Tuesday, November 25, 2008


Many economists are predicting that the reserve bank will cut official interest rates below 3% by Easter 2009.

It will be the lowest interest rate this country has seen in over 48 years. (Rates were as low as 2.9% in 1960)

Interest rates have already dropped from 7.25% to 5.25% in 3 months - so such a massive drop should put some spark back into the property market.

Consider these numbers:

A Home Loan of $250,000 in June 2008 at roughly 8.8% was costing the $476 week.
In 2009 that same home loan could be down as low as 5% and would now cost $337 week.

That is a savings of $139 week.

Affordability is going to improve dramatically for people. And that's a good thing.

Loans Reviewed

Across Australia mortgage providers are assessing the types of loans they provide to people. No longer will people be able to easily access "No Deposit" home loan products.

In fact the banks are positioning themselves around the 80% mark for home loans without mortgage insurance and up to 95% where mortgage insurance is purchased.

ANZ recently announced they would only provide loans up to 90% of a property value.

So whilst the Government has tried to kick start the property market with a doubling of the first home owners grant - a tightening in policy by Banks can hamper that strategy.

For instance - if a first home buyer has 10,000 cash plus the first home buyers grant of $14,000 they would effectively have $24,000 to contribute.

If they chose ANZ as their bank they would only be able to purchase a property to the value of $240,000.

And that is where the issue lies - the First Home Buyers Grant doesn't do enough for a First Home Buyer to meet the tougher lending criteria of the Banks.

Catch 22.

Friday, March 30, 2007

Real Estate Agents Pledge

Dedicated to all the old school real estate agents

In days of old,
when property was gold,
and the internet was not invented.
Auctions i am told,
Was how property was sold,
and property owners tormented.

Vendors were benders,
We can organise lenders,
This an agent did speak.
Whilst buyers are liars,
We would put out our flyers,
Telling how good we are, each week.

Newspaper advertising works,
They provide rebates and perks,
The owner did not know any better.
With big spreads off the shelf,
We promoted ourself,
As the vendor became a debtor.

Now the internet looms,
Amidst property busts and booms,
It still won’t make a difference.
I will use the old techniques,
With just a few tweaks,
My strength is my belligerence.

I have worked in this industry,
25 years is my longevity,
I’ll say what ever i need.
To sell your house - roll the dice,
I can’t guarantee price,
But commissions will satisfy greed.

Now private sellers are appearing,
It’s kind of endearing,
But they can’t negotiate like me.
Cause after 25 years,
Extracting money for my career,
I’m the best they can see.

So if you are buying or selling,
Land or a dwelling,
I’m the one you crave.
So regardless what you read,
I’m the agent you need,
Ignore the thousands of dollars you could save.

Don’t be silly i say,
Did you see my ad the other day,
It shows you just how much i have sold.
But really i must go,
Open homes i have to show,
New buyers who need to be told.

Forget all the rest,
I am the best,
I’m the agent from days of old.
You all know who i am
I’m the master conman
I’m the agent from days of old.

Sunday, October 29, 2006

Bait Advertising

Bait Advertising

Bait advertising is the practice of advertising a property far less than what it is actually worth. In Victoria they refer to this process as underquoting and it is an illegal practice that is still widely used by real estate agents.

Recently reported in The Age newspaper was the suggestion that underquoting was so rife within the Victorian property market, they estimate 80% of all advertising in the residential market falls into this category.

The idea of bait advertising, particularly with auctions is a no win process for both the buyer and seller.

The seller may have decided to auction their property, and then they have an agent advertising a price range up to 30% less than what they will accept. This may attract many buyers to the auction, but it will not generate a good price for the owner on the day, as most people will struggle with paying 30% more than they expected for a property. No wonder clearance rates for auctions are so low.

Think of all the buyers, who have had their precious time and money wasted by these real estate agent practices.

A real estate agent was actually quoted in the AGE. Greg Hocking from Hocking Stuart actually stated they are not blameless either when asked to quote on this story. He clearly acknowledges that some of his employees have done this and they (being management) will now have to speak to the individuals involved.

This process was legislated against in Victoria 2 years ago, they have a Consumer Affairs department that deals with these very issues. Now we have a leading agent saying, yes look at what that agent does, it’s simply not right, and then acknowledges they do it themselves.

No wonder no body trusts real estate agents.

Bait advertising should be for fisherman, not for people buying and selling property.

Michael Eroz
Property Analyst

Friday, September 01, 2006

Real Estate Agents - Evolution of The Shark

Or survival of the most dishonest

Real Estate agents are regarded poorly by the general public. To be fair, there are many conditions that impact on a real estate agent. These impacts can either spit them straight out of the industry or have them evolve into sharks. In many cases it becomes survival of the most dishonest.

Now before all the trustworthy hard working real estate agents groan and moan, about another person giving their industry a hard time, please read on. I believe it is the system in many cases that is broken, and it is that system which shapes many a real estate agent into that predatory shark.

