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Bidding at auction is nerve wracking for most people.

Over the last 20 years we have helped hundreds of our clients successfully purchase their dream home or investment property at auction and have put together a list of useful tips and strategies for bidding at auction. Read more

What is Underquoting?

Underquoting is when a selling agent states or publishes a price for a property that is less than their reasonable estimate of the property’s likely selling price contained in the agency agreement with the seller.

” quote them low, watch them go…  quote them high, watch them die….” 

This practice of underquoting can cause interested buyers to waste time and money on inspecting properties, getting reports and attending auctions based on misleading estimates of the selling price.

Buying a property is likely to be the biggest financial investment most people will ever make.   It’s a stressful time and buyers have the right to expect that a real estate agent will market a property ethically and professionally.

 

Underquoting Reforms for NSW residential property

To better protect consumers from the practice of underquoting, on 1 January 2016 Fair Trading introduced new laws.  These new laws require selling agents to draw on their skills to make a reasonable and fair estimate of the likely selling price.

They are required to have honest and fair dealings with all buyers and sellers.  The role of the seller’s appointed agent to achieve the highest possible price on the property owner’s behalf does not mean they should manipulate buyer interest with false price information.

The reforms that were made to the Property Stock and Business Agents Act 2002 were designed to provide clarity for buyers, sellers and agents.

1. Clearer rules for agents.   A key requirement is that agents must not give consumers understated or vague property prices (eg. promoting a property price as ‘offers above $450,000’)
2. Provision for more effective enforcement of the laws.  During an inspection by a Fair Trading officer, agents must be able to provide appropriate documentation to show that they have complied with the new laws.

Agents who commit an underquoting offence may be fined up to $22,000 and could lose their commission and fees earned from the sale of an underquoted property.

Be aware that, simply because a property sells for more than expected, this does not mean underquoting has occurred. Sometimes competitive buyer behaviour can result in a much higher sale price than what an agent could have reasonably estimated. However, the law now requires an agent to be able to show that their estimate was reasonable, up-to-date and evidence-based.

 

How to protect yourself from Underquoting

  • If the selling agent provides an estimated selling price, don’t take it as gospel. Use it as a guide only
  • Research recent sale prices for similar properties in the area you are looking in.
  • See how the property market works.  Visit as many different properties as you can.  Attend the auctions and get a feel for the level of competition in the marketplace.

What you should NOT do:

  • Don’t rely on prices that seem too good to be true. This is where your knowledge of the market (gained above) can help you.
  • Don’t rely on one person’s judgement.  you need to talk to other buyers and licensed property professionals and do your own research.

 

Engaging Homesearch Solutions Buyers Agent is a good way to protect you from underquoting.  Our extensive experience and property databases ensure you will have the most up to date pricing and market information available.  

Victor Donminello announces plans to tackle off the plan 'sunset clawbacks'

Sunset clawbacks under scrutiny

Purchasers of off-the-plan apartments who’ve been left high and dry by developers rescinding their contracts and reselling the near-finished properties for much higher prices (sunset clawbacks) are to be given fresh consumer protection.

At the moment developers can, quite legally, enact ‘sunset clawbacks’ when their building works run over a year behind schedule, in legislation which was originally introduced to safeguard purchasers having to wait an indeterminate time before completion.

But after a series of stories by Domain about buyers, just before settlement, losing their apartments in the new Surry Hills block East Central, NSW Minister for Innovation and Better Regulation Victor Dominello has announced he will be introducing new legislation to ensure this is never allowed to happen again.

“I hope no one has to face this kind of heartache in the future.”
Suzy Seale

“This is obviously a serious issue and my job is to protect the consumer,” he said. “Obviously, these contracts were intended to protect buyers but it’s too open to exploitation at the moment [by developers].

sunset clawbacks

“We need to find a way of protecting people in this situation. That will be part of a suite of reforms to help prevent these problems.”

Mr Dominello decided to act after the heart-wrenching stories from four families about their devastation on having their contracts in the same building rescinded at the eleventh hour, and calls by lawyers to have the law tightened.

