In order to tell you the weekend’s real estate story, it is necessary to talk about money, and large amounts of it.
I earn money. By some people’s standards, it’s a big stack, way more than one might think I deserve for sitting at a keyboard all day, but that’s the way it is, and it’s not an unusual amount for people with about decade’s experience in the field I’m in.
I absolve some of my guilt about earning so much by giving a small bunch to charity every month, by direct debit so I don’t have the chance to forget about it or easily weasel out of it. A bunch more gets spent on living (occasionally a tad ostenatiously). The biggest bunch goes to the tax man, almost half my income. I don’t have a problem with this — while I do take issue with some of the ways the government spends my money, I’m relatively happy with the concept of our society taxing people like me to support those who need it, hopefully giving at least some of them the boost they need to get to a stage where they don’t need it.
A final bunch gets put into my savings. Little by little, over many years, I’ve amassed an amount of money which has finally reached the point where it’s just about viable as a deposit on a house of the type I want to buy, in the suburb I want to live. Just about.
Enough of that introductory bit.
So I was looking at a house. Nice area. Seemed to meet my requirements of being close to shops and station and a reasonable driving or bus-ride distance to the school. Really good spot, actually. On a main road, but not one marked black in the Melway, so not the busiest of main roads. Quoted price? $400K plus. Which in agent-speak usually means add 10%… it’ll go for around $440K. My limit at present is $450K. It’s a stretch, my absolute limit, and I’d be scarily in debt for much of the rest of my life, but I could do it if I had to.
It needed work. A bunch of work. The kitchen was “original,” meaning it was crap. Replacement job. The bathroom was also original, though not too bad. Tiny shower, certainly, but otherwise workable. The toilet was not quite indoors and not quite outdoors — accessible from the house via the porch. Not ideal for those cold winter nights, but the porch could be modified to be enclosed. Wiring needed re-doing. Floorboards needed sealing or covering. Otherwise okay, quite nice.
So probably at least $10-15K up-front to make the place liveable, and a bunch more later to make it perfect, or as close to perfect as I’d be keen to get it. I decided therefore that it was worth (to me) $430K. $435K tops. Any more than that and I’d be in debt, out of cash, living in a hovel.
I heard from the agent a couple of weeks ago that someone had put in an offer of $410K, which had been rejected. I thought about putting in an offer of $425K last week, but the agent discouraged me, saying that so close to auction day, it would have to be a high offer to warrant the vendor taking it off the market, and that the best course of action was to just turn up and bid. For a moment my good sense went out the window, and for some reason I actually believed she had my interests at heart when she said this.
Didn’t sleep particularly well on Friday night. I’d never made a bid at an auction before, and it was getting a little stressful. Walked with Marita down to the house on Saturday in time to have a last little look before auction time. Realised when we got down there that I’d forgotten my cheque book. Hmm. Might be a tad tricky to hand over a deposit then. Oh well, bridges, crossing, all that stuff.
After some little kids played around with the auctioneer’s bell, bringing the crowds to attention a tad too early, eventually the auction got underway. Usual preamble, then the bidding opened. Auctioneer went in surprisingly early with a vendor bid of $400K. Scuppered my plan to start bidding at 415 (to encourage a quick move to jumps by 5).
I put up my hand and attempted to say in a loud steady voice “410”. Ba-bump, ba-bump, ba-bump, I could feel my heart pounding through my shirt.
Pause, pause, the only noise from the auctioneer shouting about 410. Someone else piped up: “420”.
Me: “425”. Auctioneer paused, he wanted to go up by tens. Looked for another bid, didn’t find one. Okay, 425 it is.
Someone else: “430”. At some point someone asked if it was on the market. Yes, the auctioneer confirmed, it’s on the market, we’re selling.
It climbed from there. I was out of the game. It wasn’t worth that much. Not to me, anyway. It kept going, up to 440, then up by ones. Three parties battled it out, the auctioneer turning back to me and other early bidders when it got quiet. I kept shaking my head. 450. No way. 460. It eventually settled on 463. The usual last-minute pleas for bids.
