Property Hub - Investment Insights & Inspiration - Realty Talk: High House Price Risks + Landlord Insurance Changes + Auction Day Don’ts

Episode Date: November 20, 2021

The recent 20% rise in home values has put the spotlight back on housing affordability and financial instability risks.  AMP Capital’s Chief Economist Shane Oliver joins Bushy Martin to discuss the ins and outs of this perennial challenge. Katie Richards from Virtual Legal then shares common mistakes buyers are making that are costing them properties and what you can do to avoid them. Recent changes in legislation now affect how property managers need to handle landlord insurance claims so to fill you in on the impacts, the Managing Director of EBM Rentcover Sharon Fox-Slater joins us to discuss the details. And to conclude the show, Bushy continues our special series on how to avoid auction shocks by sharing Auction Day Dont’s. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  Founded by Kevin Turner and hosted by property expert Bushy Martin, RealtyTalk brings you exclusive interviews with Australia’s property industry leaders who deliver the latest, red hot property investing news and insights.  Subscribe now to get the latest episodes delivered to your inbox three times a week. RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT helping property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi, and welcome to this week's Realty Talk show, your go-to place for all things property. I'm Bushy Martin from KnowHow Property Finance, and we've got another fact-packed show for you to enjoy today. The recent 20% rise in national home values has put the spotlight back on housing affordability and financial instability risks. AMP Capital's Chief Economist, Shane Oliver, joins us to discuss the ins and outs of this perennial challenge.

Katie Richards from Virtual Legal then shares common mistakes buyers are making that's costing them properties and what you can do to avoid them. Recent changes in legislation now affect how property managers need to handle landlord insurance claims. So to fill you in on the impacts, the Managing Director of EBM Rent Cover, Sharon Fox Slater, joins us to discuss the details. And to conclude the show, I continue our special series on how to avoid auction shocks by sharing auction day don'ts. We've got a lot of great info to share, so let's get on with the show. Hi and welcome. Now, for as long as we can all remember, housing affordability has been a hot topic in Australia. And since the 1990s, it's gone from being a periodic cyclic concern to a bigger issue and the 20% rise in prices over the last year has put the spotlight right back on the

subject. And along with the surge in house prices has come a corresponding surge in debt, which brings with it the risk of financial instability should something go wrong. So to dig into the ins and outs of this perennial challenge, we're joined by Dr. Shane Oliver, the Head of Investment Strategy and Chief Economist at AMP Capital. So welcome back to Realty Talk Shane. Thanks Bushy, thanks for having me. Yeah great to see you again mate and a really good subject to dig into but to sort of set the context, where do you see the property market right now? Well basically right now it's booming. We saw a bit of weakness in the middle of last

year associated with the initial national lockdown that continued a bit longer in Victoria but over the course of the last year as you just mentioned property prices are up 20 percent they're well above previous record highs in every capital city around Australia except Perth and Darwin which is still recovering from the the mining boom bust which of course has been over many many years but even they're seeing strong growth so basically things are very very strong debt levels are rising again and obviously that's creating concerns or renewed concerns about housing affordability um as you mentioned uh used to be the case you know was when i was a kid you know it was a sort of a cyclical concern it would come and go um these days it comes and goes but

it never really goes away it sort of fades a little bit in the background everyone's muttering about it and of course we get to a period right like right now when everyone is very concerned about it yeah no good point so what do you think is actually driving this poor affordability I think it's a combination of things. A lot of people just blame the Reserve Bank for cutting interest rates. For the logical reason, when you cut interest rates, you can borrow more. If I, like when I bought this house, the house I'm sitting in right now, when I bought it, I had a mortgage rate of 10.5%.

Today, I can get one down around 2%. So in theory, I can borrow more than five times the amount. And obviously, lots of people have. And that's pushed up the value of properties. But I reckon it's a bit more complicated than that, because many developed countries, US, Europe, France, I've heard they have interest rates lower than what we have. They have the low interest rates, but they don't have the same degree of poor housing affordability. So I think there are some other factors that play in the local market. The biggest one, I think, is that the, I guess, very high levels of population growth, but constrained supply.

Developers want to develop properties. They want to get it to market. But in many cases, it's all slowed down by the system we operate under and what side we want to jam more houses in. But I think as a nation, if we're going to allow a very strong population growth, we have to find room for the people to live. And we've got to find a better way of doing that, because as things stand at present, we're not doing that on a consistent basis. Allied around that a little bit is the fact that we all live in five, six capital cities on the coast and capital cities on the coast tend to be more expensive than inland cities. The tax system may have been a factor. Occasionally we go through periods where the market is very hot because of investor demand, speculative demand for on demand has been a factor at times. but obviously that's not an issue right now but I reckon the real issue is the lack of supply relative to the underlying number of people who need somewhere to live. Yeah absolutely spot on so

