Rental Auctions - what a great idea.

[yorke]

http://www.bigpond.com/news/business/content/20080819/2340062.asp

Rental auctions on the way: HIA
August 19, 2008 - 1:17PM
Source: ABC

The Housing Industry Association (HIA) says home-building activity is almost at a standstill and people will soon be bidding at auctions to rent a house.

The HIA says the shortage of homes needed to house the population will blow out to 45,000 during this financial year.

It says the number of new housing starts is expected to be down by 6 per cent for the year.

The Association's Chris Lamont says home affordability has slumped to critical levels.

"What you'll see is you'll have 25 or 30 people lining up outside an affordable housing estate, where there may be two or three residences for rent, so it'll be a bidding war basically," he said.

"Whatever people can afford and sometimes can't afford to pay will be the going rate for that property."
NSW figures

The HIA is predicting the shortage of housing stock in New South Wales will blow out to about 18,000 homes in this financial year.

The New South Wales outlook report for the June quarter says new housing projects are likely to remain below 30,000.

HIA executive director Graham Wolfe says it is the sixth year in row that new housing has failed to make a sustainable recovery.

"Unfortunately the number of new homes is falling so far behind underlying demand that pent up demand continues to deteriorate, rents become tighter and rental costs continue to skyrocket," he said.

 

[boomtown]

I think I read somewhere that rental auctions are illegal in Qld.

Its an interesting concept. For those of us that like to push the upper boundary of what the market will accept it might actually result in lower rents...

 

[PrimeCommercial]

Why not!
Make hay while the sun shines I say, those dark clouds will come back around soon enough.

 

[yorke]

Its an interesting concept. For those of us that like to push the upper boundary of what the market will accept it might actually result in lower rents...

Not so. It would create extra competition for the more desirable properties which would help them achieve a much higher return. As long as there is no oversupply of properties the prices at the bottom end of the scale would remain around the same as before.

 

[Sheryn]

Hmmm change of trend - instead of auction to buy, auction to rent!

Acquantance at work brought a 3x2x2 duplex after her divorce and is renting it out as overseas for 12 months. (2 years old duplex )


Rental estimate was $350, someone offered $365 so she was going to accept them as tenants.


Tenant in our 4x2x2 IP (house) has given notice and the IP is currentty being advertised online at $400 per week. I have 4 weeks notice to secure a new tenant so will see how I go. (IP house almost 12 months old).

We can come down in price to meet the market if no takers.

IP house cost us about $350K to build and was rented out at $350, not sure of yield at $400 rent.


Regards
Sheryn

 

[the_captain]

Hi Sheryn,

At $400pw, back of the envelope

((400 x 52) / 350,000 * 100) = 6%

or thereabouts

 

[Dazz]

It would create extra competition for the more desirable properties

....agreed...

which would help them achieve a much higher return.

....nope - don't agree with that conclusion.


I think it would result in the same outcome as an auction....that is, the end result is dictated by how high the 2nd highest bidder can go to.

It bears no relation whatsoever to how high the top bidder would have gone to. That is why all of the expensive properties are always EOI or OTP, and never offered at auction.

All IMHO.

 

[yorke]

I think it would result in the same outcome as an auction....that is, the end result is dictated by how high the 2nd highest bidder can go to.

I can understand what you are saying and agree with that in the case of buying a property but not so for rentals. We are talking increments of $5-$10 /week and if the second bidder for whatever reason is also keen on the property the results could exceed the highest expectations of the agent.
Let me give you a good example of a desirable rental. 3 years ago I was looking for a place to rent and I wanted something near the the house I was building. When a rental just 1 street away came on the market for $190/week (rentals in the area when available were going for $175/week) I was happy to snap it up sight unseen and ready to sign for 2 years. I've called the agent to let him know I wanted the house but before I could go and sign the papers the place got rented to someone else who offered $200/week. The other nearest place I could find was 11km away so to save travel time and fuel I was prepared to pay $300/week for this one, unfortunately I was not given the opportunity to bid for it. A year ago I saw the couple that paid $200/week moving out and stopped for a chat. They too have built in the area and would have been happy to pay $280-$300/week if necessary. The loser in all this was the landlord who could have pocketed the extra $10K
Based on the previous price of $175/week rental for similar properties in the area at the time any EOI would have resulted in offers around $180-$200/week, at best.

 

[Jason Rose]

Rental Auctions

In Queensland legislation has been put in place to rule out Rental Auctions.

As agents we can not force a bidding war between potential tenants but we can not stop tenants offering above asking price.

I have been a licensed auctioneer for 21 years and before legislation was put in place ruling out rental auctions we put a lot of thought in how we could conduct rental auctions.

We came up with the following

renting out a property is a lot different to selling a property.