East Central developer Ash Samadi of the Samadi Group said delays in construction were caused by problems with council assents to plans, a blowout in building costs and a loss of guaranteed tenants. The builder, SX Projects, also took a case against Samadi to the NSW Supreme Court over unpaid costs. The recissions (unwinding of contracts) were “collateral damage”, Samadi said.

But for those enduring the collateral damage, the price has been high. Mum-of-two and migration consultant Tara Ende had bought a two-bedroom apartment off the plan in East Central in June 2013 for $890,000. But a few days before settling, and excited to notice another two-bed in the same 42-unit complex was now selling for $1.39 million, she was told the developer had cancelled her contract and was going to refund her deposit.

Similarly, Suzy Seale, 65, and her husband John, 74, bought two apartments, one to live in and the other as an investment. They returned to Australia from China where they’d been working as expats, to discover they no longer had either.

Another buyer who asked not to be named also bought – and lost – a two-bedroom apartment as one of the seven contracts that were rescinded. Reviewing the paperwork led to the discovery that those seven apartments were transferred to a third company the day before the contracts were rescinded, making it extremely difficult for a caveat to be lodged.

A fourth buyer Khek Mow Tan was also told of the recission of her two-bedroom apartment – an estimated two hours before it was resold at a considerably higher price. “Like Tara, we will not buy another property off the plan again, although we had done that a few times before,” she said.

The contract provisions allow a developer, legally, to rescind contracts when completion is delayed and triggers the sunset clause.

But now the group have congratulated Mr Dominello on his move. “I’m very happy to hear that he’s going to protect people in the future against this,” said Ms Ende. “That’s brilliant news and that’s a good reason for going public over this.

“It obviously doesn’t help us, but we’re happy it won’t happen again. We’re now meeting together with a lawyer to consider our options.”

Ms Seale agreed. “I really wouldn’t want this to happen to anyone else,” she said. We acted in good faith, we did our checks and everything seemed right. But then to lose the apartment – especially after waiting two and a half years.

“Because we were effectively out of the market for that time, we are now unable to afford to buy a two-bedroom apartment in the inner city as prices have gone up so much in the interim. It means we’ve been shut out of the market. We’ll have to buy a one-bed, or go to a different area.

“But I hope no one has to face this kind of heartache in the future.”

Written by Sue Williams for SMH Domain on 9 September 2015

buyer agent

NSW Office of Fair Trading Property Industry Reforms

Property Industry Reforms set to rule out understated property prices

Agents will have clearer requirements to adhere to as a result of underquoting reforms as part of the proposed property industry reforms. The proposed laws announced by the Minister responsible for Fair Trading seek to prevent prospective buyers wasting time and money on inspections because a property price has been underquoted.

The reforms will restrict agents from advertising or communicating (in writing or verbally) any price for a marketed property that is less than their evidence-based estimated selling price recorded in the agency agreement.

About the requirements

Under the new laws, agents will be required to:

  • include their estimate of a property’s likely selling price in the agency agreement
  • record the evidence that informed their estimate and provide the vendor with this evidence in writing
  • ensure a price range is no greater than 10% of the bottom figure (eg. $500,000-$550,000)
  • ensure advertising does not include any imprecise or unclear statements such as ‘offers over’ or ‘offers above’ or $XXX,000+. Importantly, an agent must never include any price in an advertisement that is less than the estimated selling price in the agency agreement
  • record all quotes provided while a property is marketed
  • notify the vendor if the original estimated selling price is revised. The agent will be required to provide the vendor with evidence (eg. market feedback) for their revised estimate and amend the agency agreement. Agents will also need to update any marketing for the property as soon as possible to ensure that no price is communicated that is lower than the new estimated selling price for the property.

Together, the requirements provide a level playing field for agents in a competitive market. They also preserve the vendor’s opportunity to work with the agent to gain the best price possible for their property. Fundamentally, they will enable true competition between buyers whose interest in a property is not solicited on the basis of an agent’s understated price assessment.

Next steps

The reforms to the Property Stock and Business Agents Act 2002 will be before Parliament in the coming weeks. They are expected to commence in early 2016. In developing the reforms, NSW Fair Trading assessed comparable laws in other jurisdictions and consulted with key representatives from the real estate sector.

