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

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.