31 October 2006

Rental auctions to begin - UPDATED

| johnboy
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[First filed: September 27, 2006 @ 11:27]

The Canberra Times reports that Peter Blackshaw is planning to start auctioning his client’s rental properties.

He says it’s going on informally already and he’d like to formalise it so that he can get a cut rather than his agents taking a backhander.

If you’re opposed to the practice you know who not to do business with.

UPDATED: The Daily Telegraph has picked up the story and is hailing Blackshaw’s world-first practice, while also mentioning the grave reservations held by many experts in the field.

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I would have thought all bidders will be required to pre-register and complete the appropriate background checks, which can then be done once allowing them to bid on a range of properties. As for bid suppression, the answer is to use a reserve price.

is their going to be an asking price? I think with a little community support and possibly some liberal bullying, (likely involving threatening people with pointy sticks), I may be able to procure your next available proprety for the princely sum of $10 a week through a succesful bid suppression campaign.
No doubt there will be some legal barrier to this outcome, but none to desparate tennants overbidding each other and driving rental prices through the roof, in an already over compensated market.
Fuck this, Im moving in next to that guy in the rocks next to CSIRO

the thing is though, will the successfully bidder still be subjected to standard application processes, where if the rental amount is too high a proportion of their income, they are deemed not suitable ?
Will the property then go back to auction ?
Will the investor have to pay new auction fees ?
What if the sanity checks aren’t done, and the tenant just can’t pay the rent.
the investor spends ages trying to get rent out of them, going through the tribunal, and it’ll end up costing them more, by the time the tenan actually vacates.

How on earth is auctioning a rental un-ethical? Ebay must be more of a den of sin than I though! Auctioning Mp3 players! Hitler would be kicking himself for not thinking of it.

But seriously, if it is more than acceptable to auction houses for millions of dollars, I don’t see how auctioning the $200 a week rent can be so bad? Why can’t a landlord get the most profit from there investment as they can.

As a landlord I try to look after the tenants (saves money in the long run). But I also want them paying as much money as I can get out of them. I don’t know anyone who has an investment that isn’t trying to maximise the return.

Binker – I love it when it comes to quoting legislation on the RiotACT!

…and because they wreck the place, those costs are rolled up into the rental.

Trying to milk tenants for all they’re worth is just too much trouble. Also, if you look after your tenant, you don’t feel so bad kicking them out on the street when they screw up.

Tenants being milked for every buck do resent it, and their resentment is expressed in various ways. The recent complaints by Jindabyne people about the behaviour of winter kids highlights this. Those vandalising kids are paying huge bucks to live in shambolic digs, as the locals gouge them for all they’re worth. So they feel no compunction in wrecking the place.

Unethical, Schmethical. It’s a matter of legality.

Binker, I’m not sure that bit of the Act applies to starting renatl, only to rent increases for existing tenants. However, we had a dispute with our Real Estate agent (who will remain unnamed) when we had to break our lease (we had to show them the act they’re supposed to be working under and point out the bit where their practices were in contradiction to the Act) – from memory there is a bit about a property being available at the advertised rent, but I don’t have a copy of the Act, so maybe you can find it.

If the RT Act doesn;t cover it, it could fall under the Trade Practices Act – anyone here who works for the ACCC want to venture an opinion?

s68 (1) The tribunal must allow a rental rate increase that is in accordance with the standard residential tenancy terms unless the increase is excessive.

(2) For subsection (1)—
(a) unless the tenant satisfies the tribunal otherwise, a rental rate increase is not excessive if it is less than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later); and

(b)unless the lessor satisfies the tribunal otherwise, a rental rate increase is excessive if it is more than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later).

“index number” means the rents component of the housing group of the Consumer Price Index for Canberra published from time to time by the Australian statistician.