To help address questions you may have about the reforms, we have included further details on our Underquoting reforms page. You should also refer to the Agents – questions and answers section on this page to gain a deeper understanding of the changes and how to comply.

We will be providing additional information to support agents and consumers in understanding the new requirements closer to when the reforms will commence.

You can read more about these reforms by visiting the Fair  Trading website – click here.

Underquoting Real Estate

Written by Sean Nicholls for the Sydney Morning Herald on 4 September 2015

In moves to stop underquoting real estate, agents will be forced to nominate a property’s estimated sale price and adhere to that figure in advertising or face losing up to tens of thousands of dollars in fees and commissions.

The estimated selling price will be set in a formal agreement between the seller and the agent as part of a NSW government crackdown on the practice of under-quoting.

Advertisements containing the phrases “offers over” or “offers above” or any similar phrase will also be prohibited, and a hotline will be established for complaints.

The new rules are contained in amendments to the Property Stock and Business Agents Act due to be introduced to parliament next week as the spring property market gets under way.

underquoting real estate

The Minister for Better Regulation, Victor Dominello, said the new laws – which fulfil an election promise – would provide “clarity” for agents, sellers and buyers and strengthen consumer protection. “Under-quoting is illegal and misleads potential buyers looking for their dream home,” he said. “This legislation will help NSW Fair Trading identify and catch the rats in the ranks.”

 

The Department of Fair Trading defines under-quoting as making “a statement in the course of advertising a residential property for sale that is less than the agent’s true estimated selling price as recorded on the agency agreement”.

Fines of up to $22,000 already apply to agents who deliberately “falsely understate the estimated selling price” of a property. Only one under-quoting prosecution is now under way, against Bresic Whitney in Darlinghurst. There have been no successful prosecutions under the current act.

Data released by Mr Dominello’s office shows 263 complaints about under-quoting were lodged against agents in the past two financial years.

The most complained about areas were Castle Hill with 18 complaints, Epping with 14 and Neutral Bay with 13.

The small numbers are believed to be a consequence of consumers not being aware of what constitutes under-quoting and therefore not contacting Fair Trading.
Malcolm Gunning, president of the Real Estate Institute of NSW, said the government had consulted the industry to ensure the new rules would be “clear and, we think, effective”.

Written by Sean Nicholls for the Sydney Morning Herald on 4 September 2015

The Block Auction

the block

The Block – the real winners and losers

Watching The Block last night, the end story was that “everyone was a winner”.

The renovators won, the buyers agents won and the TV station won with the ratings, despite paying out a television record $3,165,000 in prizes.

Huge prices were paid for all of the St Kilda townhouses, with the winners Darren and Deanne selling for $835,000 over the reserve price of $1,455,000, or 57% more than what the property was valued at prior to the auction.

Winning a property at auction is a great feeling for buyers, with emotions of triumph and relief. In the following days the reality of a mortgage usually sets in and sometimes with varying degrees of buyers remorse.

Paying a huge price for a property would be fine if property markets were on an endless trajectory upwards. With growth in Melbourne and Sydney over the past few years at continually stratospheric heights, it is hard to blame buyers for thinking that growth will be endless.

For those of us who have been in the property industry for a long time, we know that markets rise, fall and also at times remain steady. We have seen many winners make large capital profits, however we have also seen many losers who have paid too much for their properties at the high end of a boom cycle.

Paying a premium amount for a property is less of an issue if the buyer will have no mortgage, however most people purchasing property do have mortgages and in the current market many have been borrowing a large percentage of the property purchase price.

Which brings us back to the large prices paid for the units in The Block. Now that the cameras have moved out and the production crew and media circus have moved on to other entertainment, the buyers will be preparing for the reality of settlement and paying the remainder due.

Is there any ongoing cachet or prestige for previous Block television properties? The answer in most cases is no.

The truth is that these places were renovated by amateurs finishing properties quickly on limited budgets to meet episode deadlines. Many will have repair and maintenance issues to be addressed, and when resold in the years ahead being a Block property is unlikely to be the sales agents main selling point. At that stage buyers will be more interested in the fundamentals of the property including the quality of the fittings and materials, the location, aspect and natural light, floor plan, noise, and the other important features.