sort of rolling into the financial instability piece then how big is the risk of that as you see it? Well it is a big risk but I don't want to exaggerate it because I know many commentators have been talking about a property crash in Australia for the last 20 years and guess what it hasn't happened constant story was there's too much debt regular amounts of debt people can't afford it as soon as interest rates rise or unemployment goes up they're all going to be ruined property price is going to crash and then you'd have that financial instability that we've been worried about so it hasn't happened because interest rates have been able to come down and we haven't had a sustained surge in unemployment we had a bit of a rise last year but it wasn't

sustained so consequently the issue has been kept at bay and right now out of interest when you look up look at the total level of interest payments australians are paying on their mortgage debt divided by the total amount of household income in australia it's at levels last seen in the mid 1980s at very low levels because interest rates are so low likewise you go to the banks ask them about non-performing loans oh we've got a few but it's not a major problem so right now it's not an issue that doesn't mean we shouldn't be concerned about it and obviously if debt levels keep going up relative to people's incomes it could be a problem at some point and that of course is why the financial regulators namely APRA the RBA in particular are concerned about it and of course

are moving in the direction of what they call macro prudential controls yeah and we've got a business shane and we've already seen that start to move even even prior to the treasurer's announcement. We've seen quite a few of the banks start to put a lot more focus on the debt to income ratios. We're seeing living expenses start to be explored in more detail than what they have been for 18 months or so. And with the potential for the servicing rate to increase by half a percent, which has just been announced, then that activity is already starting to filter through. it certainly is and that's going to act as a bit of a like it's not ideal yeah i i would rather a more normal world where we could just jack interest rates up a little bit

and slow it down um and i would rather solve the housing affordability problem more fundamentally if i guess the regulators think well there's not we don't have much choice here we better do something well they've jacked up the uh the interest rate serviceability buffer from 2.5 percent to three percent i'm not sure that's going to have a huge impact though because my understanding is a lot of the banks you know one of the banks was saying that only eight percent of customers borrow the full amount that they could even if we allow for the buffer so it may not have a huge impact yeah it will dampen it because it immediately reduces borrowing capacity and if you take the capacity out that that means there's less money to spend on property which will

start to continue to taper in in price increases but okay well sort of given those two hot topics what do you believe can be done about these issues well the move towards macro prudential controls limiting the amount of money people can borrow that's a cyclical response that will slow things down a little bit there's no doubt about that but it's not a long-term solution i think the real solution is is looking at land supply um making that making it easier for developers to get property to market um relaxing some of the rules where we can in some areas just to speed things up if a property is going to go through anyway then why not speed the whole process up i think more fundamentally we need to encourage more people to live more in a more decentralized

fashion rather than jamming i think something like 90 95 percent of our population live in big cities rather than doing that encourage the the i guess the opportunity that has been highlighted from the pandemic i mean the pandemic's brought a lot of bad things there's no doubt about that but one thing it has shown is that with new technology we can work from home more it's much easier to do that the broadband network you have is turning out to be more important if you like than than traditional infrastructures such as road and rail so we need to make sure that that people can work from home but more importantly make it easier for them to work in rural australia regional australia I know a lot of people in regional Australia will think, I don't want a big population influx here.

It means more expensive property for me too. We've just got to make sure that it's easy for the authorities in those regional areas to supply the land, to supply the homes. So I think it's really about land supply, decentralisation, encouraging more people to move away from the big cities. We could look at the tax system. I don't think negative gearing is a big issue at present. It's getting harder and harder to negatively gear a property. So I'm not going to blame investors for this. But you could argue that the capital gains tax discount is maybe a little bit too generous, so that could be looked at.

I think stamp duty also needs to be looked at. I mean, it's just ridiculous that you have to pay $50,000, $60,000, $70,000 just on your first property. In many cases, it's much more than that. So that slows the whole process of getting into property. But more importantly, it discourages older people from selling their property because they think, well, if I sell, then I've got a huge stamp duty bill for the next smaller property that I buy into. And so that makes or results in less efficient use of existing property stock. So there's a bunch of things we can do. But at the end of the day, we've got to solve the supply problem, release more land, make it easier for developers.

And at the same time, when we allow immigrants to come back, make sure that the pace of immigration is matched by the ability to supply property. Yeah, it's a very good call. And there certainly hasn't been enough focus on both of those things. the supply or the population growth from overseas and that that is something that is directly controllable uh you've spot on i think the regionalization trend has already really been facilitated through covid and and you know absolutely right on the need for the technology infrastructure to uh help facilitate that which which tends to be happening yeah to some degree and and you'd know better than i that you know the the flow on from the spanish flu and the

