think that property suits you and you have to maybe stretch a little bit above but it’s absolutely in the realms of affordability, don’t be afraid to do the deal on the day to get on with your life as well, because you might not be able to find another purchase. Again, do your research, you don’t want to be looking for 12 months. You ideally want to be in and out of the market in a certain period of time because markets do change. So again, do your research, understand that there will always be another house. So don’t be afraid to miss it either.
– Fantastic advice. Thank you very much Mitch, it’s been great.
– Thanks for having me.