Image above by Images Money.
The following is an anonymous submission, number 32, to the 2014 Senate Economics Committee inquiry on affordable housing.
The lack of transparency in the housing market is something I have experienced first hand, working as a real estate agent representative for a few months a few years ago. I raised the issue in my submission to the above inquiry (submission number 9), however, as you will see below, this anonymous submission goes into more detail than I was able to do. At the end of this post I will see what draft policy changes can be made due to this submission.
Property –The only market where transparency doesn’t exist.
Goal: Create a fairer and transparent functioning property market
Structure of submission: I have structured this submission so that it lists the problems I think are relevant with proposed solutions to follow.
I have created this submission as the contents highlights a moral and financial danger that every Australian undergoes when purchasing a property. If you accept the notion that property is an investment, no matter the use, then we should have a minimum standard of information to help consumers make an educated choice when buying a property.
The ABS reported on the 11/2/2014 that the total estimated value of all property in Australia is around $5 Trillion dollars. To compare, the ASX has a market capitalisation of only $1.5 Trillion yet the regulation and available information for property is minuscule compared to the stock market.
It is accepted that the purchase of a home is going to be the largest asset purchase to take place in one’s life. Yet, as a consumer we must accept the lack of information surrounding property because there is no accurate mechanism in place to help collect the relevant data.
The private sector has tried to fill the void that the government should be active in but their methodology without any regulation leaves for incomplete information. There is the other issue that the biggest industry player (Rp Data) restricts use to agents only, this in turn grants agents a monopoly over the information that should be freely available to every Australian. These third party providers do offer consumer packages but the expense and incomplete data is not good enough to help Australians make an accurate call when purchasing the largest asset they will ever buy.
There is no accurate way for your average Australian to determine:
- Auction clearance rates – Relies on agents to willingly publish the results of auctions. Auctions that don’t go ahead on the day are sometimes not reported and are therefore missing from the statistics meaning an inflated clearance rate.
- Previous Sale Prices – Without paying a third party provider for the information it is impossible to quickly and accurately get the previous sale price of a property. In some instances the sales agent won’t report the sale and it won’t show up on these third party providers for many months later. This is an issue because to determine the value of a property you use the previous 3 months of recent sales as comparable evidence. Providing the data should be mandatory so that the consumer can at least have the choice to use the data to make an informed decision.
- Previous Rental History – Rental history unless advertised and picked up by one of the third party data collecting agencies is impossible to determine. The rental history is important because it helps investors determine the potential rental of a property by looking at comparables.
- Vacancy Rates – There is no data that is collected which shows the number of days a property was vacant between the last day of the old lease and the start of the new lease. Currently a property is considered vacant if it is available for rent for two weeks. The current method is to track online advertising and simply add up the number of ads that have been online for more than two weeks.
1., 2. ,3. & 4.- The solution to all four above issues is for the government to collect the data that can be accessed and disseminated by anyone. They do not have to build a live interactive system as this can be left to the third party information providers to do if they please.
The way the information is to be collected is for the government to create its own database that will be populated by the real estate agents and property managers who are involved in the sale/leasing of the property.
Agents must upload the information within 24 hours of the below events happening:
1. Upload the date of when the property is first available for sale.
2. Upload the sales price once the property is exchanged after all cooling off periods. If it does not sell the agent must notify the database that the property is withdrawn from the market.
3. If there has been any major renovations completed since the current owners moved in the agent must report the year the renovations took place and the rough cost that was spent.
4. Upload the auction result; if it does not go to auction it is recorded as a non-sale.
5. The Property manager – once a property becomes vacant and it is intended to be rented again immediately, the property manager will upload the following once the new tenant has signed a new lease:
- Date the old lease expired
- Date the new lease begins
- The new weekly rent less any incentives
6. Make a note if the purchaser was an international buyer
7. There are many more aspects of a property the agent can collect information on but the above suggestions should be the minimum.
Problems during the Sales Process
1. Standard Advertising Information – I implore you to read any real estate advert and try and look for the necessities that any purchaser requires when they are to purchase a property. The content of the ads in the majority of times are in reference to the lifestyle aspects. They are designed this way so the agent can build their database from people enquiring to get the financial basics about the property. It is ok to have the references to the lifestyle aspect but there should be minimum requirements of what needs to be in an ad.
2. Auction System – The use of the auction process is to find out what price the market is willing to pay for a unique property. In the past it was usually only used in certain circumstances when a property was special and there was no comparable sales data.