“Sold!” Yikes. 463. Well good luck mate, better you than me.
It was time for a little post-mortem at a cafe down the road. Marita bought me lunch, and I was settling down to my iced chocolate when the agent popped her head around the door. She exuded disbelief, or a fair impression of it: “Hello! Can you believe the price it went for?”
No we couldn’t.
“And do you know what the reserve price was?”
Nup.
“415!”
I think I may have choked on my iced chocolate, but I made agreeable noises as she told us that the winning party really really REALLY wanted the house, said she’d keep in touch, then pranced off down the street.
Bloody hell. 415 reserve. Which means if I had put in an offer of 425 last week, there’s a good chance they would have accepted.
Oh well. Did I really want a house needing a bunch of work done on it? No. I barely have time to juggle the existing things in my life, renovation is not something I’m particularly keen to take on as well. And moving is not urgent, I’m in no tearing hurry. I’d like to be out of my current place before winter returns next year, but it’s not absolutely critical that it happen. I’m a tad suspicious that my lease hasn’t been renewed for a second year, and so the owners may be conspiring to renovate or kersplat the house in favour of units or something, but I’m not going to get into a panic about it unless it happens.
And at least I got my first couple of bids in on a house. It’ll be easier next time. There’ll be other houses.
And I’ve learnt two important lessons, which I will pass on to any prospective homebuyers out there for free:
- Real estate agents’ prime goal is to maximise profit — that’s why they all drive expensive cars. They do this by getting the maximum possible price on properties, and by charging fees for things like auctions. So they’ll talk down interest to the buyers (you’re in with a chance, turn up and bid!) and up to the vendors (don’t worry about offers, just wait until auction day!)
- Just put in the damn offer you’re considering, no matter how silly the agent makes it sound. The worst that can happen is it gets rejected. Even if the agent’s not keen, they’re obliged to pass it on, though of course they may also be saying to the vendor “Look, this guy offered 425, but I think there’s going to be a lot of interest on auction day.”
Oh, and don’t stress. Even when you have to bid for the first time.
11 replies on “How I didn’t buy a house”
Sorry to hear you did not get the house Daniel. It wasn’t meant to be. Never trust what a real estate agent says, whether you are vendor or buyer. After 7 buys and 5 sales, I certainly know that. And yes avoid auctions where possible, no matter how much you know, you will still get stitched up. And yes, get in a prior offer, if it is reasonable one. But no, while agents are there to maximise the price for the vendor, what they want is a sale and the difference in their commission for a high or low price is of small importance to them. While they pressure the buyer to pay more, they pressure the vendor to accept less. When they have the buyer to the highest figure, then the pressure goes on the vendor to accept, even though it is probably tens of thousands less than they were told to expect. Either side of the fence is not a pleasurable experience. Lastly, if buying an older house, buy a total dump and renovate or one already done. Avoid the one that needs a bit of cosmetic work it will almost ok for a while. Really better to overextend and buy one that is right. In five years time, the extra money you paid won’t matter.
Hell. And they reckon the market is slowing down? The funny thing is I’ve had my house about fifteen years now and could easily get eight times what I paid for it ($52,000). It’s been renovated, but I’ve done most of it myself.
Nothing beats houses. If I had my time again I know what I’d do. I’d buy old wrecks, tart them up cheap, and become a millionaire. For sure.
hard luck dude
From the plan you’ve shown us, the layout of this house would’ve been competing with the crazy layout of Miss Marita’s house … best to go for a house where the toilet is in a sensible spot.
Daniel,
I’ve been reading your stuff for awhile now and have really enjoyed it. So thanks!
I have included an absolutely magnificent house (vested interest, what vested interest?) to have a look at and see what you will need soon. I mean once the first anniversary is up, it is only a matter of time before marriage and four kids, so I’m helping you out a little early.