epidemic that happened in the early 1900s there was a big shift to regionalization for a couple of decades uh prior to world war ii that's right so there's certainly some encouraging signs there from that regard but uh it is that supply issue that tends to get tied up with the uh the uh regulation that surrounds it and delays the whole exercise so where there's certainly some bureaucratic challenges that need to be broken through if we're going to be serious about uh solving the affordability issue. That's true. Well, just to wrap up then, Shane, and the thing that people always like to hone in on, what's your outlook for home prices moving forward? Well, this year, we're looking at average home price growth across Australia

of around 21%. Now, mind you, that might sound like a big number, but we're already mostly there. We're sitting here in October. Up till September, property prices have already risen over 17%. So by definition, I'm assuming some slowing into the end of the year, but still at a fairly solid pace. And we have already seen a bit of a slowing since back in March this year. I think as we go into next year, though, property price growth around Australia will slow more,

probably down through around 7%. Bunch of reasons for that. Obviously, affordability is deteriorating. That's knocking out some buyers. We've got those macro prudential controls, tighter or wider interest rate serviceability buffers. So that's going to have a bit of an impact. I think we'll see more supply come onto the market as we come out of the lockdowns in Melbourne and Sydney. We might see a bit of a pickup in fixed mortgage rates as long term interest rates rise.

So all of those things, I think, will lead to a bit of a slowing as we go into next year. But property price growth will continue just at a slower rate. I reckon if you're looking out there for bargains, you're probably still better off looking at regional Australia. I think that'll remain a bit of an outperformer. But by the same token, as Melbourne and Sydney open up, you might find some bargains in inner city areas, areas that have been out of favour with the lockdowns

and where there's perhaps a bit of oversupply in the case of apartments. Yeah, very good call. Well, look, I really appreciate you sharing that with us, Shane, and some very grounding insights as always. So thanks for that and thanks again for coming on the show today. Thanks, Washi. All the best.

Thank you, Shane. Well, you can catch more of Shane's wisdom by registering on the ampcapital.com insights hub or follow Shane on Twitter at ShaneOliverAMP. Well, there's some great takeaways here with the current property price taper tantrum, as I like to call it, likely to continue to subdue growth rates moving forward as a result of worsening affordability, reduced incentives, potentially higher fixed mortgage rates, as Shane's mentioned, continuing lower than normal immigration, and the impact of the

macro potential tightening, which is already underway. However, as we know in property, there's no guarantees. And things could just bounce back on the demand side once the pandemic receipts and immigrants return so as i always suggest plan for the worst and expect the best in the meantime stay with us for more here on realty talk property deductions can save you thousands of dollars each year to make sure you maximize deductions you need to work with the most experienced quantity surveyor in the country bmt tax depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first

full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Welcome. Now, it's fair to say that we're in the midst of a once-in-a-generational property boom with property prices and increases of over 20% nationally over the last 12 months and residential properties everywhere are selling like hotcakes. As a result, the FOMO and gut busting hurry of potential buyers to secure properties is causing many of them to make mistakes that are actually costing them the opportunity. So to discuss what these mistakes are and what you need to do about them, I'm joined by Katie Richards, the CEO of award-winning fixed fee online law firm, Virtual Legal, where CEO stands for creator of extraordinary outcomes,

I absolutely love that, Katie, and welcome to the show. Thanks for having me, Bushy. Katie, to kick things off, given that your practice is really working right across the industry and seeing people in all shapes, sizes and forms in the property settlement process, what mistakes are you seeing that potential buyers are making that's actually costing them the opportunities? Yeah, Bushy, I think the biggest issue that we're seeing really is that people don't understand that the market has changed. So the first thing we're seeing a lot of is where people aren't going and getting help from someone to assist them in the buying process who already knows what the market's doing. They're trying to do it by themselves first until they get burnt several times and miss several properties. And they're negotiating down prices. They're like, they'll see it listed for $750.

They'll go, oh, great, I'm going to go in at $650. And they wonder why they instantly miss out where that property is going to go for $900. And so that's the first thing we see is people trying to do it by themselves and not understanding the market. I'd also say they're probably not doing due diligence on these properties before it comes to contract stage and the reason that's really important is because because this market is so hot you need to really be able to give an offer that has as few conditions as possible so you can actually in Queensland you can actually go and do your searches on you know on the properties a lot of them are available straight off the bat some things may be a little bit more difficult say

like a building in pest where you have to have someone enter the property but pretty much everything else you can order online beforehand they're also not getting their um their finance approvals done or they're going to say an auction and then it's going above their what they can afford and then they're forgetting that oh they might have you know taken some money out of their during the covid period and they still can't now get that same finance approval that they could have because they didn't take into consideration some of the changes even if they've recorrected themselves bushy in that in that financial sense there's still that history there that they then have to go to explain to the bank um so we're seeing a bit of that as well um again saying

