The Block 2012 auction success proves that you cannot predict home buyer interest

By Catherine Cashmore

Tuesday, 03 July 2012

You can read all the statistics and analyse as much data as you like, but there’s no getting away from the fact that Melbourne’s marketplace is a “mixed bag”.  One set of stats will indicate a market upturn (RP Data, for example, which has recorded a 1% increase over the month of June) and another will indicate our market is still in the doldrums with clearance rates dwindling below that of the previous three years.  However, for home buyers, once they find their “ideal” house, stats go out the window and it all depends on the property.

I’d predicted a repeat of last year’s finale disappointment for The Block 2012 – after all, one place the stats all agree is on the current malaise in the million-dollar-plus market.  All agents had conveyed there was active interest in the South Melbourne terraces, however when I attended on the day, I had little conception they’d be such a high level of genuine interest. A similar number registered to last year, however unlike last year, clearly many weren’t there just to get their faces on camera.

Unlike shares, each property has to be priced on its own idiosyncrasies.  Estimating the selling price employs a number of factors, predominant of which is buyer demand. Despite the figures still indicating we have a large amount of stock languishing on the market, those numbers are being boosted by high-rise accommodation or homes in the outer suburbs – areas and properties that only attract marginal buyer interest.

Arguably, there’s not a lot for the average home buyer to choose from in the inner- and middle-ring suburbs, therefore if you do find something of quality – assuming vendor expectation is comparable to market conditions – the level of demand will be the primary indicator of the eventual selling price.  With this in mind, the first key to the success of this year’s auctions lay in the reserves, which, – including Brad and Lara’s property – had been set “under” assessed market value. Obviously Channel 9 was hedging its bets against a repeat of last year’s result

Like every other bidder attending the event, I queued up to retrieve my bidding card and conversed with others buyers who were participating on the day.  Many commented that they hadn’t assessed the contract prior to attending.  Ask conveyancers or solicitors, and they’ll confirm most contracts hit their desk after an unconditional offer has been entered into.  With so little due dilligence taken with the legal documentation, it makes you wonder how much was done in assessing reasonable market value?  The numbers registering were meant to be around 20 – however it turned out to be closer to a cosy 60.

Brad and Lara’s terrace at 405 Dorcas Street was the winner, selling for $1,629,000 with a profit of $506,000 on reserve.  The property had 3 bedrooms, 2 bathrooms, but no off street parking. The land size was the largest of the four – approximately 158 square metres.  A search through comparable sales in South Melbourne featuring the same number of bedrooms and bathrooms of a similar quality situated on roughly the same land size, and you’d be hard pressed to justify a price in excess of 1.3 million.  Furthermore, the best comparables are arguably in superior “pockets” to Dorcas Street, which carries a fair bit of traffic.

It’s yet to be seen if the properties were purchased for investment – if so, I’d suggest they’ll be a long wait until they gain on the capital outlay.  Stamp duty rates alone push the price for 405 in excess of 1.7 million.  For the same price, you could purchase a similar property in a better pocket on a larger land size.

Leaving aside individual home buyer preference, which can never be accounted for conclusively, the other three-bedroom terraces, 403 and 401, had a slightly smaller land size, giving the renovators a greater overall challenge in attracting a similar level of demand. However all achieved prices in excess of comparable value – even when you take the additional furniture into account.

The property at 407 Dorcas Street was the only four-bedroom terrace, and it “flew” at auction.  It was hard to count the number of bidders due to attempts at online bidding made available by Channel 9 for those not brave enough to openly raise a hand.  However, the online attempts could not keep pace with what was happening “in house”, with bids coming in from every corner and a price that exceeded the reserve on the opening bid.

The four-bedroom house arguably had the best floorplan and presented the best overall value for the money.  However, as I stressed previously, beauty is in the eye of the home buyer – especially in highly renovated homes.

Had one sold without the others, it would be arguable whether a valuer could justify the cost – thankfully all four achieved a consistent result.  Therefore each has three immediate under the hammer comparable sales for a valuer to work from.  But for anyone thinking it’s easy to “flip” a house, covering costs plus profit, the quote of the night must go to the Buxton auctioneer who commented toward the end of the bidding on Brad and Lara’s terrace: “I know what they spent the property, and we’restill under cost.” His comment didn’t faze the buyers, they still paid far in excess of what most would assess to be comparable market value.

As for Mr “Energy Watch” and his erratic bidding?  Well look at it this way.  He had 15 minutes of free advertising on the largest-rating TV show in Australia.  The cost of this alone would have been in excess of $1 million.  “Energy Watch” was not only trending on Twitter, it hit the headlines on every national media portal following the show.  Take all this into account and I’d suggest he got cheap advertising and a “free” house thrown in on the way! A house he could probably still sell to the under bidder should he decide to do so.

The room was laughing at him from the opening bid onwards and auctioneers, who are generally used to receiving round numbers, were somewhat stumped in their bemusement.  At 407, his initial bid (already past reserve) went unheard at the back of the room.  Therefore the opening number was followed with a bid of $920,000 from an online participant.  Once again laughter predominated. He obviously felt his unique approach was enough to faze the other participants and in this matter, his inexperience shows.  Furthermore, the online bidding was always one step behind – failing in every respect to compete with the pace. There’s a long way to go before this approach becomes the norm.

All in all, the success of this year’s finale compared with last year, I’d put down to a few factors.

Firstly – the properties were not situated opposite a multi-storey car park, supermarket and bottle shop.

Secondly – the auctions took place during the day “in house”. This meant the co-ordination between each was better managed.  Cameras moved from property to property, saving a multitude of bidders the pain of sitting through all four auctions, which last year took in excess of four hours to complete.

Thirdly – South Melbourne is a different location in every respect to Richmond.  Although the terraces were not in the best pocket of the suburb, they were situated walking distance from Melbourne’s CBD and Albert Park Lake, which clearly holds extra desirability to the average home buyer.

Finally – they were better properties!  Offering views (rooftop terrace), thee and four bedrooms, and larger living areas, they therefore attracted a wider buyer demographic.

We can only bow our heads to this year’s series and say “well done” to Channel 9’s The Block – an outstanding and unprecedented result in a downbeat market – and a wonderful success for the contestants who worked so hard to entertain us along the way!

Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.