Show notes – Listener questions: Mastering property planning in unique circumstances, and unveiling buyer’s agent conflicts (Ep. 209)

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Market updates:

The trio kick off this exciting episode with a market update. No surprises, the RBA’s rate increase landed firmly on both Dave and Cate’s discussion list. As Cate notes, the fuel excise reinstatement is flowing through in the recent data, (a sure sign of data lag) and Dave circles in on the difference between goods and services when it comes to inflation figures. Mike weighs in with a comment about problem we face at present with rising wages and static productivity. The labour market is easing and the RBA have hinted that further rate increases may be on the agenda. A delicate balance, indeed… particularly with lagging data and limited visibility.

Freightos Baltic Index is an intriguing measure that Mike watches. The huge increases in freight costs have stabilised somewhat and Mike predicts that the cost of building materials, cars, and other large allocations will come down; and we can anticipate that this will have an impact on inflation.

Mike’s market update focuses on some new tax data which identifies the highest earning suburbs in Australia. WA’s Cottesloe and Peppermint Grove take the lead and the range of incomes will surprise a few. Among other facts and figures, gender wage gaps, average superannuation balances and richest professions all featured in Mike’s segment.

“The average Australian taxable income currently sits at $63,882.”

Listener Questions

1. Curious to hear what you think about the recent Four Corners episode on real estate and the shocking example they reported on of buyer’s advocates with conflict of interest due to association (and using customer data provided to real estate agents to deceive buyers into engaging that buyer’s advocate). It was shocking and could make buyers averse to engaging a buyer’s advocate at all, making them vulnerable to sales tactics and contraventions of their consumer rights. I know you have commented on “free” buyer’s advocates in the past but what if they are not free and are presenting as an independent service? Isn’t that just a scam?

Another aspect the program covered was the practice of agents high-balling to get a listing then basically spending most of their time working on the seller to bring their expectations down and closer to an achievable offer. I wonder if via consumer law were to enforce a condition that incentivises real estate agents to make accurate or more conservatively realistic representations to sellers of the expected sale price. Or most likely penalises them with regard to commission based on a calculation of variation between their initial representation less the final sale price? Wouldn’t something like that make sense to get the seller and the agent on the same team?

Our first listener posed a question to the Trio regarding their thoughts on the recent Four Corners Episode aired in late March 2023. The episode shed light on problematic behaviors exhibited by agents and conflicts of interest. Our thoughtful listener was curious about the measures in place to regulate such behaviors and ensure the disclosure of pertinent information.

Cate simplifies the issue to two critical points that buyers should keep in mind: agent behaviors and warning signs for consumers. The listener also inquires about how agents represent buyers in terms of asking prices and auction quotes. Cate addresses the issue of underquoting and acknowledges the challenges faced by listing agents, vendors, and consumers alike.

While underquoting is an unethical practice, Cate agrees with Dave’s message that buyers should take responsibility for familiarizing themselves with recent sales prices in their area. Applying a pricing methodology shouldn’t be overly complicated for a committed buyer. Mike astutely mentions cognitive bias, which often affects many vendors, emphasizing the importance of maintaining a realistic approach.

Impartiality is crucial, and Cate, Dave, and Mike discuss the potential problems consumers may encounter when their trusted professional has a conflict of interest that compromises their fiduciary duties.

2. A friend, an individual in their mid-30s is in an unusual situation of owning outright their own home, a 2 bedroom apartment in Melbourne. They would like to move by selling and buying a house. 

They have long dreamed of living in a less urban and more green and private setting. The apartment is in a relatively small block (not entirely ’boutique’ but low-rise with a ground, 1st, and 2nd level). It hasn’t increased in value at all, being about the same value now as when they purchased 10 years ago, based on other sales in the block over the last 2 years (<$600k).

The owner does not have secure or stable employment, being in current low paying/casual shift work that is practically mininum wage. So not good mortgage prospects and they don’t see a compelling reason why they should. I’m not clear on it either, personally, due to their unusual circumstances. They have some (limited) other asset type investments from which they receive a few thousand annual dividend payments and therefore may be able to cover expenses or payments needed to be made prior to sale settlement. 

Currently they aren’t even doing optional maintenance/improvements they’d like to do in the home they live in (like a fresh coat of paint or getting new blinds and light fittings or upgrading old furniture etc) because they don’t have a plan! And this situation being a bit unique I think how to start to formulate a sensible plan is probably the main problem.

So I believe the question here is:
How should they approach the planning process – where to begin, what factors to consider, and what questions should they be asking themselves?

Sub- or additional questions that come to mind –

• What are some sensible alternatives/options?
• Will the next property need to be significantly lower value (purchase price)?
• What considerations should they include in their plan?
• What expenses may be required during the transition period?
• What does buying and selling a property cost at the end of the day?
• What are the risks of falling short/blowing a budget and what can be done to help mitigate this?
• How might this person avoid getting stuck in such a position again? Is that even possible even if a property with good or market-equivalent capital gains is purchased?
• Particularly considering they may not improve their financial position that much in the future beyond what their owner-occupied property is worth. It is a big deal for someone younger to be in this position of low risk tolerance, I think.
  I guess avoiding getting in this kind of position later in life is one reason/argument for establishing an investment property portfolio in the first place too?
• But when would it be unwise to embark on a plan of investing or structure your finances to enable that if you might be able to down the track?

Our second listener presents a special question as a loyal listener and property investor who wishes to assist her friend in making the right decision regarding her Melbourne apartment. She seeks the Trio’s advice on whether her friend should hold onto the property for long-term growth or sell it for better returns.

Cate, Dave, and Mike rise to the challenge, utilizing their individual expertise to provide guidance on how our listener can best support her friend. Cate emphasizes an often overlooked aspect—loving friends and family should not impose their own values and aspirations onto others. Property investment requires personal motivation and passion, and convincing a friend to join the venture can be a challenging task.

Mike highlights the importance of strategy, careful consideration, and commitment for a dedicated investor. Dave delves into the significance of setting a desired spending limit, conducting methodical cashflow analysis, and assessing available savings, loan-to-value ratio (LVR), and borrowing capacity. Additionally, securing funding is yet another step in the process.

Gold Nuggets:

David Johnston’s gold nugget: Dave addresses both listener questions. For our first listener, Dave harks back to the most important point to retain: “Do your due diligence.” And his advice for our second listener’s friend is to “Do your plan!” Simple, but not easy.

Mike Mortlock’s gold nugget: As much as we want to be kind and look after our friends, we can’t go too far with it. “Imagine if Da Vinci was petrified of not being able to pay the rent and wasn’t sketching in his notebook, what kind of world would we be living in?”