That’s 100% incorrect S4anta. Rent can only be increased once in a 12 month period.
In theory the lessor can increase the rent by any amount they choose. However if it is challenged by the tenant at the Tribunal the onus is generally on the lessor to show why the increase is not excessive in the circumstances. Tribunal has a whole stack of cases on their website dealing with rent increases.

Caf: I have been assured by my agent that they can still only increase rents once every 12 months, even if youre on a periodic lease.

There is a complicated formula for working out the maximum rent increase allowed … for example on a $300 weekly rent the agent may increase rent to around $322 without any justification. I think rent can be increased by more than what the formula determines, however they need to provide suitable justification and risk being taken through the tribunal.

Caf – yes they can. each time to roll onto a new month you are essentially signing onto a new contract each time.

In regards to this post, seeing as I have a few joints floating about, currently being rented by undesirables displaced from the fires, I say bring it on.

Does anyone know – if you go onto a month-to-month lease, can the agent raise the rent every month if they want to?

I believe rental increases are capped, something like 10% per year?

If surety of income was so important then why did my landlord raise my rent by $10 knowing that by doing so I wasnt going to sign another 12 month lease? Because they raised the rent i decided to go on to a periodic lease, if they didnt raise my rent I would have signed on for another 12 months.

The simple answer is that agents know the market is so tight that they can replace tenants at a moments notice. It also means they can raise the rent by pretty much whatever they like every year and the poor tenant will be forced to pay it.

Vic makes a good point – it’s an approach I use too. Surety of rental income is worth a lot, more than $10 a week, especially if the tenants do the right thing (and plenty don’t).

Ultimately, the property market is cyclic, for both renters and owners. In time, the rental market will ease a bit (but not for several years, I suspect). Renters be aware: things will get worse for you before they get better.

Vic has a good point. A long term tenant paying less rent although looking after the place is a better option.

As for jacking up the price by $10 – you may get an extra $520 in the year but what if that costs you 1 or 2 weeks with the place empty to get it.

Vic, you are a gentelman.

Vic Bitterman10:19 pm 27 Sep 06

I’ve given this some thought, based upn the arguments above. never even considered this before!

I’m against an auction system for rental properties, and will never use it for mine – and I have 7 of them in the Canberra region!

Yes, my properties are my eventual retirement nest eggs, but I appreciate at the same time that they are home to families, who want security.

In my investment strategy at least, the highest bidder is not necessarily the one who occupy one of my preoperties. I’ll gladly take on someone who will take care of my houses and treat it as their own. That is better than an extra $10 per week, or whetever it will be.

Blackshaw was the one who originally pioneered wholesale auctioning of properties, rather than it being a tactic. He’s about making money money money. Interestingly, quite a few big-name real estate agents in town once worked for him, including the chap who did the biggest deal the other week.

Very rotten time to be a renter. I wish people trying to milk bucks from other people would get out of the property market.

If an official auction takes place, are the participants liable to pay various fees/duties etc to our disgustingly avaricious town rulers, over and above the normal imposts of a rental lease?

At one time the Tenants Act had an anti discimination clause against mums. Brought in during the war years. I wonder if Beb could force this through leglislation that auctioning of rents beyond what is advertised in the paper is discrimination and clap a $100k fine on the autioner and landlord.

Fifteen years ago some friends and I were actually denied a property in Turner because we offered to pay more than the asking price – the agent was indignant, telling us that it was so out of line to offer more that the asking price that they would no longer consider us as prospective tenants … I’ve always thought that the agent was duding his client but that could be just me. My how things have changed.

This sort of thing is nothing new. Blackshaws are just trying to add a patina of legitimacy to a fairly reprehensible activity.

The last rental place my partner and I lived in was given to us because we offered $10 a week over the advertised price. The extra money wasn’t solicited by the estate agent, we just wanted the place.

However, since then, I’ve heard of estate agents basically saying “This is the advertised price, but you’d better pay more, or you won’t get the house” in as many words.

