Hammer Talk – Learn the lessons of the past
In 2015, the Sydney residential market was running hot. White hot. Every tweet and Facebook post was $100k, $200K, $300K, $400K, $500K over reserve. Any result seemed possible. The market was charging and it seemed that anyone could sell real estate. Vendor’s expectations sky rocketed and then what happened? We saw a substantial increase in supply through spring and early summer. The result? High expectations from sellers and a clearance rate that dropped to the high 50% mark.
In any normal market the clearance rate should sit around 50%. Effectively, owners have a one in two chance of selling for a premium price within 4 weeks. Personally I’d take those odds every day of the week.
It’s now 2017 and from what I can see it feels like history is about to repeat itself. Every Saturday I see the ego filled posts of properties selling for hundreds of thousands of dollars over reserve. So what does it achieve? The only thing I see it achieving is chest beating of saying “how good am I?”. The effect of this goes far deeper.
The media latches on to these posts of properties selling for half a million over the owner’s reserve. Remember those words, “owners reserve”, we will come back to that later. We’re going to delve into how these ego fuelled posts affect buyers and sellers.
Right now, all we see from the media is a story one day saying the market is firing on all cylinders and records are being broken, and the next day it’s “the market is going to crash 20%”. It is mixed messages coming from all angles. The majority of owners that agents meet it would be fair to say are optimistic. In other words, their view is that their property is on the record breaking side of the spectrum. Whether it be complex, street or suburb, typically our own properties are seen through rose coloured glasses.
When we couple the natural optimism of owners with the continued posts of $100k over here and $200k over there what other result do we expect than vendor’s expectations will rise far quicker than the market will sustain. Next thing, the clearance rate adjusts to the mid 60% mark and suddenly from a media’s perspective the world is going to end. Even though we know that 60% is a sign of a very strong market, we have become so accustomed to these 80%+ clearance rates that anything less just doesn’t feel right.
This continual ego fuelled chest beating will again be the downfall, just like 2015.
How much you sell a property over reserve does not mean it was a great result. The neighbours know when something has achieved a phenomenal result without needing to know the reserve.
Let’s just cut straight to it. A buyer today is a seller tomorrow. Real estate is an industry of how you make people feel. Put yourself in the buyer’s shoes. You’ve been searching for months and missed out on multiple properties. It’s come to auction day and you have stretched your budget but finally secured the home. You are over the moon that in 6 short weeks your life is about to enter the next stage. Naturally you follow the agent and agency on Facebook because you wanted to know what properties were coming up. That afternoon and evening over a glass of red celebrating with friends and family you see an update on Facebook from the agent. “Sold!! $350,000 over reserve……” and so it goes on about how good the agent is. How do you feel? What doubts run through your mind? Have you done the wrong thing? Did you pay too much? Is there a sense of embarrassment that you are the mug that paid too much?
These thoughts run through your head as the buyer for the 6 weeks up to settlement. How do you feel about the agent? From a person in the industry I would say well done to the agent for doing your job. But from an emotional buyer’s perspective will they feel the same?
Remember a buyer today is a seller tomorrow.
I mentioned the fact that it is a “vendor’s written reserve”. It is a number that should remain between the seller, agent and auctioneer no one else needs to know.