Firstly, becoming a real estate agent isn’t difficult. Most states within Australia have a real estate institute where you can complete a course in under a week.
(I completed my course by distance learning in one night and I am no mental giant. The before mentioned groaning agents are really agreeing with me now!)

In the US you can complete a course online and be accredited. All it costs is $99 US.

We are talking a very easy entry point to become a real estate agent.

Now that you are a real estate agent – with your suitable qualifications, you expect people to trust you with their single most expensive asset, typically their home! Sounds a little bit out of whack right from the start doesn’t it?

Now from an external point of view, real estate looks like a pot of gold.
Commission rates of between 2.5% to 3.0% to sell a house. A property worth $500,000 represents a commission of approximately $12,500 to $15,000.

“WOW, I should be able to do one of them each week and earn $650,000 per year. Finally an industry that pays me what I am worth.”

And thus the evolutionary cycle begins. You have an easy entry and the prospect of a huge amount of money. Sounds damn perfect. In fact so perfect it attracts a huge amount of willing entrants with that simple view. Most may I say have the full intention of doing real estate far better than what they have experienced when dealing with real estate agents themselves. Ahhh the noblest of intentions.

The problem is, it attracts far too many people.

Now we have a vast amount of agents all vying for that property sale. The industry cannot support all the agents that are working within it. People rush to enter this industry and there simply is not enough property sales or money to go around.

Now we have the 2nd most critical issue in the evolutionary cycle from person with best intentions to shark real estate agent. COMMISSION ONLY.

Most agents are on commission only. This means they only get paid when they make a sale.

Any agent competing against a vast number of agents for any one property sale, if they don’t say the right things, they won’t get the job. Which means they don’t get paid. It means agents learn to say what ever it takes to get that property listed for sale and then whatever it takes to get it sold. It ‘s the only way they get paid. It’s survival of the most dishonest, because many times, potential buyers and sellers really don’t want to hear the truth.

Yes, I can hear Jack Nicholson bellow out to all buyers and sellers…”You can’t handle the truth”

Typically agents will say the property is worth more to the owners. This way they will have those owners sign up with them. Because most owners like to think their property is worth more. It’s a simple human trait called greed. (Michael Douglas just stepped in and added his line “Greed is Good”)

But for the real estate agent it’s a simple numbers game. The more properties they have for sale the better the chances they will make a sale and therefore get paid.

Guess what comes next? Agents learn that it is far easier to sell something cheap.
Everyone wants to buy a bargain so the agent pursues a process of marketing the property with such clich├ęs as “marriage bust up”, “owner desperate”. “bank instructs to sell” and “owner wants all offers”. They are simply aimed at attracting the most buyers with the lure – BARGAIN BUYING. Now the poor owner at this stage is horrified at this approach, but the agent convinces them it is the way to attract the most interest. They should know - they completed a course within a week!

Conditioning follows, stage 3 in the evolutionary process. The agent will now try to get the owner to accept less for their property. The buyers won’t offer more – because they are the bargain hunters, so the agent tells the owner with all sincerity – this is all the market will offer. Cheap is easy to sell. The faster an agent can convince an owner to accept less the faster they get paid. This is largely the whole auction process. Auctions are designed by agents to get paid as fast as possible.

The sad thing about most of this is that the larger franchise groups have corporate training which promotes these processes as the best way to get a result for their clients. Many an agent is brainwashed with corporate training that simply focuses on evolution of the shark.

Now whilst all these activities are occurring, we have the 4th issue in the evolutionary process. VALUE FOR MONEY.

Buyers and sellers assess the agents’ activities. Most buyers and sellers will have at least one unhappy experience with a real estate agent to describe. Yet they both know the agent is paid handsomely.

The owner has the added grief of being very aware, that they pay for the advertising, the sign, the internet, the brochure, which will attract the buyer that they then have to pay for again. Yes, that is exactly what occurs. Sounds quite stupid when you say it like that! The agent may throw it around they can organise a better sign or get a cheaper ad etc, but usually the owner is required to pay. They have training for this process as well. It’s called Vendor Paid Advertising.

Lets not even talk about agents suggesting they have better negotiation skills. They do, it has been finely honed by corporate training to get the owner to accept less and pay for all the advertising.

So, with all these processes in mind, the general public are very dubious about the honesty and integrity of any agent they deal with. The agents counter this with expressions such as “Buyers are Liars” and “Vendors are Benders”.

And the evolution is finished. You have a shark or you have someone leaving the industry. Survival of the most dishonest, well it would make for a funny reality tv show.

Da dum, Da Dum, Da Dum, I think I hear the agents circling my home right now.

Michael Eroz
Property Analyst

Monday, August 21, 2006

Changes to the Property Agents and Motor Dealers Act 2000 (PAMD)

Amendments to the PAMD Act 2000 are effective today (21st August 2006). Fair Trading Minister Margaret Keech claims that the amendments will make property buyers and sellers more confident of getting value for money and improved consumer protection.