It is now unfortunately standard practice for agents to use the auction system for most properties and quote very low prices to garner interest for a property at the
start of an auction campaign. This low price makes it hard for purchasers to know if the property is in their price range because come auction day the property can sell for 50% over the original asking price. Not knowing the reserve of the property until the auction is underway leaves many would be buyers in the dark. Generally the reserve set for a property is close +/- 10% from the actual end sale price.
3. Off the Plan Sales – Off the plan sales are treated in an even more opaque manner because the developer holds a monopoly over the information. During the marketing period of a development the prices will adjust as there are more sales. There is no issue with prices adjusting; the issue is that the developer is not obliged to reveal previous pricing and sales of previous units that took place earlier in the marketing campaign.
1. The solution to standard advertising information is to make it mandatory for all agents to post the following information to help consumers easily filter through
properties that are not appropriate for them.
- Expected Sale Price
- Property Address (yes agents don’t show the address)
- If the property is for rent, how much is the rent and when does the lease end
- Council/Water/strata details
- Approximate size of the property
- Date the property was first advertised
2. I only request that two features of the auction process be implemented:
a) Implement the rule that if the property is still available 7 days prior to auction it must go to auction and cannot be sold off market. This rule will help
consumers have confidence that the property will go to auction and can go ahead on spending money to complete due diligence (solicitor fees and
b) 7 days before the auction the reserve must be revealed. The usual marketing campaign of an auction is over a four week period. The agent or seller has
three weeks to adjust their expectations depending on feedback from potential purchasers. Knowing the reserve prior to auction helps consumers
know that they have a fighting chance at auction. Again this helps consumers’ not waste money on solicitor fees and building/pest inspections.
Agents will say this rule is unfair as potential purchasers are not honest about the price they are willing to pay. However, all agents claim to be the professionals of their area they should be reasonably good at accurately ascertaining the value of the property they are selling. It will also be easier to determine the value of the property if the property reporting tools (as mentioned above) were in place to help collect the relevant sales of data on comparable properties.
3. There are a couple of reasons for forcing developers to make public their sales price list of their developments.
Firstly, countless people have lost their deposits from unscrupulous accountants/financial planners/mortgage brokers pushing overpriced property due to the large kickbacks developers can offer. Losing a 10% deposit is financially crippling and I only have to point you to the history of the Gold Coasts for the proof of these aggressive selling pressures existing. I propose that all developers must at the request from a potential purchaser provide the following:
- A current price list, listing all available units and sold units with their associated prices and dates of sales.
- Any incentives that were associated with any sold units.
- If applicable the commission paid to the selling agent for the sale of a sold unit.
- An extra column showing if the percentage difference of the price if it in the event the price has increased from when it was originally marketed.
- Reveal the number of Foreign Buyers in the project.
Since government grants are pushing first home buyers into new builds there should be some protection as first home buyers are in the weakest financial position
compared to other purchasers who already own property. Providing transparency is a level of protection that can help first home buyers make the correct call when buying an off the plan property.
All my highlighted problems and proposed solutions keep with my original goal of creating a fairer and transparent property market.
If you believe in a fair market then I implore you to further expand on this submission. The cost to implement my solutions would be negligible and only brings benefits to consumers.
If you want an affordable housing market, you also need a transparent housing market.
Before putting up this post, to-do list item number 3 on the Housing policy page was,
Make the reporting of house & unit sale price results compulsory, and provide that data for free via an electronic means.
Due to the submission above, I have added the following to the housing policy page. It is slightly different to the submission, the specifics of which I can explain if needed.
The following must be reported within 48 hours of the event occurring:
1. The property is first available for sale.
2. The sale price once the property is exchanged after all cooling off periods plus the sale date, number of bedrooms, street & suburb.
3. If the property is withdrawn from the market.
4. A new rental lease; date the new lease begins, date the last one expired plus the new rental amount less incentives.
At this point I wouldn’t be concerned about making the suggested changes to the auction system. I feel the games that are played around auctions are all possible because we don’t have access to good data. If sales people are playing games about how much they are selling BHP shares for and you can’t be certain about what the real market price is then it is easy to be taken for a ride. But if you can simply go to the ASX and get the latest data you can bypass the games the salesmen are playing.
I changed it to 48 hours not 24 because if an agent sells a property on Saturday he/she should be able to spend the rest of the weekend doing whatever, before lodging the results on Monday. It would be good to have the foreign purchase notification done by agents, but I would hesitate on the best way to implement it for now (do we make all agents upload identity details when we want anonymous data for this market price system).