Purple Bricks v McGrath

There are interesting things happening in the Australian real estate sector at the moment. The share price of McGrath has been plummeting and the new UK based hybrid business ‘Purplebricks’ has entered the Australian market and is showing promising growth potential. If their success in the UK is anything to go by, their presence should not be ignored.

At the risk of sounding a little Alan Koehler’ish I wonder if this is a coincidence? Below are the 12 months graphs for Purplebricks on the London Stock Exchange and McGrath on the ASX (this sort of reminds me of what was happening a few years ago when comparing the Fairfax graphs with realestate.com.au).

Digital disruption is taking hold of the property sector and over the next few years, I suspect we are going to see total war between modern digital agencies and traditional business models. This should be great news for consumers, as commissions will be forced down.

It’s hard for some agents to admit but the market in Australia is now owned by domain.com.au and realestate.com.au. Recently a good friend said to me ‘make decisions for yourself or others will make them for you’. Unless agents are looking to add value to property transactions, I think they will be left behind.

Until next week,

David

Purplebricks London Stock Exchange

 

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McGrath Australian Stock ExchangeMcGrath

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Can’t buy me love.

In recent times the goliath Australian real estate franchise, McGrath Estate agents, has been in the news for all of the wrong reasons.

Firstly, the share price plummeted after floating on the ASX for $2.10 in December (currently 0.77c at time of writing) and more recently there have been some high profile defections from the group with 36 individuals breaking away to form their own ‘boutique’ offices. Yesterday, an open letter from John McGrath to his loyal tribe was highly critical of these defections and he didn’t hold back in saying that he felt that the agents who left were unethical and he had ‘zero respect for them’.

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I want to make it clear that the purpose of this piece is not to join the mob that is currently enjoying the turbulence that McGrath is going through. I have friends that work for the company and, in my professional opinion, there are some very good agents still working in their network.

As a small business operator and the owner of a so called ‘boutique agency’, I am interested to observe what is happening to them at the moment and understand why. I have a problem with franchising, and I suspect that after some phenomenal success this is becoming an issue for their brand. Make no mistake, John McGrath was an exceptional agent who changed the game. He emerged in a complacent market place and raised the bar. The distillation of his personal success into the meteoric rise of the brand around Australia was masterfully executed so hats off to him for an incredible and inspirational success story.

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With this success a huge number of agents wanted a piece of the pie and, in my opinion, one mistake made by many McGrath operators was they hired almost everyone. I shouldn’t generalise but in our area they offered almost every agent a job. In the short term this meant they strangled the competition, especially small offices, however now that we are in the medium term phase of their business life I feel the excellence that John himself brought has been diluted.

The issue I see is that if you hire people on the premise that you will make them rich then you are likely to hire mercenaries. If they think they can get more somewhere else, they will move. It seems John McGrath is feeling hurt as he helped create some of these millionaire agents and now they are turning against him, but is anyone surprised? It appears their grievances are all about money. The new brands are hatching as we speak, touting technology, superior marketing and so on, but with no mention of better consumer protection or focussing on limiting their clients’ risk exposure.

Real Estate is about people, it’s a very tough space to work in and as an agent you are dealing with people often under incredible duress. These operating conditions often spring two types of agent, supportive professionals or manipulative sales people. When I interview candidates and ask them ‘why real estate?’ many say ‘I love houses.’ If you love houses, maybe you should be an architect.

This business needs people who care about the business, not about gross commission.

The truth about cats & dogs

According to the Australian Bureau of Statistics (& the RSPCA) pets are part of the family in 63% of Australian households. The same sources state that Australia has the highest level of pet ownership in the developed world.

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Coupled with some of the most expensive real estate on the planet this has created an interesting issue for pet owners. The dream of owning the quarter acre block in Australia’s capital cities is fast becoming just that. More and more of us are now living in more affordable strata title properties like apartments, duplexes & townhouses. Many experts predict this trend will continue and in the future the big back yard will be for the very few that can afford it.

So where does this leave our pets? On the back of recent changes to legislation which make strata by-laws more accepting of pets, buildings which disallow animals are leaving a lot of potential buyers wary and in many cases existing owners frustrated by the restriction.

The irony here is that many people living in strata buildings believe that by saying ‘no pets allowed’ they are protecting the value of their asset, but I would suggest there is very strong evidence to the contrary.  Lone person households are Australia’s fastest growing household type, and this coupled with an ageing population means that more and more people rely on their pets for companionship.

