There are considerable differences when buying an apartment and buying a house in an auction. In this video, Andrew Murray laid out important points every apartment buyer should know when buying an apartment at an auction. Watch this video to get an idea.
Buying an apartment is very different from buying a house at auctions. The reason why? You can walk through the house, so you can have a look around and you can pretty the condition that house is in. It is normally one, maybe two levels. You can have a look around and you can have a look underneath the house, it is pretty much visible. But when you look at an apartment it could be anywhere between two, three, four, 40, 45, or even 50 floors high. How are you supposed to know what is happening on the fourth floor, in the right corner? How are you supposed to know what is happening in a unit title is between nine. Is it nine apartments or more?
That is what determines an apartment, it can be anywhere between nine apartments and over 500 being the largest apartment complex in New Zealand. How are you supposed to know what is happening on the 41st apartment? What is really important is your due diligence. You have got to make sure your due diligence is done all prior to purchasing at auction. Now, you can get some really, really good prices at auction and it does happen.
But the thing is that what you have got to realise is that when there are issues, very often in my opinion, they come out in the market at the end of the auction. I have seen this done before and I have seen real estate agents who specialise in apartments get caught out by this, because not all the documentation is there. When you think about it, you are relying on AGMs which are annual meetings. It has a body corporate minutes, which you are going through.
How do you know what has happened since then? And how do you know what is in the process? What I am going to do is give you an extra seven very solid tips to enable you to have a safe bidding and hopefully a very good purchase at auction. I think if you follow these seven steps, you will be absolutely and your risk will be mitigated and you are going to be in a good place to make a really good purchase. If you look at step number one, obviously start off by getting your lawyer to approve the last two years of body corporate minutes.
That is a basic one, you do that even if you are purchasing just a normal unit. Now, the big one is – ask to speak to the Chairman. Not many people ask about this, but if you are going to auction you want to be able to ask if you are having to do any due diligence up front. It is being rushed to a point, so ask to speak to the Chairman and verify if there is anything that is going on in the building.
Any water type maintenance or issues or anything you need to be concerned about. That will get you straight to the source and I know since I am a Chairman myself. If I got that call I would happily tell them what is happening in the building. Another one is, getting your lawyer to guide you over the long term maintenance plan and cross-check that with the budget to make sure the money’s there. It is looking like it will be there when there are major ticket items, maybe if a roof needs to be replaced or something like that in a couple of years.
Nmber four, clear the property with your bank because if your bank is over exposed in that building, then they may not lend. They might be having to do finance prior to you need to do it prior to bidding in the auction. The other one is get a LIM reports. I notice with most auctions a lot of agents do not provide LIM reports. This is really important for making sure the consents are all done, the Warrant of Fitness is all upstanding. Anything you need to know about that property. And so I would a advise getting a LIM report prior to auction.
Another one is to get a building inspection. Often, when you are selling apartments in the normal purchase of your condition order building inspections. Why not do it before you go to auction? You think about it. You are spending hundreds of thousands of dollars, It is important to make sure your purchase is a safe one. Then get a registered valuation, because this market is very hard to predict. It is very hard to know the values. When I first started and I obviously know them inside out now.
As an agent, it took me six months to nine months to have an idea what the values were. So, if you are a buyer, how are you supposed to know? Get a registered valuation and that will help you with the hardest one. Deciding how much you are going to go up to and that is nail biting stuff. I think if you follow those steps, you will be in a good position to be bidding and hopefully you get a very good purchase at auction.
I hope that helps and thanks again. Andrew Murray, Apartment Specialists.
There are different sales method that can be quite effective when selling different types of real estate properties. But what if you are selling one type of property? How do you know that this is the best sales method to achieve the highest price? This article answers all these questions.
Andrew Murray, Apartment Specialists. Today we are talking about how, as an owner, do you figure out what is the best sales method to use to get the highest price for you apartment.
There are big discussions always in the industry on which is best. Is it tender? Is it auction? Or is it listing with a price? I’m not going to go over that because I’m really going to talk about how, you as an owner, can figure out what’s best without going through all of the debate. And that is going straight to the source of the sales. Every real estate agent has access to all the recent sales in your building. And what they also have access to is the method of sale used to achieve those prices. What you want to be doing is, asking for, not only the recent sales in your building, which will come with your appraisal, but also what methods of sale were used to achieve those prices. And it is something I actually haven’t seen in an appraisal yet from other agents. But, it should be – is that method of sale. And from that, for example, if a building is an investor building, most likely, auction’s not the best method to use because emotions are not involved. It is all about the numbers.
