At the moment it is very hard to work out what the Sydney property market is doing. Certainly none of the experts seem to have a handle on it.

 
February is always a time when we exercise more caution than usual, particularly with our investor clients. Normally at this time of the year we have a combination of a stock shortage and fresh buyer activity from rested property hunters and new entrants. It takes a while for the market to take up the slack caused by the downtime over the Xmas period, so we usually see heightened competition, increased auction clearance rates and a spike in prices. And this situation can last until the end of March. In boom years it continues unabated until spring. In 2007 I remember the market ran full steam ahead right up to Xmas!

So far this year has been no exception on two counts. There is a stock shortage and there also appears to be plenty of buyers out there.

But we are now more than halfway through February and last weekend the auction clearance rate was still only 52%, which is a similar level to where it was at the end of 2011. Some properties are languishing (more so in the higher price bracket) while others are selling way above expectations (a number of 2 bedroom cottages in Marrickville spring to mind).

The open houses over the past few weekends have also been a mixed bag. At some properties we have had to queue up before taking a peek inside, while at others we had the house and the agent to ourselves. And there hasn’t been a clear pattern as to why this is so. It is not as simple as saying that anything over $1.5M struggles while everything under $1M flies out the door. We have seen properties well under the $1M without any interested buyers.

Feedback we are getting from selling agents is that both buyers and vendors have been sitting on their hands while they wait for another interest rate drop. Now that the banks have taken matters into their own hands and instigated their own rate rises, we hear that a lot of potential vendors have decided to delay listing their properties for sale. Conversely a lot of buyers seem to have decided they are sick of waiting for lower rates and will take the plunge regardless.

So if these indications turn into a trend we will start to see a rise in both clearance rates and sale prices.

The upshot? Well, we will still exercise caution. That is certainly not to say we won’t be buying anything, however. Because we know the market so well and understand prices, we can assess value and strike accordingly. We also know when to leave something alone because it is selling at a premium that may not be sustainable come April.

And for owner occupiers who have just found their dream property it may well turn out that it is worth paying a premium and it’s just bad luck that their perfect new home came on the market now instead of a more advantageous time. Just remember to decide on your maximum limit before you begin bidding or negotiating so that the emotion doesn’t take over.

How exciting! You have found a property that you would like to buy and have had your offer accepted! And to show how serious you are, you have handed over a $1000 holding deposit. Only thing is, a holding deposit holds nothing.

Now I do not know why some agents persist in getting a holding deposit from buyers since, in NSW, once you have had an offer accepted on a property there is absolutely nothing binding until contracts have exchanged.

There are two ways you can exchange contracts on a property. But you will not always be given the choice of which one to use.

The first way is with a five day cooling off period. You can do this in the agent’s office on a Saturday afternoon if you like and you don’t need to get any legal advice prior to doing so. It is commonly the done thing to pay an initial deposit of 0.25% when you sign the contract and the balance of the 10% prior to expiration of the cooling off period. By exchanging contracts with a cooling off period you will have 5 business days to complete your due diligence. This process includes getting your contract reviewed, building & pest inspection and/or strata search done, finance approved and balance of the deposit arranged.

The benefit to you is that the property is then off the market. The vendor cannot entertain offers from any other buyers and only you can change your mind – but if you do so, you will incur a penalty of 0.25% of the agreed purchase price. So, say you have offered to pay $500,000, this penalty would be $1250.

The main reasons for backing out within the cooling off period would be either a bad building inspection or strata report or an inability to come up with the finance. We hear of plenty of buyers making offers before they have finance approved but even if you have pre-approval, the bank could take longer than the 5 days to give you an unconditional finance approval or the valuation could come short

One thing to bear in mind here is that in a competitive market, or if you have made a pre-auction offer, it is highly unlikely that you will be given the option of exchanging contracts with a cooling off period.

The second way to exchange contracts is to sign an unconditional contract. The only way you can do this (other than at an auction) is to have your solicitor or conveyancer review the contract, advise you on it, then issue a Section 66W Certificate. This certificate waives your cooling off period, making the contract unconditional. Under these circumstances you need to have done all your due diligence - the contract reviewed, building & pest inspection and/or strata search done, finance approved and deposit arranged - before signing a contract.

The risk here is that while you are busy doing your due diligence, the property is still on the market and other buyers can make offers. Time is of the essence and you need to keep the pressure on your banker, solicitor and inspector/s.

So, back to the issue of a holding deposit. Our advice is to only hand over a deposit at the same time you hand over a signed contract – and get some assurance of exactly when the exchange is expected to take place. A holding deposit is simply an unnecessary step in an already complicated process. All it really serves to do is give the inexperienced buyer a false sense of security.