Over 3 million viewers tuned in on Sunday night to watch the finale of The Block 2011, a renovation show pitting four couples against one another.
Prior to the finale, Josh and Jenna seemed to be the favourites to win with 37 Cameron Street. And when they got to choose to be first off the blocks at Auction, the scene seemed set for an easy victory. However, the final outcome at Auction could not be further from the hype leading up to the event. Despite the amount of money spent to ‘glam up’ the properties and a marketing publicity campaign that most vendors can only dream of, only 1 of the properties (39 Cameron Street, by Polly and Waz) actually sold at Auction. And even then, it only just barely hobbled over the finish line – at a meagre $15,000 above the reserve set by Channel 9. Hardly a spectacular Auction day by anyone’s standard.
Viewers (and I’m sure, the contestants alike) were stunned that the only property which saw enough interested bidders to meet reserve was that by self-proclaimed renovation rookies, Polly and Waz. After all, surely Rod and Tania’s number 43 Cameron Street, which had a very similar reserve ($850,000 vs. $840,000) to Polly and Waz, was a better property? Both are two storeys with the master bedroom and ensuite upstairs. Both have been criticised by the judges for not having a proper dining area. Polly and Waz had the ‘man cave’ and extra storage. But on the other hand, Rod and Tania seem to have a larger and better backyard with the extensive decking and bonus spa. So why did Polly and Waz manage to get a sale and Rod and Tania did not? On the surface, something seems amiss.
So what went wrong exactly? Why did just one of the four properties sell under the hammer? And why did the two supposedly best properties (Number 37 and Number 43) not sell while the other two supposedly lesser properties did? (For those not aware, Katrina and Amie did sell their property post-Auction for the reserve price of $860,000, netting them zero profit to pocket.)
There are many theories that have been thrown around to try and make sense of what happened:
The market is what the market is. TV can do wonders. But it cannot change market sentiment overnight. For all of 2011 so far, property buyers have been very extremely cautious, and this is reflected in Auction clearance rates hovering around the 50-55% for most of this year. There are still lots of serious buyers out there, but they are taking their time and watching their wallets carefully. Buyers are not willing to be drawn into a competition scenario for fear of over paying.
A sale is a sale regardless of when the deal is done. In the current market, many properties are passed in at Auctions (often with no one bidding) only to be sold soon after. At the end of the day, it really does not matter whether the property is sold before, during, or after Auction. It’s the price that counts. No doubt, the remaining two properties of The Block should sell in the near future.
Too much publicity can be a bad thing. I have come across many properties which attracted large crowds at Open for Inspections and seemingly overwhelming interest. However, surprisingly enough, on many such occasions, I find that the buyers end up losing hope – thinking that there’s no way they could be the winning bidder in the face of stiff competition. So they either don’t even show up to the Auction or simply set a very realistic cap to prevent themselves from getting emotional in the bidding process. While there are silly buyers who want to win at all cost just for the sake of winning, there are also many who react in the opposite way. The more competition they think they are likely to face, the more they talk themselves out of getting into the rat race and overpaying. Time and again, I see extremely popular properties sell for an underwhelming price for this reason.
Many serious buyers who otherwise would have been interested in The Block properties may have been discouraged or intimidated by all the media hype. Instead, the Auction probably attracted some ‘bidders’ who were mainly interested in being in the limelight, and not genuinely attempting to buy the property.
Is the price right? It’s pretty clear to most that Channel 9 overpaid for the four properties in the first place. Add to that the cost of stamp duty, 2nd floor additions to three of the properties, and the renovation budget and it seems unlikely that a profit could ever be made from the properties. Of course, this is a secondary concern to the show producers – relative to the ratings success. But the moral of the story is that buyers are not stupid. They will not overpay just because it is a TV show. Rational buyers know that once the cameras are turned off and packed away, they will be left with a very real investment. They would be asking themselves whether there are better buys out there than what The Block has to offer.
Buyers’ agents/advocates take the emotion out of buying. As viewers would have observed, there were many buyers’ agents (or buyers’ advocates as they are referred to in Melbourne) doing the bidding. As buyers’ agents and advocates, we are mandated to represent our clients who are property buyers. This means that we have to look out for their best interests. A good buyers’ agent and advocate would have done a thorough due diligence on the properties. How is the location? What is the rental potential? How good an investment is it? Is there a better property out there (for example, ones with parking)? Are the properties over-priced relative to their merits? What is the maximum price that the client (the buyer) should pay for the property?
If the client (buyer) decides to go ahead and participate in the Auction, then the buyers’ agent and advocate should do everything they can to enable their clients to buy the property for the lowest price. This may involve not bidding and competing if the property is not likely to reach the reserve anyway; or if it becomes evident that there is not that much interest or serious competition. After all, a good buyers’ agent and advocate would know that sometimes the best time to strike a deal is after a property has failed Auction. Unfortunately for Channel 9, experienced buyers’ agents and advocates are calculating bidders, and not likely to be drawn into an emotional bidding frenzy which would have made for more exciting television!
5 Lessons to be learnt from The Block
- Don’t overpay when you buy. Many people assume you make money when you sell. But you actually make your money when you buy. Hire an experienced and professional buyers’ agent and advocate to minimise your risk of making a costly mistake.
- Renovation is much harder than it seems. The high entry and exit costs (stamp duty, agent commissions, capital gains tax etc.) make it very difficult to make a profit.
- Understand your target market for the suburb when you renovate so that you don’t over-capitalise.
- Auction is NOT the only way to sell a property. The Block has to use this method because it generates the most drama for television.
- The best property does not always get the best selling price. The interplay of a combination of factors such as the skill of the selling agent, sales method, level of buyers’ motivation, etc. all contribute to the final outcome. It comes down to finding the right buyer for the property – the one willing to pay the most for it.
About Oliver Stier
Oliver J. Stier is the Director of OH Property Group, a leading Sydney buyers agency. He studied Quantitative Economics and Finance at Cambridge University (UK), University of Toronto (Canada) and Princeton University (USA). In addition to being a licensed real estate agent, Oliver also holds the Chartered Financial Analyst (CFA) designation.