We went through eight interviews with estate agents befor epicking one who did nothing but lie to us and try and make us feel guilty, until we got the one we want now. A tip for everyone selling…insist on a 30 day exclusive agreement. If the agents want longer, it means they have been unrealistic about the price and need time to cushion you to a lower one.
I guess that’s enough for my first ever comment except to say thanks for this site…it is the best I can get to a real life Seinfeld!
Wayne… coming back at you from the legal perspective, 30 day agreements/settlements are complete bastards to deal with from the conveyancing end of things. If an agent wants longer, they might have had previous experience with the difficulties of getting contracts together. *LOL*
Daniel – all real estate agents are in it for one thing; their commission. They are looking after their own interests and 90% of them are shonky dealers anyway. I’ve been in the industry for five years and I’m YET to meet a decent real estate agent. It’s why we’ll never go through Stockdale and Lego again too (at least not the local branch).
425 would have been a good buy despite the main road. Hell, I’ve even seen (done up) weatherboard houses sell for 580. Agents want a quick sale with the least effort – the difference in their commission between 425 and 463 is negligible.
As the margin between your price and sale prices is relatively small (10%) it’s only a matter of time that you’ll come across a vendor who needs to make a quick sale.
My own assessment of the local market is that properties favoured by investors (eg flats and units) are not selling but houses are stronger. Also well-located development sites are selling well.
Your auction was the only residential property one I’ve been to lately where it wasn’t passed in. Eg a 1960s 2br garden flat in Glenhuntly passed in at $240k (no bids) and a 1992 small 2br villa in Carnegie passed in at $310k (no bids except a silly one at $250k).
Hopefully interest rate rises after the election will scare a few buyers off and get agents worrying (which is what we want).
As for the house not having all amenities – you can put up with it better because at least it’s YOURS!
I had my first opportunity to sleep under my own (well 40% anyway) roof for a few days earlier this year. Despite the traffic noise (got used to it second night) and lack of bed or blankets it was great!
As for overextending and it not mattering in five years, that assumes interest rates don’t rise and that there isn’t another tech wreck, etc etc. There’s also a line the bank will draw as to how much they’ll lend.
I never got used to the traffic noise when I lived on a main road.
Actually my experience with an agent wasn’t too bad. We used a referral service which gives us back a piece of the agent’s commission as a gift card. The one thing we had to do was rein her in. We said we were looking in the range of X-Y, but could pay up to Z. So her first shot was to show us a bunch of houses at or around Z.
After that, I reined her in and guided her. I examined school rankings, listings through the major listing services, etc. On the 3 or 4 days we went out looking, half of the properties each day were ones I’d identified on the net.
We bid on one where they wouldn’t accept our bid and we wouldn’t pay what they asked. Such is life.
We finally found something we liked, paid a price we thought was fair, and we’re happy. It took an extra few weeks, but we had a few thousand more for decorating and we actually like the neighborhood more.
My own experience with agents has also been OK. As far as I’m concerned, they’re just functionaries to open the place up and negotiate a price before the paperwork all goes off the conveyancer.
But then I’ll do my research, know local values, organise building & pest, have data from previous sales and only look at the few that are well-located, attractive and liveable at a sensible price.
In most cases my visit has been to merely confirm that a place seen over the web met my needs and there weren’t any better deals around.
But I pity those who have to buy at auction, the Australian epicentre of which happens to be the south-east suburbs of Melbourne!
Crikey, sounds familiar.
We’ve been looking – on and off – for a place over the last two years. Wellington prices have almost doubled in that time, which adds a sense of urgency to things… Like Melbourne, prices in the more popular neighbourhoods have got a bit out of control, though I hope the rising interest rates will slow things down soon. I’ve also noticed that we 30-somethings seem to be competing with the baby-boomer investors wanting a place to rent out and keep as their retirement nest-egg. Bummer.
Keep hunting – I’m sure the right place will present itself eventually.