around that you're not having the right property team in place as well they're not acting fast enough so they'll say oh yeah like that property oh i'm gonna go out drinking tonight i'll get back to them on saturday it just doesn't work you have to like a lot of the properties aren't even making it to the market and they're right they're disappearing um straight away so that's happening a lot as well also in terms of once they get a contract they're taking too long to sign them and so like if they had you know say DocuSign all those things in place or a pair of attorney which you can talk about later these are all the different things that they could have done but they're just missing the opportunity there and that's essentially you know where we're seeing

a lot of the people that don't have the experience falling down where we're sometimes seeing people that do have the experience still fall down is where there's just a million people going for the same property and someone else has a relationship in the back end and they're just getting the property before it comes anywhere near the market. And there's not a lot you can do about that. That's just going to happen sometimes, but you can minimize that happening by having good relationships with your buying team. Yeah, very good call. So what do you believe is causing this behind the scenes katie i think predominantly it's a misunderstanding of what's happening in the market um because buying a house is not something that people do very often

unless you're actually a property investor in which case you would understand the market so a lot of the people who are missing out are the ones that have no concept of what's going on there's no reason for them to actually learn all of this information as well it's a little bit like you know if you're negotiating shareholders agreement you're probably not going to do it that often you don't need to be the expert on corporations law so you know that they're um they're just going in green and they're getting burnt yeah no good call so most importantly then what can buyers do differently to avoid some of these situations you've talked about i think it comes down to doing a lot of homework before you actually go and get your wallet out so i'm making

sure you've got your finance approval in place you know you know that you can get the finance not just uh oh do you think i could you know get this much money yep mate all good like get something in writing and understand what conditions would attach that finance approval so that if you do put an unconditional offer onto a property you know that the bank's not going to pull the pin because you got that finance approval six months ago most these finance approvals only last for 90 days with most finances that's really important the second thing they can do too is like i said before just having that really good buying team around them so if there's any delay from them they have a second person that's a go-to to actually help with getting responses back

and a good way to do that is actually having a power of attorney in place so if you do have someone on the ground especially if you are an interstate buyer having someone right there that can sign the contract and give you a quick phone call you could say look I'm just about to get onto a plane maybe not a plane so much these days or I'm about to go into a meeting for two hours but yes, I'm happy with the terms. Can you please go ahead and sign it for me? And then you don't miss out on the property just because you're still having to deal with life's normal day-to-day tasks. So they're some of the things we would say. Also making sure that when they actually do have the contract ready to sign, that they have access to something like DocuSign if they do need to sign

it themselves, which they can do from their phone. So just getting an understanding around what technologies could i use if i needed to to cut out all the time lag um and that again it comes down to having the right team around you to get you across that line yeah no very well said uh it's certainly a market where it's a quick quick or the dead and you certainly do need to have your ducks in a row well and truly in advance of making an offer and having the right people surrounding you doing it and we're in our know-how property finance business we we are suggesting that if they find a property, they need to be making a serious offer within 24 to 48 hours or it's likely they get taken out from underneath them. So it's certainly a new landscape for most

buyers who are used to the old, I've got time, I'll negotiate down. It's likely you're going to be paying a lot more than what the listing price is given the amount of demand and limited supply that's out there. So really thank you for those quite eye-opening alternatives, Katie. It's very timely reminder for us and thanks again for your time on the show today no troubles thanks so much for having me thanks cardi well there's a very clear takeaway here if you want to avoid the mistakes that are costing buyers the opportunity to secure the limited number of properties available reach out to a good property solicitor or conveyancer like the team at virtual legal who deliver fixed fee online legal services across the country anywhere and anytime stay with us for

more here on Realty Talk. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Hi and welcome. Now, given the continual dynamic regulation changes that are affecting the property industry following the ongoing impact of the Hayne Royal Commission on the financial services industry, property professionals need to keep on top of evolving legislation to ensure that

they're actually meeting their obligations. And while insurance is often considered a small part of property managers and industry professionals roles, the changes in legislation that came into effect on the 5th of October are likely to affect you if you refer or distribute landlord insurance products, particularly in regards to making building or landlord insurance claims. So to reveal what these changes are and what it means to you, we're joined by Sharon Fox Slater, a landlord insurance specialist whose mission is to educate and empower property professionals in her role as the Managing Director of EBM Rent Cover. So welcome back to the show, Sharon.

Thanks very much, Bushy. Sharon, now a very interesting area and, again, there's some subtle but significant changes that are floating through here. So can you start by running us through what are the changes that will affect building and landlord insurance claims? Sure. So claims have become a financial service.

They were previously excluded, which meant that people that had a financial services license, the license didn't include the handling of claims, which is actually really interesting when you think about the fact that claims is the one area where most people are significantly impacted when it comes to insurance, because of course, an insurance policy is not of any value until you need to make a claim. So they decided that it was important and companies then had to apply to ASIC to have their licenses upgraded to include claims handling and as you can imagine we all had to provide a lot of supporting documentation around processes and procedures to actually get that inclusion. So yeah that's one big change

that actually then flows through to anybody that's actually handling claims and is doing so on behalf of an insurer that they're submitting the claims to. Now as you can imagine for property managers they deal with repairs and claims all the time so they do need to be aware now of what they can and can't do when it comes to damaged properties so basically they can't say or do anything that will influence the outcome of a claim they're not allowed to tell consumers or clients what will or won't be covered when it comes to a claim they basically need to attend to any urgent repairs, complete claim forms, send it through and avoid telling their client what will or won't be paid.

