STEALING PROPERTIES IN A SLUMP

Agent incompetence and auctions.

Neil

You say, “The best time to invest in property is when yields of seven per cent (or more) are readily available.”

I must admit I thought, “great in theory but useless with Sydney yields at 3% – even if prices crash 33% that’s only 4%.” I held out no hope of seeing such yields in Sydney again.

Then I read your article about that unit that a professional investor bagged for $90,000 which had previously sold in the boom for $264,000.

I started thinking and decided I’d go to a few auctions.

Last weekend, I went to a mortgagee-in-possession auction for a unit near my home.

It was so quiet I thought I was in the wrong place and the auction must have been at the agent’s office. But no, after checking the sign – this was the spot.

As well as the auction sign, there was another agent’s sign for an identical unit in the same block. The asking price on the other unit was $329,000.

Anyway, the auction started and there were a couple of bids – one from a bloke who offered about half price just to get it started and the other from a more serious buyer. The bidding stopped at $205,000.

The auctioneer couldn’t believe the lack of interest. He says it will sell today. Someone asked whether that was confirmation that there was no reserve, and it’s on the market. He says yes. He then starts with “Going once, going twice…”

I think, “Sod this,” and called out, “Another $5,000.”

After some more patter with no response, the auctioneer turns to me saying “Once, twice, three times – sold to the gentleman for $210,000.”

It will rent easily for $250 a week which is 6.2 per cent. It sold for more than $100,000 below the asking price of an identical unit in the same building (which will be an unpleasant surprise to THAT owner!); it’s across the road from a school and a bus stop; it’s a hundred metres to a park and just one block from the major shopping centre.

It sold for $40,000 below even the mortgagee’s conservative bank valuation prior to auction. The building is only three-years-old which means it’s getting the full depreciation benefits. (I’ve seen six-per-cent returns before, but they’re typically 40-year-old, pre-building allowance and fully written down.)

This will probably be perceived as a cautionary tale about auctions – I know you’re not a fan – but I have no complaints as a buyer. I was just there to steal it from a bank that didn’t care about the sale price.

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The reason I am not a fan of auctions is because thousands of sellers collectively lose tens of millions of dollars every year. In a down-market, like today, it’s even worse.

Any agent who recommends auction these days is either incompetent or dishonest. Oh, how I wish several auctioneers would take a mass defamation suit against me for that statement. And then I’d get the chance to prove my case in court.

In the meantime, all I can do is offer any genuine seller a free copy of my book, Don’t Sign Anything! from Real Estate Monitors or direct readers to an article I wrote years ago on how auctions get lower prices.

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