But, you want proof. You want to know it. Ask the agent “Can you please show me the highest prices that have been achieved, say the top five highest prices achieved in the building in the last 12 months and what sales methods were used to achieve those prices?” And that is going to give you your answer. If it was auction, auction your property. If it was listing with a price, list with a price. If it was tender, choose tender. That will give you your answer every time in every building.
In the situation, if you are in a building where there are only a few apartments, what you want to do is also ask, What similar buildings are there? And ask this to the agent, What other buildings in the city are similar and can you also give me those statistics and the record sales or sale prices achieved in those buildings, and what methods of sale were used to achieved it? So, then again you have got a fool proof answer given to you in regards to what method of sale is best to use.
I hope that has helped. It is pretty fool proof. Pretty simple. I advise that every single owner get that information before they choose what method of sale to use.
Next time I am going to talk about what happens, like as an owner – and I get this quite a bit from overseas owners – if you come across a buyer who will pay for the apartment while you’re already listed with a real estate agent, what happens if you find that buyer yourself, what happens? I’ll talk to you about that next time.
We will tackle why owners of agencies incentivise auctions and why they do this sort of thing. Get the facts straight from this podcast.
Andrew Murray, Apartment Specialists. Myth number two. Agencies incentivise auctions because it is in the best interest of the owners.
In my own opinion, that is a complete myth and from my experience it has been a complete myth. Owners of agencies incentivise auctions because it’s in the best interest of the agency.
They do that for three reasons.
Because an agency is like any company, it needs to predict next month’s income. And the best way of doing that is through auction – because auctions are more likely to sell. The reason is because of the pressure of an auction – the amount of money spent on the advertising. The owners go all in. They’re not going to that point and go “Oh, we’re going to spend that $4-5,000 again”. So for an owner, they can predict and look okay we’ve got 10 options next month, that means on average we sell 90% of all our options. So that means there’s nine sales right there.
Now at the moment, in the housing market, they’re in line. In my opinion, in the housing market, if I had a house, I’ll sell it by auction because that is the best way to sell at the moment. Currently, because there is a lack of supply of listings and there are more buyers. They’re emotional buyers so there are more. But if you looked at it three years ago, it would be the worst way to sell your house because we all know what was happening. There was nobody around to buy. It was a crash – it was a financial crisis.
Now if you look at apartments, where there is a huge amount of supply – over 611 apartments currently. Well, why are auctions being used if they aren’t having the same result in the housing market? Why are they being used to sell lease-hold property when there aren’t any buyers? It’s because the owners incentivise them. They’re giving their agents more commission or more commission goes to a listing agent. Then the agent finds a buyer because it’s selling by auction. The other reason why agencies want auctions is because all the advertising of the publicity, that’s half ego and it’s half because it kind of works. The more publicity you have, the more market share it appears you have. And so other owners are more likely to go to that agent or agency because of the advertising.
So I hope that’s really given you a different point of view of how auctions are being used. In my opinion, why there are so many auctions in the apartment market, where especially in buildings where they are lease-hold buildings. You don’t have owner-occupiers purchasing them. It’s all about the numbers – there isn’t the emotion and continually- again and again -I’m not getting the best prices, listening to the prices, yet auction is chosen again and again.
Okay, next week we are going to talk about something completely different – rental companies. Being that 70% of the Auckland apartment market is rented, it’s a pretty big topic. The myth is that all rental companies are equal.
In this podcast, I’ll be talking about myths that you will commonly encounter in the Auckland apartment market and the whole real estate market in New Zealand.
Andrew Murray, Apartment Specialists. Today we’re going to be talking about myths. What you do not know about what happens in the Auckland apartment market, as well as the real estate market through the whole of New Zealand.
Now myth number one’s quite an interesting one. I would be very surprised if many people are aware of this. But the myth is, real estate agents get paid the same amount whether they sell Auckland apartments via auction or by price or by tender. Now that’s a myth. That’s not the case.
Agents get paid more to auction your property. What happens is an agency gives them 70% of the commission on offer to the listing agent. And then they only offer 30% to the agent who finds the buyer. That’s because an agency wants as many auctions. And I’ll be talking about that in the next podcast, the reasons why an agency wants more auctions.
Now specifically what does that mean? A listing agent gets paid more if they list a property by auction than with a price? Now, that’s actually a bit of conflict of interest because it means there’s an incentive to sell an open apartment or house by auction. Now to me it doesn’t swing. You’ve got to ask yourself – three years ago in the housing market, why there was still auctions when we all know that was the worst way to sale? There was no demand. And in the apartment market, why are there so many auctions? Auctions for leasehold properties when there are no buyers? And then it is just passed in again and again. And if there was a good buyer, they’ll only have to pay just above the other buyer who was most likely a trader or somebody who was just speculating.