As a buyers agent it was particularly disappointing to see the Melbourne buyers agent’s conduct at The Block auctions. The approach appeared to be more concerned about “winning” for their clients regardless of the auction bidding increments made and eventual price paid. Professional buyers agents should be acting in the interests of their clients and often that involves advising them not to proceed with a property or to set a measured maximum price.

If bidding at auction on behalf of a client, it is best to not be continually on the phone to your client during the auction as it is harder to keep a poker face and to concentrate properly, and your competition will find it easier to see when you are nearly finished. We suggest clients have a pre-written maximum bidding amount, which means that our client’s amount is determined by a proper price analysis on the property rather than being influenced by the frenzied bids of other buyers.

HENRY WILKINSON is principal of buyer’s agency Homesearch Solutions.

Where did The Block Glasshouse go wrong?

By Todd Schulberg for Property Observer on 13 October 2014

To all of Australia, The Block Glasshouse auction results were a massive shock.

It was the first time in a very long time there was a harsh realisation that vendors don’t necessarily make hundreds of thousands of dollars above their reserve, and people do buy within their limits.

Take it back a few months, and people were high fiving and celebrating the success; last night we saw reality.

A lot of people expressed sympathy for the contestants that didn’t make a lot of money from their sale.

It served as a somber reminder of the gauntlet you run when you play the property market.

There are thousands of everyday Australians who have missed out on gains from their own projects, with an even harsher rationality hitting them with no cameras, media interviews, endorsements after the hammer has hit.

But why did The Block go wrong? Here are the main reasons:

THE APARTMENTS WERE OVER CAPITALISED

The contestants were trying to sell such a premium product, making investors very cautious. When people buy property, they want to see the potential upside and where they themselves can make money. The problem with having the apartments so impeccably finished, is it made it harder for buyers to add value. Because of that, they realised they were most likely buying them at the peak of their value.

The reserves were set with what the production needed to get back to make it viable, and it seems they may have put too much money in to making a high end product.

NOT EVEN THE BLOCK CAN TRIUMPH SIMPLE ECONOMICS

There are a lot of factors that go into a property’s price. But at a fundamental level, the rules of supply and demand hold firm.

Prahran has seen a huge amount of redevelopment in the past 24-36 months. Trilogy apartments, which is approximately 200 metres further up High Street, has 323 apartments on offer, with an apartment complex across the road also offering brand new apartments. With so much on offer, it’s hard to compete with buyers shopping for value.

THE APARTMENTS WERE NOT NECESSARILY BUILT FOR THE END CONSUMER

It’s easy on a design show to create a beautiful showpiece, but this doesn’t necessarily transfer to practicality, or ensure you get your money back.

People want value for money above anything, and some of the apartments were so lavish that they lacked genuine real living opportunities. It’s all good and well to live in a luxury masterpiece, but you have to ask if it provides a home for someone and if it is what they are after.

THERE WERE BETTER PROPERTIES ON THE MARKET FOR THAT MONEY

A simple reason to understand why consumers didn’t bid the properties up, is their belief they could get something better for those prices. If you have a look at other homes for sale, prospective buyers could have bought:

204/4 Cromwell Road, South Yarra

An open spacious apartment in South Yarra available for less money.

Or 3 Mary Street, Prahran for $1,030,000. Mary Street offers three bedrooms, two stories and an open verandah on its on title of land.

The free standing house pictured above is quoted at $1,030,000.

Either way, the lessons learned are that reality TV shows aren’t necessarily the way to success and people won’t just buy anything.

With strong demand, people do want to see value for money and something that can offer capital gains over the long term. Properties that are unique, have land, and potential upside for redevelopment will trump established apartments most of the time.

Todd Schulberg handles all things marketing for Homely.com.au.

 Top 10 Most Expensive Homes in the World

10.  Rybolovlev Estate – $95 Million

 

This house is the most expensive single family home in the country and, since it was owned by Donald Trump, it’s obviously the most expensive home ever fought over in a divorce case.  The 33,000 square foot oceanfront mansion has become a key part of the proceedings since Trump’s ex-wife Elena Rybolovlev demanded jurisdiction due to infidelity.