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Yesterday we took a large strata title apartment in a building ideal for downsizers to auction. While the property sold, there was very strong evidence that the ‘no pets policy’ had a $100,000 – $150,000 impact on the price. Many buyers loved the property but of course, weren’t prepared to give up their beloved pet.

When deciding on rules there are often factors that are not considered by owners corporations. For example, most pet owning purchasers are owner occupiers & its fair to say that most buildings prefer owner occupiers due to owners corporation involvement & stability (we have seen far more problems caused in buildings by people rather than pets).

Ultimately, Executive Committees should think very carefully before applying a ‘no pet policy’ because it just may de-value your property by 5-10% – and that’s just barking mad.

One size doesn’t fit all.

Real Estate agents love auctions, in particular Australian Real Estate Agents…I am convinced it has something to do with our national spirit, the propensity to have a punt.

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Strategically if the process has been handled properly then the price guidance to buyers will be conservative (low) and the outcome will be bid up and create the impression that the selling agent has created an excellent outcome. In many cases this is true and there are some skilled agents that know how to create strong competition… oh, and this market has been helping too!

There are some instances when auctions can be ideal, for example when a market is rising so quickly that buyers will only go to a higher level knowing their interest is supported. In these instances the market is visible creating confidence amongst the competing bidders. Expressions of interest or blind bidding can inhibit sales results if the buyers are suspicious. Another example is if the property forms part of an estate and probity is an essential consideration. An auction in a litigious settlement is a preferred approach as the agent and the vendor has very little influence on who actually buys the property. In this instance the price may not matter as much as the process.

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There are instances when public auctions can fail the seller and actually damage the sale price, in my view most highly unique homes fall into this category. By unique I mean properties that are unusual (as opposed to rare), an example would be a 2 bedroom apartment opened up to form a huge 1 bedroom, or an ultra-modern home in a historic suburb.  I can hear the agents saying ‘this is the perfect time to auction!’ But is it?

Unique homes attract unique buyers. I sold one of two cutting edge Architect designed town home sin Mosman a few years ago, yes we had dozens of people through however at the end of the process there were only two willing and capable buyers. One had a limit of $1.6Million, the other who we sold it to paid $1.925M. The property’s identical twin had been sold just 8 weeks earlier at auction for $1.6Million….worse still the buyers openly said they would have paid more but didn’t have to!

The key is understanding how much interest there will be in your property and if it will be at the same level before deciding on a strategy. Too often agents come in and say ‘lets go to auction’ without considering all options and buyer support. One size doesn’t fit all.

Working out what work to do.

One question we are commonly asked by clients is ‘how much should we spend on the house before we sell?.’

Obviously every case is different but generally speaking people need to be very careful with this as we often see thousands, sometimes tens of thousands, of dollars wasted on pre-sale renovations.

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In my experience, there are 2 types of properties that attract a lot of interest and get high prices in Sydney, renovated homes and un-renovated homes.

If you own a classic period home on a good street that hasn’t had any work done to it in decades, chances are you are going to have hordes of interested young couples that have watched television shows like ‘The Block’ and they will be champing at the bit to create their own dream home. Suffice to say many of these young couples have never been through a renovation and often have no idea of the cost both in time & money a renovation requires. All of this amounts to potential packed homes selling for top dollar in the current market.

On the other hand, a recently renovated home with all of the ‘bells & whistles’ will attract buyers (many of whom have renovated before!) that will pay a premium for a completed product. The catch here is that Sydney-siders will pay handsomely for quality but will turn their nose up at cheap renovations, good properties get good prices.
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There is a third type of property and that is the ‘in-betweener.’ These properties have often had bits & pieces done over time, maybe an extension in the 70’s, a pool in the 80’s, a bathroom in the 90’s and so on. It’s this category where people have to be careful. If your home is like many Australian homes that is a patchwork of renovations and you want to sell, be extremely careful before you spend vast sums of money on modernising the property.

The fundamentals have changed with time- for example open plan is in, formal dining is out. If your property has a dated floor-plan then spending $30,000 on a new kitchen could be a complete waste of money. Our office once sold a house in the prestigious harbourside suburb of Clifton Gardens and the owners insisted on replacing the kitchen before sale. The purchaser was a young cashed (or perhaps mortgaged) up executive who had grand renovation plans…..1 week after settlement the former owners drove past and there was most of the kitchen – on the nature strip.

