RR, as you have given your thread a bump, I'll give you the opposing view to SNM.

I would agree that as SNM intimates, Real estate Agents do have a bad name to some extent (and for justifiable reasons), the same can be said for Plumbers, Mechanics, Doctors, Dentists and just about any other industry that you care to name where someone has had a bad experience (don't get me started on lying cheeting Investors and some of the dirty games that they play).

However,  from a platform of learning the investment strategies of others and witnessing first hand the Development process, I don't believe you can get a better foundation than the Real Estate Industry.   Valuers may well understand the mechanics of valueing a property but agents see first hand what the market is doing and what people want and don't want. and what people will or won't pay.   If you like hard work, I suggest that you give it a go.

Jon

I smell a rat.
If it is an Auction, why does it have an advertised price or range ($185 – $200)?   In Queensland this type of advertising is illegal and called baiting. 
If he is telling you that he has an offer of $210K, whats to stop him going back to the first offerer and telling them what you offer?   You are heading for a Dutch Auction and my advice is to keep away. 

On the other hand, if you really want the property and have done enough research to feel comfortable with the price that you are paying. then make that offer.   Just because someone else is prepared to offer $210K, it does not mean that the property is necessarily worth that amount – it would have to be viewed along with all conditions on the contract.

Is the property a studio or one bedroom unit?

Jon

Matt, an interesting question that you pose, however it is a little like asking how long a piece of string is.   I may be able to assist, but would have to know what the GFA is for the town houses?  Are they low set or double story?   Two bedroom or Three bedroom?   One bath or two?   Lock up garages or carports?   Do you want just Building cost or do you want to include landscaping, driveways, fencing etc.

I have not heard of res600, so I am assuming that you are in a regional area at least not BCC.   What is the demand for townhouses in your area?

In order to protect yourself or any other Buyer, you would enter negotiations via a contract with a subject to Development Approval satisfactory to the Purchaser clause.   I have to warn you here, if this property were in Brisbane the DA could take at least 2 years to obtain.   Not sure how fast regional town planners can perform.   The fact that the council wants the park area has to be a bonus.

I have a spread sheet that I use to calculate feasability on this type of project.   If you wish you can contact me to discuss.

Jon

Hmmm, sorry for the missunderstanding, have never heard of a Sellers agent (apart from the one that I mentioned) but my immediate thoughts would be that it is just a clever way for an Agent to have an exclusive agency on your property and say that he is going to work with other agents in order to sell your property.   As it stands today this is called a conjunctional sale and both agents share in the commission.

I can't see any other benefits to the Seller.   I'm open to opinions though.

Jon

Hi My House,

A Sellers Agent works (or should) for the Seller exclusively because the Seller pays the commission.   I think that you may mean a Buyers Agent.   That is they work exclusively for the Buyer, however in this situation, the Buyer pays their commission.  

It is my belief that with Demand exceeding Supply and given that most agents won't conjunct on their listings, we are going to see an increase in Buyers using the services of a Buyers Agent.   A good Buyers Agent with a thorough knowledge of current listings and up to date market knowledge will be able to assist a Buyer to secure a property much quicker than the Buyer trying to do all of the leg work for themselves.   Given that this may mean that the Buyer is going to pay a little more for the purchase, this will not suit all Buyers and in particular, those who know everything and have time to burn.

Jon

The Practical (analytical) versus the Emotional.   Emotion will almost always win.   Practiacl is the Buyer – Emotional is the Seller and like Marc says most sellers believe that there property is the best in the street (world for that matter).

I would almost bet that the research done by the Buyer will be weighted in the Buyers favour.   I had an experience with this from a Buyer not so long ago but he had purchased his research from a reputable company.   Their buying range was out by over $50,000 and he missed out on the property.   In hindsight not a happy camper and will not use the services of a research analyst again any time soon.

For what its worth.
Jon

No offence to Jon, but you'll never hear an agent say they aren't worth the money they are paid.

None taken, as I mentioned above, I respect many of your posts and your constant replies to peoples questions shows me that you care enough to take the time to answer.   The problem we all have is that often our replies are governed by our past experiences, and you have obviously had bad experiences in property transactions with agents.   That is not to say that all agents are bad (I admit that there are bad ones out there), however I believe that the reply and advice that I gave to EGD (who by the way has not replied) is not only sound but proven to be true.

You say that you will never hear an agent say that they aren't worth the money that they are paid is quite correct, however I return the statement to you and please tell me anyone (no matter what business or trade) goes around saying that they are not worth what they are being paid.

Agents are not marketing gurus. I used to be one for a time. They are basically salespeople. The best ones are good negotiators, but are they worth twice the going rate to make a sale? No.

Again I agree that most agents are not marketing gurus.   But what is the going rate for a sale?

If your property is advertised at the correct price from day one, it will sell quickly, with or without a massive ad campaign, or the better agent.

The buyers are already out and about, looking in the agent's window, on the internet, driving around the area looking at signs on front fences, looking in the papers.

