This term means two things:

1. The ability of buyers to afford, i.e. the percentage of salary they can afford to pay on a mortgage.

2. With all available resources where can they afford to buy?

No: 1

Is self-explanatory.

No: 2

Lots of buyers say they can’t “afford” a property because they are looking to live close to the CBD or in the area in which they grew up.

To get “into” the market buyers must compromise and broaden their horizons, put up with some inconvenience by living in another suburb they can afford.

For example, look further out.  If buyers are looking to buy in say Glen Waverley, it is very difficult to find a good house under $500,000, yet another 10 minutes along the Monash at say the Hampton Park area there are 72 houses for sale as of 9th July priced between $150,000 and $250,000.  All over the Melbourne metro area there are similar examples.

Buying in a non-preferred area will at least get your equity working and after a reasonably short time something in a preferred area may be “affordable” because your equity base is increasing.  This assumes capital gain which in the short term, one to two years, may not be great because of a quiet period of low activity but history tells us that capital gain in real estate is a given over time.

Auction: An auction is one of the two main methods of sale and in Melbourne they account for around 30 per cent of all property sales. At an auction the property sells to the highest bidder as long as the vendor accepts the price.

An auction is regarded as is the most effective way of determining the true market value of a home and are popular in areas of Melbourne where there is a reasonable level of competition.

There are a range of other rules that apply to the conduct of an auction including rules covering the conduct of the auction, responsibilities for the vendor, agent and purchaser.

Buyers should be aware that unlike private sales, a cooling off period does not exist for when a property is purchased at an auction.

Private sale: Private sales account for around 70 per cent of all property sales and are more common the further from the CBD the property is located. Unlike an auction the property is advertised for sale and the sale price is negotiated between the vendor and the prospective purchasers.

Purchasers of properties at private sale generally have a cooling off period of three business days.

Vendor bid: A vendor bid occurs when an auctioneer or the vendor bids on the property during the course of an auction. It must be clearly announced and is normally a sign by the vendor or auctioneer that a higher amount needs to be offered to secure the property.

Capital growth: It’s often used in real estate to describe the increase in the price or value of a property. For instance, the median price of a house in Coburg in this year’s March quarter was $509,250 and a year ago it was $407,500. Therefore the capital growth is the difference between the two, $101,750, divided by the earlier figure, $407,500, which equates to 25% over a year. Capital growth is also known as capital appreciation.

Investment return: From a real estate perspective, an investment return is very similar to the capital growth figure. It is the percentage of change in value of the investment over a given period of time.

Gross rental yield: This is frequently used to compare the investment return on a property investment. To calculate the amount, you divide the yearly rental income by the purchase price of the property. For instance, the yearly rental income on a three-bedroom house in Coburg is $18,200 and the median house price is $509,250 resulting in a gross rental yield of 3.57%.

Clearance rate is used as an indicator of market sentiment. It is the total of the properties sold before the auction, at the auction or the day after the auction divided by the number of auctions scheduled that day. For instance, if a property is sold before the auction, six sold at auction and one the day after the auction and 10 properties were listed, the clearance rate is 80%. The REIV publishes clearance rates and the actual number sold before, after, passed in and passed in on vendor bid, which provides transparency to market analysts and casual observers.

Owners Corporation is a new term in Victoria and replaces the term “body corporate”. An owners corporation commonly exists in units, apartments and medium-density housing when there is shared property, such as a driveway, stairs or car park. It can have as few as two members and there are rules governing how owners corporations operate and their roles. If you are considering buying a property, the vendor needs to declare that it’s an owners corporation member and provide details on its workings.

The median value is the middle price in a series of sales where half the sales are of lower value and half are of a higher value. For example, if 15 sales are recorded in a suburb and arranged in order from lowest to highest value, the eighth-placed is the median price. Medians are used rather than average prices because they are unaffected by a few unusually high or low prices, making them a more accurate indicator of true market activity.

The vacancy rate: The REIV surveys member agencies to build a register of the percentage of private rental homes that are vacant. The vacancy rate is simply the number of vacant rental properties that an agency has on its books divided by the number of rental properties they have. For instance, if an agency has 100 rental homes on its books and five are vacant then the vacancy rate is 5%. The vacancy rate is a general measure and it may be the case that the vacancy rate is higher in one suburb than another. It may also differ depending on the type of property.

( Source: REIV Website from 10 June 2008)

REIV reports on 11 May 2008, data shows that despite the recent reduction in the median price of a home in Melbourne the last twelve months were the strongest in 10 years.

In the twelve months to the march quarter the median price of a home increased by 14 per cent or $54,500 from $378,000 to $432,500. This period of rapid escalation in demand surpassed, in 12 months, the gains over four years between March 2003 to March 2007 when the median increased by 10 per cent or $33,000 from $345,000 to $378,000.

Analysis of the historical data also shows that the median price of a home in 1998 was $186,000.

The underlying strength of the local housing market is underscored by the Australian Bureau of Statistics which in its March index of capital city prices showed that the weighted average of a house in Melbourne increased by 25.9 per cent, the highest of any capital city. Second was Adelaide at 21.6 per cent and third was Brisbane at 20.8 per cent.

The primary driver behind this growth has been population growth.

This is good news for most homeowners and investors as in the majority of cases an investment in bricks and mortar is a longer term one. Homeowners will monitor changes in value over the short term but the true comparison is between what they first paid, what the value is when they sell and importantly, the price of the home that they subsequently purchase.

(Source: REIV  11-May-2008, News Section, Web)

The busy person or overseas resident who has little or no time to look, select or organise the purchase.

A couple living overseas are hopeful of moving to Melbourne in two years time and need to buy now.  Buyers agents perform all things necessary (the three steps) and acquire the property.  Buyers agents then arrange for the property to be properly managed until possession is required.

In the case of busy local executives the job for them is easier.  At least they can inspect one or two final choices after our search and select process has been completed.

TIME POOR PEOPLE BENEFIT FROM BUYERS ADVOCATES

CASE STUDY: OVER RENTING

Another classic.  An investor purchases, unconditionally, a small factory which is leased to an apparently successful Lessee who not only pays the rent but also all property outgoings.  SOUNDS GREAT.  However when the investor went to his bank to finalise the transaction the property was valued by a Bank Valuer who assessed the rental at a far lower figure than the Lessee was paying.  As a consequence the investor had to provide much more equity than first thought which affected his capital outlay and also his return on capital invested and the long term value (and capital gain) of his investment. 

BUYERS ADVOCATES CHECK THESE MATTERS.

A typical problem is where a purchaser pays too much for a property.

Husband and wife find a house that they absolutely love.  Emotion takes over and they pay too much because they have not carried out research on sales in the area, nor have they checked any Planning matters (zoning, overlays, etc.) and as a consequence have paid the Vendors asking price – usually in excess of what the Vendor would be happy to take.

SKILLED NEGOTIATION WOULD HAVE PREVENTED THIS SITUATION OCCURRING.