We are not so sure these amendments will work in achieving those aims. The basic changes to the PAMD Act 2000 are effectively;

A) Bidders at Auctions will have to register prior to Auction, including providing suitable identification and receiving a marker to identify when they make a bid.

B) Any Market Opinions an agent provides to a property seller will need to be substantiated by a comparative market analysis (CMA).

Now call me a cynic about the behaviour of real estate agents, but these are really not going to achieve the goals of cleaning up the behaviour of dishonest real estate agents.

These legislated changes really only make the honest hard working agents, and yes they do exists, more honest. The dishonest agents will get around this in no time, whilst buyers and sellers believe the system will protect them.

Consider these approaches to both of the above changes.

A) The dishonest agent can still get a friend or an associate to register at an auction. That person can be informed of how high to bid – so that they bid just below the reserve, to try and get the potential real buyer to increase their bids. Even if no-one bids after the friend or associate bids – they are still below the reserve price, so it just looks to all and sundry like there were some serious buyers interested in that property. Additionally did you know that the Auctioneer can bid on behalf of the Vendor. This is called a vendor bid, and the way an auctioneer does those bids can still influence a potential buyer into believing they are bidding against a genuine bidder.

B) A market opinion is not a property valuation. It’s the opinion of the real estate agent on what the likely sale price of a property will be. They now must substantiate his opinion by comparing similar type properties that sold within 5km of the property in question. Now I reckon 5km covers quite a lot of ground, in-fact it could cover suburbs that have a significantly lower average price. Additionally what about the time frame – is last 6 months a good indication. Last 12months. The market opinion is simply not a valuation done by a professional independent valuer. The agent has an agenda, they will substantiate to their hearts content and legitimately under the PAMD Act, to get the result they are after.

Sorry Mrs Keech we don’t believe either of these changes do anything to address the dishonest agents, and the process they employ.

If a property seller wants to feel truly comfortable they should seek an independent valuation. Then they can decide whether they need to use an agent or not.

As for auctions, considering current auction clearance rates in Queensland, forget the dummy bidder, you’d be a dummy seller.

Michael Eroz
Property Analyst

Friday, August 11, 2006

Agents get trips to Cuba – You get expensive Advertising

Recently it was reported in The Australian that Real Estate Agents in Melbourne who spent a minimum of $250,000 a year on real estate advertising in The Age Newspaper were gifted an all expenses paid trip to Havana, Cuba.

It’s all courtesy of a reward program The Age has implemented for Real Estate Agents.

The Victorian Government outlawed rebate schemes which at some stages were as high as 40% of advertising paid for by property owners.

The Age wants to reward Real Estate agents for revenue it generates for their paper. When you consider we are talking 120 Million or so in real estate advertising revenues, we are talking lots of money.

It’s not just Havana. Agents have been taken to Tuscany, Dubai, Thailand and Las Vegas.

Whilst The Age considers this to be a reward program for clients who spend serious money with them, consider whose money the Agents are spending.

You guessed it. It’s the money they extract from property owners for vendor paid advertising.

Not only do the property owners have to pay huge commissions to these agents – they are also indirectly funding their overseas junkets.

So if you want to pay thousands in commissions, plus sponsor an agents overseas trip, we suggest you select an agent who is very prominent in The Age Newspaper.

If you want to put your money back in your pocket, sell your property yourself. 70% of all property is sold as a result of internet advertising or a “for sale” sign. You can easily do this yourself.

And when you do……. buy a big Cuban Cigar for yourself.

Michael Eroz
Property Analyst
e: michael@zeroagents.com.au

Saturday, August 05, 2006

Conditioning Property Owners

Conditioning a property owner is one technique real estate agents use to try and get a deal.

This is a very manipulative technique many agents use. More distressing is the fact that as an industry many of the franchise groups actually run structured training courses for their staff on this technique. The basics of this technique are;

The way an agent may condition you is quite simple.

a) They accept the price you want to list the property at. Their goal over the next 4 weeks is to condition you to accept far less money as a cheaper sale price always makes the agents job simpler.

b) They then work on providing feedback to you from any open homes or inspections which basically says that everyone who has inspected the property believes that it is overpriced. They may convince a few potential buyers to submit offers which are significantly less than what the owner is after. They do this - knowing the owner won't accept it, but nevertheless will convince some buyer they may have a chance with that offer.

c) The agent has built a relationship with the property owner that is far stronger than any individual buyer who may make an enquiry. It is easier for them to condition the property owner to accept a lower price than it is for them to get a better price from the potential buyer. (Even when the buyer could have been very prepared to pay more.)

d) Now that the owner has received a really offensive cheap offer or offers, the agent hopes that the property owner will now accept less than what they originally wanted because the owner will see any subsequent offers as being considerably better than what they were offered previously.

e) Its deceptive behaviour designed to make the property owner accept less and therefore the agent gets a sale and gets paid.

No wonder nobody trusts real estate agents.

Michael Eroz
Property Analyst