Why does it have this effect? So what happens is, the listing agent gets paid more when they list it and they’re going to get 30% when they find a buyer. So what happens is, other agents who have a really good buyer – it’s all about paying the bills. That’s what agents do. You’ve got to think about it as your own job.
If you’re going to have a good buyer that’s going to buy property, are you going to direct it towards a property that you’re going to get 30% of the commission? Or are you going to direct it towards a property where you’re going to get more commission, or paid more? I mean that answers the question itself. And because of this, the IRA just come up with a new legislation to make sure that every agent – when they auction – actually declare that to the owner. Now whether that’s happening or not, I don’t know. That’s myth number one. A bit of a biggy and something you need to be aware of. And actually ask your agent who’s representing you, if they haven’t already told you that. Because they’re supposed to. Thank you.
Next week, we’re going to be talking about myth number two, and that is why do agencies want auctions?
This is the second part of my podcast and we will discuss more why auction in the Auckland apartment market is not achieving the same results as it is in the housing market.
Andrew Murray, Apartment Specialists. Today, we’re talking about why auction in the Auckland apartment market is not achieving the same results as it is in the housing market. And it’s quite simple. It’s supply and demand.
If you go to any suburb around Auckland and see how many listings are available, there will be 20, 30, 40, sometimes 10. Yet if you go to the apartment market, it’s always over 600. I think there was 611 this morning. We all know for auction to work, there has to be less supply than there is demand i.e., there has to be more buyers than there are sellers. That is the reason why auction is creating such frenzy around the Open City. I’ve got a good friend of mine. They’re a couple and they want to start their family. They’re panicking because there’s just so much competition. There’s so many emotional buyers wanting to purchase. That’s just a family home and there just aren’t enough listings out there.
Yet in the apartment market, it’s very different. Buyers aren’t as emotionally involved. Now, I’m not saying that auction doesn’t work. I’m saying that auction has its place. I’m saying it’s when there’s scarcity. So auction I think is a really good measure when you’ve got an apartment that’s very unique and obviously favourable. So you have a lot of people wanting it and they know that in a months’ time or two months’ time, there won’t be another one just popping up. That will create that emotional connection to the property, which will drive the prices up and that competition factor, which makes it work.
Now, I did have a few people from the last podcast that did go, Well, I did get a good price for mine, and that’s what I mean. It’s because your property was unique – and don’t get me wrong – sometimes you do achieve it – but I’m just saying, more likely than not, it’s not achieved through auction.
Look at the traders. These are people who buy apartments – most likely through real estate agents – and then sell them at a profit. Now, do they sell by auction? Nine times out of ten they don’t. That’s their business to get the highest price and they choose not to auction. I think that’s a pretty good indication of what’s working in the CBD because a trader in the housing market does sell by auction.
Anyway, What I want to leave you there is with – okay, let’s look at two scenarios. You’ve got a buyer who wants to buy your apartment. That is willing to pay 480,000. And you’ve got a buyer who’s willing to pay 420,000 for your apartment. Now, how much does the buyer have to pay – who would’ve paid up to 480,000. Only 421,000? 425,000? And that’s why in this market, I feel if you’re listing with a price and creating a multi-offer situation, it is far more effective. There is a lot of technique and skill that goes into how you list it with a price and how to achieve that maximum price. We can talk about that another time.
Anyway, next week we will talk about another reason why – giving you more education regarding why, auction isn’t as successful in the Auckland apartment market as it is in the housing market and hope you found this helpful.
Have you ever thought of a reason why an auction in the Auckland CBD is not achieving the price you’ve always wanted? I’ll discuss my points in this podcast.
Andrew Murray, Apartment Specialists. Why is an auction in the Auckland CBD in most cases, not achieving the highest price? Now, this is quite a big topic. So I’ll take it down to a couple of points and do a podcast for each one.
Now, the first one is: a bid at auction is unconditional. So that means there’s no conditions. You know that you bought it. Once that hammer goes down, you’ve bought it. So in this market buyers are very scared because of bad publicity because of the leaky building issues. And the amount of due diligence they want to do to make sure that they are making a safe purchase. This deters a lot of purchasers.
Also, the finance is very different. Unlike with a house, where you may get a pre-approval to a certain amount. A pre-approval with a bank will still require a valuation, every time, in most cases. And the big one is this, okay they may have given you a pre-approval but then when you find an apartment in a particular building, they may not give you finance because they’ve got too many – they’re linked to too many apartments in that building. So, they’re exposed to too much risk or they might just have problems with that building or just reasons that they won’t even tell you.