This home has 18 bedrooms, 22 bathrooms, and retails for $95 million, making it the most expensive single-family house in the nation…weird, we’re pretty sure we found nine more for this list.  Unless we’re suddenly on TopOnez.Net

Originally on sale for $125 million, it ended up being haggled down to a mere 95.  We guess the economy is hurting everyone these days.

9.  Silicon Valley Mansion — $100 Million

 

As the most expensive single-family home in the US, this house… wait, didn’t we just say that the Rybolovlev Estate was the most expensive single-family home ever?  Well, okay, this one went for 100 million so I guess it wins.

With 5 bedrooms and 9 bathrooms, and an indoor and outdoor pool (in case it rains, we guess), it’s all-in-all a pretty fancy house.

8.  Fleur De Lys — 125 Million

 

Despite being marketed as the world’s most expensive house, the Fleur De Lys somehow only falls on number 8 on our list.  Wow, that’s weird, huh?  It’s almost like people on the Internet are wrong.

Fleur De Lys has 41,000 square feet and 15 bedrooms, but apparently no bathrooms, which we think is a huge oversight either by the architect or the person writing the articles we’re using as sources.

7.  The Manor — $150 Million

 

Here we are, finally, the most expensive residential real estate listing in the US, according to Wiki-freakin’-pedia.  $150 million.  Feels pretty good to put that part to rest, doesn’t it?  Thanks, Aaron Spelling, for having the (7th) most expensive house in the world.

This house features 56,000 square feet, 123 rooms, a bowling alley, an ice rink and allegedly an entire wing devoted to Spelling’s wife’s wardrobe.

6.  The Pinnacle — $155 Million

 

Owned by Tim Blixseth, in Montana, this house is unique for two reasons: it has a private chair lift directly from the house to a nearby ski-resort (which Blixseth owns), and is the only house on this list so far named that doesn’t claim to be the most expensive in the world.

Also, we’re gonna call it right now: best back yard.  Because it’s a ski resort.

5.  Franchuk Villa — $161 Million

 

This five-story, freestanding 10-bedroom Victorian Villa also features an underground indoor swimming pool, panic room, and private movie theatre.  It’s also the world’s most expensive home (yeah, sure it is), at $161 million.

How fancy is this place?  Allegedly, during some remodeling, the noise made the Mayor of Moscow angry.  The house is located in London.  That’s right: the house is so fancy it doesn’t make sense.

4.  The Hearst Mansion — $165 Million

 

Top Three Facts about the Fourth Most Expensive House in the World: it was used in The Godfather, JFK spent his honeymoon there, and (holy crap, get this): it’s the most expensive home in the US!

It features three swimming pools, 29 bedrooms (you have to supply your own horse heads har har har), movie theatre and, for some reason, a disco.

3.  Fairfield Pond — $198 Million

 

Currently valued that way due to its property taxes, this 66,000 square-foot main house has a basketball court, bowling alley, and a $150,000 hot tub. The most valuable home in the US (again, according to Wikipedia).

2.  Villa Leopolda — $736 Million

 

Wow, that’s a big jump in price.  Built by King Leopold II of Belgium in 1902 and located on the French Riviera, this home was purchased by Russian billionaire Prokhorov, who is so rich he lost billions to the latest economic collapse and still had enough fun money to buy himself a three-quarter-billion-dollar summer home.  It has 27 stories, 19 bedrooms, and a rumored 50 full-time gardeners.

1.  Antilla – $1,000,000,000

 

This is it. The one you’ve been waiting for. The grand finale. The one billion dollar home. We give you…Antilla.

Located in Mumbai, Antilla challenges pretty much everything you’d expect about “what is possible in a home” and “what is possible for architecture.”  The 27-story house features six floors of parking, a health level with a jacuzzi, gym, and “ice room,” a ballroom level (for dancing?) several floors of bedrooms and bathrooms and even a four-story garden — because, yeah, we guess that’s possible.

The architecture is based on an Indian tradition called Vastu Shastra, which is supposed to be conducive to the movement of positive energy.  In keeping with this, each floor has not only a unique design, but an entirely unique set of materials and aesthetic design — meaning each room is meant to look like it’s from a different house.