Straight from the Jenman book of drivel.   I have been an agent for over 30 years and I can't remember when the last Buyer came in off the window.   And one point that you seem to miss is that now days many properties(specifically units) are not permitted to have a sign on them.   The only points that I agree with you on, are 'correct price' (if you know it) and Internet advertising.   The rest is just wishfull thinking.

Let me just  add that if the property that you are selling is priced between $300k and $400K (on todays market) then I agree that selling it will be a lot easies than say a $600K unit in Brisbane.   The reason for this is a Supply and Demand issue and nothing else.   80 % of enquiry to my office at present is for property under $400K. in an area that has very few under $400K properties.

Agents are simply the place people go to to buy property because they are the only industry that facilitates the sale.

Wrong.   –   You can always sell it yourself after all, apparently it's dead easy.

Like going to Bunnings to buy a hammer.  But Bunnings employ professional marketing consultants.

Wrong again.   When was the last time that you went to a Bunnings store.   Your statement is an asumption based on what they were like when they started, from my experiences of late they seem to hire juniors who wouldn't know what a hammer was.

You'll get someone for around 2% soon enough, and they will do just as good (or bad) a job as someone who is stiffing you for 4.5%.

In theory, one would expect (even hope) that this were true.   But try thinking of it along these terms, if you needed a heart transplant would you look for the Doctor who would do it for the least or would you look for the Doctor who had the proven track record and charged for his time accordingly?   The posts on this forum alone, abound with people who have been burnt by looking for the cheapest and in hindsight regrett not useing the professional.

I suggest that the real task for most people is finding the person who can actually back up their words with actions and deliver the results.   This is why so many of us preferr to work on a referral basis.

Jon

While I respect Marc for many of his common sense answers to threads on this forum, we continue to dissagree on the matter of Sales and Marketing.    If property did indeed sell itself then there would be no need to have agents at all.   The truth is, if you pay peanuts as Marc suggests, I can almost guarantee that you will get monkeys.   Just because ther are 61 listings, it doesn't mean that it is necessarily a walk in the park.   It would have been nice to know approximately where this development is situated.   Is it in a Capital City or a Regional area?   Without knowing this I can't give specific advice but here are a few points to consider.

Setting the List Prices.   Make sure that you don't fall into the trap of believeing that your development is the better than all of the others in the area and hence believe that it is worth more than theirs.  Buyers (even overseas and interstate) are not silly, they will quickly see if the property is 'at market value'.

Legal Documentation.   As you will be selling 'Off the Plan', you will need to have Contracts, Body Corporate and Disclosure Statements prepared.   These are quite a lengthy and thick document and the better they are prepared the easier it will be to have a buyer sign one after their solicitor has perused it.   Look for a Property Lawyer who has done this before.   Believe me you won't regret it.

Marketing.   Contrary to the beliefs of some on this site – Build it and they will come – attitude is just horse sxxxt.   In real life you simply can't sell a secret.   In order to get the best result, you need to market the property correctly and to the right audience.   Remember you will be looking for 61 Buyers.   Now if your list price is going to be around $400K and you are in a major City, then the job shouldn't be difficult, provided you employ a good builder who takes attention to detail and provides a good finish.   If however (as I suspect) this is going to be a top end product and prices are going to be around the $1 million mark, then business may well be slow.   Make sure you budget accordingly.   Produce professional brochures and perhaps even look into having a 3D Model made so that people with little vision who perhaps can't read a plan can visualize the finished project.   You may even need to set up a display unit to show the quality of finishes that will be provided.

Agents.     Again, not knowing where you are and thus not knowing how many agents are around the area, it is difficult to answer this point with accuracy.   I would certainly reccomend that you appoint one agent as the 'Marketing Agent' (This person could be your Licensed Partner).   The reason for this is that you want one person responsible for the security of the site at completion and for the viewing of units during construction.   You also need just one person to act as the contact and go between for other Agents.   It is common practice for Developers to offer 100% commission to outside Agents and an overrider to the Marketing Agent. (around half – which is why the marketing agent asked for 4.5%).   The reason for this, is that you don't want other agents, who don't have the opportunity to sell your product from bagging ot to potential buyers – plant the seed of doubt.

Pre Sales.   Depending on your method of funding this project, if it is through a Bank, I am almost certain that they will demand a number of presales before advancing any finance.   This again is not uncommon, especially as it is your first project.   I have just finished selling 22 units in a development done by a first timer and believe me it was harder than if a reputable Developer like 'Mirvac" had been involved.   They have a proven track record.   Think about this when you choose a Builder as well.

I could probably go on with a lot more, but you may be better to chew on that for a while.

Jon

Apologies. Checking my reply, I see how you read it as condescending. All I meant was that the answers to your questions are contained in the text that you are questioning. Your failure to comprehend is just as likely to stem from my failure to clearly communicate as from a deficient intelligence on your part.

Apologie accepted.   I understand just how difficult it often is to make a comment that covers all aspects of the discussion and not be taken out of context.