So that's really difficult when you've been doing it for years and you know how policies work and you actually know what somebody will or won't receive back, but they're no longer able to talk about it. Yeah, that's quite a significant change. What are the changes trying to prevent and improve, do you think? so basically the changes are to support the consumer in having legitimate claims paid out so there's been some other subtle changes behind the scenes like insurers have had to remove

any unfair contract terms from their policy wordings so they're sort of you know those areas that you could almost say make the coverage a little bit gray where legitimate claims would not be covered because of a technicality and i can give you a really good example of one um which was a fire claim um so a house had significant damage to it a dog had knocked over a candle so the claim got knocked back on the basis that the policy doesn't cover damage caused by an animal so fire claim and it's like wow that's a real technicality because the intent of all household and landlord policies is to cover fire so those sorts of terms have been removed so that an insurer can't knock a claim back on that basis when you then talk about the flow

through to other people that are handling claims on behalf of consumers in this case landlords it's to make sure that the landlords are getting the right outcomes and that nobody else has had the ability to influence the outcome of that claim, only the insurer can actually determine what the client should be getting. So I suppose it's to make insurers more accountable and to do the right thing by the policyholders. Yeah, and that makes perfect sense. I know you've touched on this already, but I think it's worth reinforcing. How do these changes impact on property managers and related industry professionals who are referring insurance? so the impact is that they cannot discuss what a potential outcome of a claim will be or what

will or won't be covered what is and isn't payable under the policy they effectively need to get quotes for the repairs attend to emergency repairs as they normally would in the normal positive business get this claim submitted as quickly as they possibly can and not say anything about what the outcome is likely to be yeah okay and that that is a quite a significant change because landlords in quite a stressed condition when those claims are going to be made are looking for some sort of a comfort that they're going to be looked after and property managers in that in that sort of role have traditionally had those conversations without promising anything but what you're saying now is that any mention of that is is potentially putting them in breach

absolutely and for insurers and distributors there are actually greater reporting requirements around complaints and breaches claims is often where they extend from because people are often unhappy about how long it's taken to settle a claim or you know what did or didn't get paid or the payout might not be enough so you know it is an area where insurers see a lot of complaints I suppose for property managers, they don't really want to be in the middle of that. And as much as they're advocating it, obviously wanting to protect their clients, it's actually safer for them not to do that. But again, it highlights the importance of being aligned with an insurer that you actually know has a reputation for paying claims. Don't be with one that's not.

Absolutely. And having owned and run a property management business in the past, we got to see the good, the bad and the ugly in relation to claims. Because as you say, the rubber only hits the road when you make a claim. And there traditionally have been a lot of the general insurance companies who are looking for an excuse not to pay and or delay the process so long that it puts the landlords in a particularly difficult financial position. So very good advice on that. So again, just to sort of close out on this, because you've mentioned this already, but again, I think it's an important point to reinforce. What do property managers and allied professionals that are involved in this process need to be doing differently? And what can and can't they do moving forward when it comes to property insurance claims? So the main thing that they have to do differently is not talk about the likely outcome of the claim. They still should attend to emergency repairs, make the property safe if that's what is needed.

They still can call and request an assessor go to the property if they think that the damage is extensive. They can certainly talk to the insurance companies about claims and what they should do. there's no issue for them talking to the company but they basically can't with their landlord talk about what will or won't happen yes yep so that's that's really clear there excellent well look uh i'd really appreciate you opening our eyes to the changes sharon and thanks again for your generous time on the show today no problem thank you bushy thanks sharon now while the changes that are occurring in the insurance industry are a welcome move to win back some public trust. It's clear that the takeaway here is that property managers need to be very careful

about what they say and do in relation to building and landlord insurance claims moving forward. So to make sure you're totally up to speed with what you can and can't do to ensure you're not putting yourself or your business at risk, reach out to the team at EBM Rent Cover. More to come here on Realty Talk. Property deductions can save you thousands of dollars each year to make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions.