When a property is offered for sale via the auction method each of the bidders is bidding under the same terms and conditions and in most cases the owner does not care who the buyer is as long as they pay the most money.

When it comes to renting out a property owners look for different things and not always is maximum price the highest criteria.

IE if we have 2 applications on the one property and application number 1 is a couple with a child offer X amount and application number 2 is 3 younger people coming together to share the property and they offer $10 more than applicant number 1, we would probably make a recommendation to go with the couple if references,affordability etc are equal. we find in a share type scenario that there is more chance of a change in occupants, girlfriends/boyfriends coming over to stay, parties etc all this = more ware and tare on the property = more than $520 per year in general maintenance & upkeep. generally speaking the group scenario can afford to pay more based on 3 people pooling there available income.

we prefer to work on a tender type scenario. IE each potential tenant offer their best price and terms and conditions. we can then way up all the applications and put them to the owner and make our recommendations based on the information at hand.

A couple of things to note in Queensland that we thought of.

Under Queensland laws when a property is sold via auction the auctioneer can actually sign the contract on behalf of the buyer or seller to make it an enforceable contract ( it is the only point in law when a party the auctioneer can act on behalf of both the seller and the buyer. Not even a solicitors can act for both the buyer and the seller in the same transaction. a conflict of interest) and a deposit is due and payable at the fall of the hammer. When it comes to rentals there are no laws in place to make a lease enforceable if one party does not sign the contract. If we take a deposit upon application and before approval of the tenant(before we can do any reference checks etc) then legally we can not take any other deposits or applications and we can not hold a tenant into a lease unless they have paid a deposit. In other words we can not make a lease enforceable if we auction the property for rent and rented it under the hammer.

The Queensland government has put these laws in place because they realise what a hot potato the housing crisis is.

My recommendation is to price your property to rent quickly(market value) and hopefully you get a good turnout to view the property and through pure competition you can get a better price, a good quality tenant and minimise vacancy.

If a property is advertised with good quality photos and good text and is priced right it will rent quickly. If a property is marketed properly(good quality photos and text) and it is not renting usually it will be because of an ambitious price. Feedback from your agent will soon let you know. My rule of thumb is if you have had 5 groups of people inspect the property and you do not have an application then the price is too high..

A very interesting topic.

 

[Alabex]

Touching on Jason's comments... the problem with rental auctions is the quality of tenants - reference/history extra. most landlords i know would rather have a well recommended tenant for $10+ less a week, then a dodgy tenant for more....

For an auction to work there would need to be some kind of screening process of tenants first. I have for a long time thought a database of qualified tenants would work well... they apply to be listed then they are reference checked etc and then given a rating out of 10 based on their references. You could then conduct an auction inviting tenants with ratings of 7 plus to bid... or something like that?

 

[Peter_Tersteeg]

I can see it going the way of a blind auction. The prospective tenant submits their application with their 'best price'. The application can be judged by the landlord on both price and quality of tenant.

If a minimum price is not met, the landlord can start negotiations.

 

[vbplease]

apparently rental auctions are illegal nation wide according to this report http://www.news.com.au/business/money/story/0,25479,24209392-5013951,00.html

My understanding is that the "rental auctions" that have been taking place are in a format nothing like traditional sales auctions. They are caused by potential tenants (sneakily) offering higher rents behind other peoples back. I think this is unethical and is justifiably illegal.

 

[yorke]

My understanding is that the "rental auctions" that have been taking place are in a format nothing like traditional sales auctions. They are caused by potential tenants (sneakily) offering higher rents behind other peoples back. I think this is unethical and is justifiably illegal.

Its not illegal to offer more, its just illegal to ask for more. Why do yo think its unethical to get the best return from your investment ? If a tenant is not happy to go higher then $x then he can look somewhere else. After all its supposed to be a free market, is it not ?

 

[vbplease]

After all its supposed to be a free market, is it not ?

Its is a free market Yorke, nobody is stopping the LandLord from advertising whatever rent he wants to get the best return.

In todays current rental market if a prospective tennant goes to the trouble of veiwing a house and preparing their references etc, expecting to pay $x - only to be told later by the LL that $x isn't enough.. the greedy LL should be told where to go!!

If a LL later changes his mind on the price, he is going against normal procedures and wasting other peoples time and effort.

 

[yorke]

In todays current rental market if a prospective tennant goes to the trouble of veiwing a house and preparing their references etc, expecting to pay $x - only to be told later by the LL that $x isn't enough.. the greedy LL should be told where to go!!

I fully agree with you where the rent is advertised for $x and some sneaky tenant pay above asking price to get in. I would expect to be given the opportunity to outbid him if I chose to do so, that's why I think rental actions should be made legal.