Basically, this house has everything — things you can imagine, things you can’t imagine, and things you never thought to imagine but are now imagining because they sound like the greatest thing you’ve ever heard of.

Written By JF Sargent for toptenz.net

 

With the end of financial year fast approaching, we thought we would provide some general tax strategies for property investors to consider:

1. Documentation: Keep summaries of all your rental income and expenses.

This is much easier if you have your management agent looking after your property where they pay all expenses and collect all income. They will normally provide a monthly and annual statement.

Ensure you have all bank statements showing interest expense. The annual statement should show a summary of interest expense.

A specialist property accountant can assist by ensuring all allowable tax deductions are made.

2. Depreciation: Only registered quantity surveyors are generally authorised to prepare depreciation schedules.

If you are contemplating a renovation a quantity surveyor can produce a scrapping schedule, which puts a value against all items to be thrown away. This value is expensed in the year of expenditure. The new items are then depreciated with a new depreciation schedule.

3. Travel: All your costs to inspect your investment property are tax deductible, including travel. Ensure you apportion any personal component.

4. Interest expenses: Only interest expenses on borrowed funds used to invest are deductible. It is the purpose of the loan that determines deductibility, not the security used to obtain the loan.

A split loan should be considered when a loan is used for both investment and private purposes.

If capitalising interest the Tax Office may require evidence of correct documentation and intention.

Interest deductibility should be easy but if not properly documented and managed this expense can cause frustration if the ATO decides to review and so the assistance of a specialty property accountant should be used.

5. Trusts: The use of a trust can be a major benefit to property investors by improving asset protection, estate planning and increasing flexibility. If using a trust ensure it has been correctly set up and operated to ensure you do not lose your interest deductibility, which is fully allowable by the ATO if you meet the requirements.

6. Pre-pay expenses: If you have a geared investment it is worth considering pre-paying next year’s interest to gain an immediate tax deduction, especially if you’re paying the flood levy this year. You can also get a deduction now by pre-paying next year’s income protection insurance premiums. Also, consider bringing forward expenditure that would otherwise be spent after June 30. If you are planning on doing repairs on your property, note: Care should be taken in determining whether a maintenance or repair is deductible or if it is considered a renovation or of a capital nature. Consider pre-paying other expenses such as rates, levies or possibly even interest (in the right circumstances).

7. Manage capital gains: Capital gains generated during the year can be minimised by offsetting it against capital losses or trading losses incurred during the same year. To reduce capital gain generated on sale of property or other assets during the year consider selling any assets which have lost value and their future is bleak. The 50% discount on capital gains is available where an asset is held for longer than 12 months. As this is a considerable saving consider the timing of any sale. The relevant date for calculating capital gains is the contract date, not the settlement date.

8. Manage capital losses: Capital losses incurred in any year are available to be carried forward to future years if there are insufficient gains to absorb it in the same year. It can be carried forward for an indefinite period. Capital losses cannot be offset against other income such as business trading income if you’ve made a capital gain this year, review your portfolio to see whether it is worth realising a capital loss to offset the gain. You can’t carry losses back. So if you’ve made a capital gain, you may want to trigger a loss to offset it against.

9. PAYG variation: Where you have negatively geared rental investments, the negative part offsets against your other income, e.g. salary, reducing your tax payable and resulting in a large refund when your tax return is lodged. This refund can be used to reduce your loan, pay your interest expense or help finance another investment property. To help with cashflow, would it not be great if you were able to access this refund throughout the year instead of waiting till the end of the year? This can help finance that extra property, which has potential to pick up some capital growth between the beginning and end of year. This can be done by lodging an application to vary the income tax withholding using a form from ATO. This can be done electronically on line or you can download the form, prepare and lodge it manually. PAYG instalment obligations should be reviewed and consideration given to varying the instalment for the June 2012 quarter, where the estimate of income tax payable for the year is less than the instalments raised by the ATO. This will reduce the impact of this instalment on your cashflow.

Written By Ken Raiss of Chan & Naylor Accountants, for Property Observer, on Friday, 15 June 2012