Call BMT on 1300 728 726 today for an obligation free quote. Hi and welcome. In the current seller's market with limited properties for sale being hotly pursued by a large number of hungry cash-out buyers, a high majority of properties are being sold at auction in order to achieve the highest price. Now in order to equip you with the knowledge and the skills to improve your chances of buying a property under auction conditions, this week we continue our special auction series that brings together and draws on a collection of advice from a wide range of industry leaders from buyer specialists and auctioneers like Bryce Holdaway, Rich Harvey, Kate Bakos, Damien Cooley, Justin Nickerson,

Laurence Staley and a bunch of others along with my own experience gleaned over the last 35 years. I've also drawn excerpts from Patrick Bright's great book The Insider's Guide to Saving Thousands at Auction. So auction days finally arrived and you're fully prepared to rock and roll In the run-up to the big day, and as outlined in last week's discussion on auction preparation, you've attended lots of auctions for similar properties, especially with the auctioneer that's going to be selling the property that you're interested in. You've pre-set your dream price, your fair price, and your walk-away price limits, while avoiding round or even numbers. And you've organised a full finance pre-approval with a comfortable buffer. You've also completed

a professional independent building and pest inspection and your conveyancer has reviewed the property contract and you've negotiated and agreed any condition variations in writing in advance. And finally, if you're really serious about giving yourself the absolute best chance of securing a property at or below your desired price, you've engaged a professional independent buyer's agent to act on your behalf to remove the biggest risk to your bidding success and that's you and your emotional attachment. Now this pre-auction preparation combination will ensure that you're fully prepared, calm, comfortable and confident on auction day as auction performance is all about feeling and projecting confidence because your success mindset is very important

in the cut and thrust of auctions. So before you go to the auction you need to be very clear in your mind that you really want that property. You need to ask yourself, do I really want this property? If the answer is an absolute full body yes, then arrive at the auction determined and confident to win. Now, this sounds really basic, but many buyers just don't actually do this. They turn up feeling not quite sure if they really want the property or they're lacking confidence that they're going to be able to win. And if you keep losing at auctions, then it starts to further impact your confidence and you lose momentum. So start by being determined to succeed from the outset.

Now that you've got all of your auction ducks in a row, as auction day dawns, you're pumped and confident that you're going to be in with a cracking chance of winning the property. And then, like most others, you arrive at the auction to find a long line of registered bidders with the same hopes as you. Now, remember that auctions are deliberately designed

high pressure environments aimed at disarming you as a buyer and stirring up the emotions of greed and fear in a highly competitive, fast-moving and very public crowd environment where you're under the spotlight. And it's easy to end up bidding well above your limit or worse still, get paralyzed with fear and not bid at all. Now, given this, it's best to always expect the unexpected. Auctions can often be fast-paced as there may be some very strong bidders in attendance. So going into an auction expecting but having strategies in place to handle the unexpected, this is an absolute imperative. And remember, prices at auctions can shoot up very quickly and auctions can be met with fierce competition from other buyers. There are also

often two or more sales assistants floating through the auction room or amongst the crowd constantly taking down numbers and communicating with the auctioneer. And you may even get a visit from the selling agent themselves to talk to you about your actual bid. Nervous energy here is on overdrive. And with figures flying through the air like machine gun bullets, an auctioneer talking at the speed of light, and paddles, fingers, and eyebrows going up left, right, and centre, the high-pressure street theatre can be really frightening and overwhelming, regardless of how prepared you feel prior to the day. But it doesn't have to be. If you're well prepared both financially, mentally, emotionally and strategically, auctions can

actually be a pretty exciting event. And your success all revolves around your sense of confidence and control. Now, I've often heard auction bidding as being a bit like you're all sprinting headlong at a cliff and you outlast the competition by skidding to a sudden stop just before you fall over the edge. In this environment, you need to feel and show unwavering confidence. You need to give the impression that you've got money and lots more money left so that your competitors will often give up because they think you'll just keep going. So how do you build your actual and perceived confidence? Firstly, fully understanding the process on the day is the key to feeling more comfortable at auctions, whether in person, on site, or online. And there's some basic auction

rules that apply right across the country, regardless of what state or territory you're in. Prior to the auction, the vendor or seller, with the help of the selling agent, may nominate a reserve price, which is the minimum price the seller will accept for the property. The reserve's not usually advertised, and as soon as the bidding goes beyond the reserve price, the property's going to be sold. Now, while this is a requirement in some states and others, it's merely a suggestion. As well as this, throughout the country, it's generally accepted premise that the highest bidder has the first right to negotiate if the property doesn't reach its reserve price. Other rules that apply nationwide include the immediate payment of a deposit and the signing

of the contract on the day. Now, deposits are normally 10% of the purchase price, so make sure you've organised a bank check in advance, a personal check or cash and have it in your back pocket on the day. In addition, as a general rule, the auctioneer is permitted to make at least one and sometimes more bids on behalf of the vendor, known as a vendor bid. And this must generally be stated before the bid is made. These vendor bids are generally made by the auctioneer to help move the auction along. Next comes registration. At the actual auction, depending on what state you're purchasing in, you may be required to register as a bidder. In these situations, you'll be given a bidder's number, which is the only way to communicate bids throughout

the auction. In some states, for example, Queensland and New South Wales, only registered bidders are permitted to bid at the auction. You'll need to provide your name, address and telephone number and you'll be required to show proof of ID, such as a driver's licence or passport. Each state and territory has different regulations, so always find out what's required of you for registration prior to auction day. And make sure you register early, then subtly keep an eye on who else is registering so you can get a sense of who your competition is. Next, make sure you've familiarised yourself with all of the auction jargon.

