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THERE are three critical lessons to be learnt from the flop that was Channel 9’s The Block auctions in August. This analysis uncovers a number of reasons why the four renovated properties failed to generate the serious bidding on the night that the show’s producers were anticipating.
We are in a flat period of growth. To buy a property in the current market, renovate it and try and sell it for a profit is high risk. It is unlikely that you will make a profit at the moment. You are going to have to get your timing spot on to come out at the other end with profit in your pocket.
While three of the four properties didn’t sell under the hammer, what we saw in the weeks after sums up the current state of the market. DIY renovators Rod and Tania Walsh sold their property for $72,000 above their reserve in post-auction negotiations. And Josh Densten and Jenna Whitehead pocketed $50,000 above reserve. This is in stark contrast to the sisters Katrina and Amie who sold on the night at their reserve after their property was passed in. And Polly and Waz, this year’s winners, only achieved $15,000 over their reserve after selling under the hammer.
This tells us that while properties are not attracting the frantic bidding of years past and are subsequently taking a little longer to sell, they are still attracting the right price provided vendors are prepared to bide their time.
Supply vs Demand
LOCATION is crucial when considering where to buy, and while The Block houses were located in Richmond, I’m not convinced it was the best of locations. There are certainly much better streets in Richmond than where those four were located (Cameron St). Being across from a car park, it did have that industrial feel.
At the moment with the market we are currently in, properties that are slightly compromised are struggling. Everything usually sells if the price is realistic, like these properties did. It is just taking longer than we have grown accustomed to.
At the moment where demand isn’t at an all-time high, and supply is there, the reality of The Block is that you have four similar, newly renovated properties sitting side-by-side and the demand wasn’t there. What I am finding in the current market is that well renovated properties will sell. But those four houses were not well positioned, and that was the issue for buyers on the night of the auctions.
If the vendor is realistic, if it is worth a million, people will pay a million and the property will sell. But buyers won’t pay a cent more than they have to at the moment.
Closed Auctions: Not the way to go
I am concerned that the way in which the auctions were conducted played a significant part in the lack of bidding on the night. About 400 people attended the closed auction at the Fitzroy Town Hall, with more than 20 bidders registered.
For the vendor considering running with a similar format of auction, while they might be able to get out of it a bit cheaper because they are sharing the hall or the room with other vendors, they are potentially compromising the sale price of their home.
It’s all well and good to put on drinks and nibbles and make a social occasion out of it. It might work in Sydney, but we are just not used to that here in Melbourne.
I tend to find that when the auction is held on-site, the emotion of seeing the real house, rather than just a picture of it up on a screen, is a lot more powerful.
You cannot underestimate the power of taking a potential buyer through the property one last time before the auction begins. I don’t know whether Melbourne will ever take to that form of auction.
A forecast for next year’s installment of The Block
The big question is whether Channel 9 will again look to a closed auction format to sell the next four properties in Dorcas St, South Melbourne, when filming starts on the 2012 series. It would be highly unlikely to see Channel 9 scrap the auction process. It creates urgency and drama.
Regardless of the poor results that will again be expected, it makes for great TV. If their primary focus was to get the best result for the sale of each property, they would be wise to consider a sale by set date scenario, rather than pursue the public auction path again. But I highly doubt viewers will tune in to watch a handful of envelopes be opened.
My concern is that having all four properties standing side by side, the issue of supply versus demand will again be telling. And I doubt that the demand will be there. In order to maximise the return on the properties, it is crucial that the next lot of contestants pay very close attention to what buyers are looking for in a suburb such as South Melbourne. When you are talking about four terrace homes, it will again be a fine line between a modern look while at the same time honouring the integrity of the home’s period features.
THE BLOCK RESULTS 2011 (Richmond, VIC):
39 Cameron St, Richmond (Polly and Waz):
Reserve: $840,000 / Sold at auction: $855,000 / Profit $15,000
43 Cameron St, Richmond (Rod and Tania):
Reserve $850,000 / Passed in at $832,000 / Sold after auction for $922,000 / Profit: $72,000
37 Cameron St, Richmond (Josh and Jenna):
Reserve $950,000 / Passed in at $901,000 / Sold after auction for $1,000,000 / Profit: $50,000
41 Cameron St, Richmond (Katrina and Amie):
Reserve $860,000 / Sold after auction for $860,000 / Profit: $0
THE BLOCK RESULTS 2010 (Vaucluse, NSW):
John and Neisha:
Reserve $900,000 / Sold $1,105,000 million / Profit $205,000
Chez and Brenton:
Reserve $880,000 / sold after auction / Profit $90,000
Erin and Jake:
Reserve $910,000 / sold $997,500 / Profit $87,500
Mark and Duncan:
Reserve $860,000 / sold $907,000 / Profit $47,000
Before you go check out our latest Block blog: The Block: What are they worth now? We deep delve into every winning Block property sold in Melbourne from 2011 to 2019 and calculate their current market value and more!
Written by Antony Bucello, National Property Buyers