Finance advice
Cate Bakos

I don't like properties which the banks don't like

By Cate Bakos

As a buyers agents, our role is not only to secure the property and deal with the negotiations and due-diligence and post-contract processes. We are there to guide our clients through the maze of property selection; from helping them understand their brief (and the constraints which can go with a brief!), through to steering them clear of bad choices.

Blogger: Cate Bakos, director, Cate Bakos Property 

Property is exciting, but it is far from being black and white. It is all shades of grey and there are many elements to selecting good property that are paramount to the process. One of the most significant however, is understanding how the banks feel about the subject property. It is in fact so pragmatic for the bank that they refer to the property as the security. Security is important to understand – it reflects how the bank really feels about lending the client the money based on their property selection. If the bank likes the property enough to finance it to 95% (and better still, like it enough also to offer capitalised Lender’s Mortgage Insurance; LMI), then we can rest assured that one important step in the process has been covered off. LMI is important to understand also – in fact, in many cases, the Lenders Mortgage Insurer has the last – and most critical – say. Loans for full-doc applications are assessed by LMI when the borrowings exceed 80% (and lesser again for low-doc lending). Some could define the LMI step as the most highly scrutinised part of the process. I’ve seen plenty of situations where the bank says yes and the insurer says no.

So why would a lender apply scrutiny to a security? And why would a mortgage insurer say “no” to a particular security? The answer is - for plenty of reasons; and if they feel that the property could either be hard to sell, a challenge to sell in a reasonable time frame, an atypical type of title, a zoning which is prohibitive to mainstream buyers, an asset which is located in a compromised location or postcode, positioned in a high risk area, considered unsuitable for inhabitants to reside in, or worse still – for reasons unrelated to all of these possibilities and perhaps related to the bank’s reluctance to exceed their existing exposure to the block or the development. In fact, there are MANY reasons why a lender could apply tough scrutiny on a property and while we can’t predict them all, we can certainly recognise some of the warning bells before our clients get too excited about an inappropriate or compromised property.

Taking all of this into account, clients often respond to my word of caution on a particular asset with “But Cate, we don’t mind. Our borrowings won’t exceed 70% and our bank has already told us that we’ll be fine.” Their ability to finance the property is not of concern to me. What is of concern is that they will be potentially buying an asset which is challenging for anyone else to buy. Not only this, but other nearby properties, or properties in the same block – or comparable properties – will most likely be exposed to the same level of scrutiny. What THIS means is that my client’s compromised property will have its value directly underpinned by the other comparable properties which are exhibiting lower-than-expected sales results based on their difficulty for mainstream buyers to finance – and this in turn will mean that the capital growth rate and relative value to the rest of the market will be compromised also. Take a recent example of mine – I inspected a neat and tidy villa unit in Melbourne’s lovely Moonee Ponds a few months back. The agent hadn’t received the contract from the vendor’s solicitor at this stage - and knowing my values in the area, I discussed the likely price tag of the soon-to-be-auctioned property with her. Diplomatically she indicated that the price would be likely to exceed $460,000. I knew as well as she did that $480,000 was a more likely price-tag given the finish, landsize and location that this unit offered. Anyway, the contract didn’t arrive until Thursday night before the auction – and to everyone’s horror the title was in fact Company Share (as opposed to the more accepted and less scrutinised Strata Title). The implication for all of the buyers was that they would need between a 20% and 40% deposit depending on their lender’s policy on Company Share units. This blow knocked out all but one buyer and the unit sold for $407,000 with little or no competition.

I’ve seen situations where a ‘renovator’ for the most enduring of renovators have been declined by the lender, and where postcodes which have suffered bushfire or flooding have been rejected. The worst decline I’ve witnessed was by a lender which determined that the number of comparable sale properties in the area was inadequate enough to support the price on the contract. The client had done nothing wrong and the price was fair and reasonable based on historical sales; yet the lender’s policy stipulated that three comparable property sales within a three month period needed to be sighted by a valuer for the loan approval to proceed.

So when my clients are nonchalant about buying unconditionally (whether it be at auction or on a private sale contract), I still scrutinise the asset myself. I tell them “Cate doesn’t like properties which the banks don’t like.”

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About the Blogger

Cate Bakos

Cate Bakos

Cate Bakos is an independent buyers advocate, a qualified property investment advisor, and owner and manager of Cate Bakos Property.

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  ["title"]=>
  string(51) "Boost for investors as app sets up off-site bidding"
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  string(144) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming functionality launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as app sets up off-site bidding
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Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

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Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

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AREAS MENTIONED:

Eagleby
Charters Towers
Townsville
Brisbane
Paddington
Sydney
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Melbourne 
Glen Iris
Bondi

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How a move to Hong Kong impacted Julia’s Australian property goals
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  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
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The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

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Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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‘Common’ referrer practice of being paid on both sides of the fence coming to an end

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