Terms are going to be flying around, such as reserve, rises and advances, and vendor and dummy bids. Understanding what these terms refer to will not only mean that you'll know what's going on, but it's also going to give you a greater sense of comfort and control. One of the most important terms to listen out for is the property has been declared on the market.

This means that the reserve price has been met in one of the previous bids and the highest price offered from that point on means that the property is actually going to be sold. To declare the official opening of the auction, The auctioneer will run through the property being auctioned, details the features and gives a general overview of what's included. The auctioneer also needs to announce the terms and conditions

in accordance with the state's law and the rules of the auction. And during the auction, all bids must be recorded. And if this is already sounding very imposing, remember that at an auction, if you're not comfortable bidding on your own, you can nominate someone else to bid on your behalf as long as your nomination is in writing via a power of attorney or another written document that's been agreed prior to the auction by the selling agent. Now, don't leave this to the day and ensure that this is agreed well in advance.

So, if you want someone else to bid on your behalf, they must give the auctioneer written authority from you before the auction actually starts. The letter must include your name, address and details and proof of identity, such as a driver's license or your passport. Now, before we get to advanced auction day bidding strategy and tactics, let's start by looking at the things that you should never do at auction as auctions are adrenaline fuel displays of nerdy body language calculated action and strategic thinking if you make the right moves then that dream home or investment could finally be yours but if you

make an unintentional mistake that reveals your bidding weaknesses it could be game over for your strategy before the gavel comes down so while there's no exact method to the madness or magic bullet for success at auction because every auction dynamic is completely different. There are a number of bidding behaviors that you should avoid if you're serious about securing the property. So here's what you shouldn't do at an auction. Firstly, don't show excitement. Stay cool, calm, and collected at all times. You don't want other bidders knowing what your intentions are. Secondly, don't talk to your partner once the auction's begun. When couples start eyeing one another often whispering panic-stricken whispers and numbers under their breath, it's an absolute

sure sign they're fresh out of money or they're close to their limit. Revealing that you've reached your absolute maximum limit will give other more confident bidders the edge. Even if you've got a few extra thousand to tap into, exposing yourselves as financially confined can give the competition the confidence they need to outbid you. Thirdly, don't phone a friend. Unless you've been on the phone throughout the auction's entirety to liaise with another party. Making anxious mid-auction phone calls or obvious texts is a sign that you're approaching the end of your bidding capacity. Like a pack of hyenas, cashed up investors will sense their opportunity and descend on you in an instant, almost smelling that you're out of the race. Next, don't let your body language give you

away. Try to keep your body language and facial expressions neutral, even at the most tense of times. If bids are escalating, don't expose the fear that you're nearing the top end of your budget. If you do lose out, remain gracious and bow out quietly. Another don't do is don't bring the whole family along. When you're attending an auction for a property that you've got your heart set on, it's very tempting to round up the whole family to partake in what could be a very exciting day. Doing so exposes how keen you are on the property and may signal to the agent and the auctioneer that you're prepared to push your limits because you've fallen in love with a home. Investing too heavily in the emotion of an auction day can put you in a weakened position when it

comes to passing negotiations as well. Should you choose to repeatedly bring mum, dad and cousin Fred to every promising property, you'll soon expose your financial position to the auctioneer and other bidders. You want to keep your cards as close to your chest as possible. As country singer Kenny Rogers used to say, you've got to know when to hold them, know when to fold them, know when to walk away, and know when to run. Another tip is don't overdress. If you show up to a Saturday morning auction looking like you're heading straight off to a wedding or a funeral, you'll be turning heads for all the wrong reasons. While you might think this signals confidence and cash in the bank, it's only really an acceptable strategy if you actually have a bottomless

budget and a penchant for expensive suits. Once bidding commences, you could be outed as a budget-stricken buyer, making yourself competition fodder for the savvier buyers with deeper pockets that are ready to bid. Another obvious don't is not to be rude to the auctioneer. Bad etiquette will get you nowhere, and it certainly won't do you any favours should the property actually pass in. Remember, it's not all about the numbers because relationships go a long way here as well. Next, don't make silly bids. Bid with confidence but be realistic. It doesn't matter how often you're raising your bid if you're still $50,000 below the reserve, but low unrealistic bids won't change the outcome. Bid with the intention of reaching