When you go to sell your home, presentation is key but that doesn’t mean renovating. Focus on making your home welcoming & make sure it sparkles. Tidy up the front garden, plant some flowers, consider painting, lose the heavy old curtains that prevent natural light from coming into your home, and clean those windows!
You will be surprised by what clever tidying up will do to the impression that your home makes, rather than trying to guess what the next generation wants in their kitchen.

David Murphy owns an independent real estate agency in Sydney’s lower north shore – feel free to call on 02 9968 2088 or email with questions: david@davidmurphy.com.au

Don’t wing it.

As the property market in NSW enters its’ next phase, I expect we will see auction clearance rates ease off historical highs and sales by private treaty will become more common. By definition, private treaty is the agreement for the sale of a property at a price negotiated directly between the vendor and purchaser (or their agents). It’s important to make the distinction that if a property is sold before or after auction it is technically sold by private treaty. Many people don’t know that agents and newspapers report such sales publicly as being sold by auction in order to artificially inflate the ‘clearance rate.’

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In a typical private treaty scenario, one or more buyers will make offers on a property and the agent will convey them to the owner. The owner will then respond and the negotiations continue until an agreement on price and terms is reached. However, once this agreement is reached the property is not sold, in fact it’s at this point where things can go wrong for both parties.

 

Under NSW legislation a property is not sold until contracts are exchanged. An exchange is when a deposit is tendered and two identical contracts are signed by the buyer and seller, dated and swapped. Take note, until this point of exchange the buyer and the seller can both withdraw from the agreement.

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For buyers, the best strategy is speed and communication. Given how competitive the property market is you should be ready to buy when you are out looking. Making an acceptable offer and then ringing a mortgage broker to discuss finance will cause delays that may cost you the property. Good buyers agents know this, they prime their clients to be ready, and when they see the right one they pounce. To be clear, if someone else makes a better offer and you haven’t exchanged contracts then the agent must tell the owner and they are free to accept it.

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For sellers the best strategy is to have all necessary information available to buyers to expedite the process; this includes building reports, surveys etc. Plus, no matter how unpopular it may make you, the property has to remain on the market and open for viewing until exchange of contracts.  I was raised in a household where a handshake was an unbreakable oath. However, having seen many property sales derail over the most trivial issues, I would recommend that the oath be defined by a cheque and a contract.

Be prepared, act swiftly, and only count your chickens once they exchange.

 

Get Smart

Too often when sellers go to list their home, they sign up with an agent, get some photos taken and their property gets thrown onto the market. In most cases the property gets sold for a pretty good price and after 4 weeks of excruciating open homes the owners are just relieved its auction day and it’s all over. The agent then skips down the street telling all of the neighbours that they are responsible for the biggest property boom since Federation.

 
If you are interviewing agents and that’s the sort of approach they are recommending, you should consider engaging a private sale company to list your home on-line. You can then get a well-presented friend to conduct your opens and hire a good auctioneer to run the auction…an easy way to save $30,000 (and make a friend feel like they are responsible for the biggest property boom since Federation). If said friend doesn’t know what to say to potential buyers about price, just tell them to say something like ‘it’s hard to say what the property is worth so we are just going to allow the market to dictate the final price and go to auction’.

 

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We live in an age where buyers look for properties on-line so as long as your property is featured there and the photos look good, they will find it.

 
Today’s agent should be more of a market expert who understands demand, local area trends and how to present a property to ensure the right buyers are there at the first viewing. In fact, the best agents will suggest a staged campaign that starts with a preview. Showing select buyers through the home before any advertising is one strategy that may get you an exceptional price.

 

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How does it work? A good agent will probably already be in touch with the buyer for your property. Have you ever noticed that when you go out looking at houses you often see the same strangers (and friends) at each property? That’s because the same buyers are looking at all of the same houses.  Before your property is advertised to the public, these buyers should come through a private viewing or a ‘preview.’

 
The benefits of a preview are many. The most obvious being if you create strong interest you could sell for a great price quickly, at this stage of a campaign the seller holds all of the cards and has maximum leverage. The other major advantage is receiving feedback behind the scenes; hearing what these people think of your property, albeit positive or negative, is very useful information to you and your agent and may influence your public sale strategy.