No. You’ve failed to comprehend the words “real” and “index”. The chart simply represents the scale of growth after inflation, not in dollars, but as a simple index with a 100pt base in 1926. I’ve not adjusted this to suit my argument, it is straight from the AMP source here:

http://www.melbourne.arrive.com.au/files/Articles/Olivers_Insights_House_Prices_080605.pdf

I’ve simply converted the figures from log scale to normal, and overlaid the 2.35% trend to represent average annual house price growth after inflation.

Thank you – understood now.

Well, I (and many others with a basic grasp of elementary economics) most certainly do suggest the recent boom is highly abnormal. In terms of growth beyond what is supported by income, rent or inflation, it is unprecedented. In terms of the increase in mortgage debt that has sustained it to date, it is unprecedented. In terms of the magnitude of further debt growth required in future years just to keep house prices from falling (some $100 billion additional dollars of debt per year), it is unprecedented.

If you read my comments, I am in fact agreeing with you that it is abnormal.  No argumnet.

House prices cannot forever grow at a rate much higher than the rate of income growth. They can do so for short periods, but the shortfall will be made up with debt growth far exceeding income growth. This cannot last. Periods of such excessive growth inevitably must be followed by periods of lower growth. Expectations for the future following such extraordinary periods should be adjusted downward. They’re not; they rise. This is the basis of an irrational bubble mentality which leads to irrational bubble behaviour which always ends with a bust.

Wow!   I do believe that we are on the same page now.   I also believe that I this is what I was attempting to convey when I suggested that this is esentially the difference between a 'trading' strategy and a 'buy and hold' startegy.   A trader needs to be very well informed and able to pick the right timeing for buying and selling while the long term holder will do well on averages.

Thanks for your measured reply.

Jon

Back  to Houses. Supposing somebody did buy that house for $100k ten years back and now it is worth $200k. What does that tell us? Does it mean that house prices double every ten years? Heck no! At $200k that house is either fairly priced, overpriced or underpriced (the balance of probabilities is not with the former).Suppose it is fairly priced today. That means that a decade ago it was underpriced at $100k and should have sold for almost $150k in a competitive market. In that case it should be implied that house prices rise 33% on a fair value basis over ten years. NOT 100%! If it is overpriced today, it should be expected to gain less than 100% over the coming decade. Could it have been underpriced at $100k and still be underpriced at $200k today? Well… yes. But you’d have to be mad to bet on it, unless you had good reason. One such reason would be if its rental yield had risen so that holding costs had fallen relative to the expected gain. I’ll ignore this because it most certainly does not apply to the recent housing market!!!  

 Foundation, I am really trying to understand exactly what you mean by this.   I don’t believe that you can rely on the happenings of one house sale, but if the average in that Suburb doubled in that 10 year period it is safe to assume that house prices doubled in that ten year period and that the Buyer paid fair market price.   Not over or under.   From my observations most Buyers are fairly savvy when it comes to the value of the property that they are buying give or take an emotional value of about 2.5% either way and depending on the position of the supply and demand cycle at the time of purchase. 

I am also fuzzy on the rental bit.  I sold a property to a client in 1995 for $125,000 which at the time was renting for $130 per week.   He borrowed interest only so the property still owes him $125,000 but his rental income is now $310 per week and he is now in a positive cash flow position.   Are you suggesting that this is a bad scenario?          

So how can we apply this information to the recent housing market? Let’s look at rational behaviour. Consider the expectation that house prices will double every seven to ten years. This was a commonly held belief in Perth in 2005 (as it still is across much of the country). Fair enough, house prices had doubled over the last ten years and stood at $300k. Over the following year, house prices rose 50% to $450k. And guess what? Many (most?) people still expect house prices to double every seven to ten years! Irrational. That means people expect house prices to hit $900k whereas a year earlier they were expected to reach just $600k. If the rule is true, and people are rational, they should conclude either that prices were 33% underpriced in 2005 or they are 50% overpriced today.  

Again, I believe that your statements are weighted to the way you want the outcome.   You can’t compare a seven or ten year average and then use the same formula on an annual basis.   It is after all an average some years will be 1% and some may be 30% but the average is 10%.   

By and large, they conclude neither. They instead concoct a convenient, self-serving and frankly deluded explanation. House prices move in predictable cycles. Several years of slow growth followed by two or three of explosive growth. Over the long term this averages out to 7% to 10% per year. This provides comfort to those who bought in 2006 only to have prices flatten or fall. I say phooey to this. 

Take out the word predictable and are you seriously suggesting that this doesn’t happen?    

For starters, efficient market theory tells us that rational players would take advantage of such an observable cycle. They would buy after several years of sub 7% growth and sell after a couple of years of 10% plus growth. Doing so would far exceed the returns offered by buying and holding. But if people did this, the ‘cycle’ would soon disappear. Prices would rise at a steady rate somewhere between 7% and 10% per year. But they don’t. 

If only we had a crystal ball and actually could predict these periods we would all be millionaires. 

Foundation, please believe me when I say that I am not trying to be argumentative here, I am just having difficulty coming to grips with some of your reasoning. 

I agree that it is hard to believe that the average house value will soon hit the one million dollar mark but then I would not have believed that the average house price would have hit half a million in 2008 had you told me this in 1972 when I purchased my first house for $11,000.  

Jon