reserve and then use your considered bidding strategy to score the property to the best possible price. More on this later. Next, many auction experts recommend to never bid against yourself. One of the rules you must follow if you want to buy well at auction is to never bid against yourself. Now, this sounds obvious, but you'd be surprised how often this happens. If you're the highest bidder and everyone else has stopped bidding, never increase your bid, no matter how much pressure the auctioneer or the selling agent puts you under. Unfortunately, this happens far too frequently. The selling agent will go to the highest bidder and say,

we're close, we've nearly reached the reserve, but I need you to give me another 20,000. If the highest bidder won't play ball, then they may go and ask other bidders. But usually the other bidders aren't prepared to bid because they're not the highest bidder and they've stopped bidding. Now, selling agents and auctioneers

have all sorts of sneaky tricks to pressure the highest bidder into increasing their current offer. The psychological tricks and language they use often come from NLP, which stands for neuro-linguistic programming. The word patterns and the phrasing they use are designed to speak to your subconscious mind and make no mistake, these work and are very powerful, especially when you're under pressure or in an emotional state.

They're so powerful, in fact, that the police and defence forces actually use NLP techniques when they interrogate people. and some people don't even need to be asked to bid against themselves. Surprisingly this also happens too often. It happens when the highest bidder loses track of their bids. They're so nervous, caught up in the excitement of the bidding process or confused that they raise their own bid. Now this sounds a bit ridiculous however it's easy to do if you're not calm and relaxed. The auctioneer certainly isn't going to bring it to your attention and it's not uncommon in auctions with big crowds that are moving fast, the different bidders will bid against themselves

without even realising it. So don't fall into the auctioneer's traps. Auctioneers use a number of techniques to get buyers to keep pushing the price up. Calling the property prematurely with a number of the old going once, going twice, going for the third and final time trick is actually an urgency tool that auctioneers use to encourage a bid out of you as it plays into your fear that you're going to miss out. Auctioneers also use their own body language to encourage another bid by making buyers think that the property is about to be sold. The grabbing of the gavel or the hammer by the auctioneer, for example, can make you think that the reserve price is about to be met and the property is about to be sold. So if you're an inexperienced auction buyer or you're intimidated

by the auction process, you may want to avoid bidding altogether to prevent mistakes in the heat at the moment by nominating someone else like a professional buyers agent to bid for you on your behalf. This helps ensure that you don't fall for the psychological tricks and you need to be aware of yours and others body language. Any experienced auctioneer will tell you that mind games are part of the property auction process. In this regard body language is an important thing to look out for during auctions. Your competitors as well as the auctioneer will be looking at how you act throughout the auction. For example, as I've already mentioned, making a phone call during bidding could indicate that you've hit your budget limit. So you need to use body language to your

advantage as well. Look for signs of hesitations or doubt or long chats with buyer's agents via other bidders to help you establish if your opponents are near their limit or they're in for the long haul. It's also important to keep an eye on the auctioneer. What's the interactions between the auctioneer and the seller or the seller's agent to get an idea of how the auction is going from their perspective, whether the reserve price is about to be reached or if the property is likely to be passed in. And finally, forget about your rego and leave it in the car. While you want to be determined to win and you need to be bold in your bidding strategy to scare off any competition, make sure you remain calm and rational. Don't get caught up in a bidding war

and find yourself going beyond your maximum budget in the excitement of the moment or for a sense of ego in needing to win. In this regard, it's good to go with a partner so one of you can subtly keep the other in check. If another bidder jumps in and the price goes beyond your maximum budget, be philosophical. Walk away knowing there's going to be another opportunity. There's no need to win just for the sake of winning. So in summary, in the lead up to the actual auction process on auction day. Adopt a confident success mindset. Expect the unexpected. Understand the auction process and the jargon fully. Register early. Remain calm at all times. And my biggest tip is to get a professional buyer's agent to represent you to eliminate your emotion as your

biggest risk. And try and avoid the seven deadly sins of auctions. Don't talk to your partner during the bidding, don't phone a friend, don't let your body language give you away, don't bring the whole family along, don't overdress, don't be rude to the auctioneer, don't make silly bids and don't bid against yourself. In addition, don't fall for the auctioneer's traps and make sure you leave your ego in the car. So that brings us to the close of the background to auction day and what you shouldn't do. In the next instalment of our auction winning series, I'll discuss the psychology behind auction day strategies before breaking down your specific bidding tactic options. That's more food for thought. I'm Bushy Martin from KnowHow Property Finance. Stay tuned for more.

Well, that's another wrap on this week's show. A big thanks to our special guests, Shane Oliver, Katie Richards, and Sharon Fox-Schlatter. And a reminder that you can see all of our shows at realty.com.au. And while you're there, make sure you check out one of Australia's most extensive range of property for sale from over 7,000 agents nationally. Thanks again to realty.com.au and BMT Tax Depreciation for their ongoing support. I'm Bushy Martin from KnowHow Property Finance and I look forward to seeing you again next week. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au where we connect buyers, sellers and iGents differently.