So, it’s a lot harder for someone to go and purchase at auction. You’ve got to be very, very confident. And if you look at it, I’ve heard of purchasers who wanted to do a building inspection, as well as a valuation.
So when you’re dealing with apartments that are not worth as much as houses and they’ve got to do all this due diligence, it’s very difficult for them to spend a thousand dollars on each one, looking into them. So that’s one of the reasons why auction is not achieving the same results as with houses.
Next week, I’m going to be talking about the supply issue and the difference between the apartment market and the housing market.
In this podcast, I’ll be talking about the best selling methods and common schemes of real estate agents, especially when auctioning your apartment and how they get more when they do.
Andrew Murray, Apartment Specialist, methods of sales.
Did you know real estate agents get paid more to auction your apartment than they do to list it with a price? Now, what I mean by that is, when the agent gets paid the commission, the listing agent will get a higher percentage of that commission if they auction the property. And the person who found the buyer will get a smaller amount of commission. And that has all kinds of implications. That often means that, if someone’s got a really good buyer that’s not on their listings, they would rather push their buyer towards a listing that’s listed with a price, because they get paid more money. It also means that – in a lot of occasions – well, if you ask yourself if you’re going to get paid 70% just to sell a property and not find a buyer, are you going to do as much work to find that buyer? Well, you can make that conclusion yourself. So, it’s quite interesting.
Now, about the other point… Okay, if you ask me right now. How I’d sell my house in Auckland, I’d say I’d auction it. So, what am I saying here? I’m not saying auction is not a very good way of selling. I’m saying that it has its time and its place. If you ask me how I would have sold my house three years ago – no way by auction. Because we weren’t in a burning market. We weren’t in a time where – basically there was more demand than supply. Now, I have apartments and my parents have apartments. If you ask me how I would have sold my apartment three years ago, I would definitely list it with a price. If you ask me what I advice I give my parents – list it with a price. If you ask me right now in a burning market how would I sell my apartment, I’d list it with a price.
Now, what’s the difference between an apartment and a house? There is a huge difference. And that’s the reason why statistically, when you look at all that, how the highest prices are achieved – and most buildings I know are through listing with a price. It’s because of due diligence. It’s because people are scared of buying apartments. They need to do their due diligence.
When you come into an auction, you’re making an unconditional offer. And a lot of people they want to have conditions. Before they purchase, they want to have a building inspection. They want to be able to go through the minutes with a fine tooth comb. They want to be able to get an evaluation and a conditional price. There’s a lot more conditions, people are a lot more scared when they’re purchasing apartments. Going to an auction, doesn’t suit them. Also, values.
Also, if you’re looking at apartments now, we’ve got so many of them. If you look in a suburb, there’s probably maybe 20 at the moment – 20 listings in a suburb, maybe 30, maybe 40. Well, in an open CBD, there’s about 700. And if you look at say 3 bedroom, there’s probably about 300. So there’s so much choice. You look at the traders, how do they sell their apartments? Now, these are people who buy apartments either directly from the owners or off real estate agents and then – they buy them undervalue and then sell them at the maximum price. And that’s their job. That’s their business. Do they auction their apartments? Nine times out of ten they do not. I see a lot in the housing market, but not in the apartment market. So, ask yourself, that’s their business to get the highest price “Why aren’t they auctioning their properties when selling their apartments?” Let’s look on Trade Me. Look at Icon City. That’s the biggest trading in Auckland apartments or apartments in New Zealand. And they’re not auctioning, they’re listing their price. So, that should give you a good idea.
If your agent does tell you that the best way to sell your property is by auction. Ask to see the values or the highest sales achieved in your building and find out what methods of sale were used to achieve those sales. And you can get that information from the REINZ. So even a real estate agent can get that information. So it is available and that will help you choose what method of sale is best for you. And if they are pushing auction and it’s not the best method so sale – you’ve got to ask where their motivation is. Is it for them? Or is it for you? So I hope this helped. I think it will have given you a very good insight – especially into the apartment market which is very different.
And next week I will be talking about knowing your building. How important it is that you choose an agent that knows your building and the questions to ask and to find out if they do.
Cool. So, if you haven’t downloaded it already, as I mention on each podcast. I had a lot of great feedback. This is just one of ten points on mistakes owners make that I see them making which costs them thousands of dollars in selling their apartments. Download it from www.apartmentspecialists.co.nz