By making the “auction” system formalised it just gives estate agents even more power to make tennants sit up and beg. Especially given the state of the rental market.

I participated in one of Peter Blackshaw’s tender processes when bidding for a house.

It’s basically an auction without the transarency of knowing what else has been bid.

I was unsuccessful (but was assured that my bid was second and would I like to offer $40,000 more … blah, blah, blah).

I walked away vowing never to deal with Blackshaw ever again.

Being kept in the dark while an agent attempted to manipulate me with lies generated enormous stress.

I believe transparency in such real estate transactions is great, but I don’t trust Blackshaw to deliver it.

In the ACT, it takes nearly 20 weeks rent just to pay the rates, taxes and utilities. The rent is just over half the repayments. I must provide on-going tenants 6 mths notice to leave. Land values are stagnant in Canberra, so there’s no improvement in equity. Many other investors are selling their ACT properties and buying in QLD and WA. I don’t think that Peter Blackshaw’s rental auctions are unethical; they are trying to keep what few investors are left in the ACT market.

Joker: Nice idea in theory, but if you have to find yourself a rental place in a hurry (like if you have moved to Canberra and dont know anyone) then you have very little option but to pay whatever it will take to get you into a place.

As a renter in Sydney and now in Canberra I have witnessed this practice happening unofficially for some time. When applying for a rental property these days you have to complete a form which asks you what you are willing to pay for the property. Most people nominate a little bit less than the asking rate.

However, there is nothing stopping someone nominating a slightly higher rate, and thus more likely to get the lease.

This will happen more and more while the rental vacancy rate is at such low levels (about 1.9% i think in ACT).

At least this way renters will know why they failed to get a lease and how much the going rate is.

The ACT govt really needs to increase the level of affordable housing, increasing vacancy rates to around 5%, which should lead to slightly less competition and lower rents.

It wont happen though because all the MPs probably have a plethora of investment properties themselves and it will hurt their own personal interests.

Realestate agents have sunk to a new low. It’s the same as the ‘Buyer Ranged’ rubbish when they sell houses, i just need to know one thing, what’s the PRICE?!

Advice to potential buyers and renters, Don’t play games and refuse to be made a fool of, walk away.

What happens if the “reserve” is not met? The lessees could use this system to their advantage, too.

if i owned property, i wouldn’t let them do this to my properties.

great, now Ill have to blame anyone living in a house or similar property for driving up rental prices, in addition to the wealthy, blood-sucking landlords, vile and despicable investors, I hearby label all renters as overbidding moral-less scum. Unless youre that guy living under a tarp near csiro, I DESPISE you!

Absent Diane1:41 pm 27 Sep 06

I don’t think its wholly unethical but the amount of people who will be put off purely because they can’t bothered will be pretty big I suspect.

I don’t see anything unethical about it – it is after all in a public scenario that denies any underhanded tactics. Investment properties are after all an asset used to generate money and as such if the market conditions are such that this becomes feasible then good luck to the proeprty owners. Granted it sucks big time for renters.

It will be interesting to see not only what sort of properties they put up for “auction” but the type of bidding that eventuates. After all this is new and many people just may not be comfortable bidding.

Mind you, never underestimate a real estates ‘creativity’ when it comes to generating business.

Blackshaw will need to careful what they put up first as a poor result could turn property investors and other real estates away from this methodology.

As a landlord I would generally support anything that increases my rental yeild, BUT I think this is out of line because it uses people’s emotional reactions in a situation they may not be familiar with to increase the price. Bonfire is right – it is another market tool. But it’s a tool that heavily favours the experienced, and potentially disadvantages those who are inexperienced. Just my $0.02.

i think its interesting and will keenly observe.

is it ethical ? i dont see how it isnt.

the market already dictates the price paid.

this is just another market tool.

i think thumper is right though, it might not be a good option if the successful bidder cant meet the price they bid.

i’d like to see the cost breakdown as well. i have met few property managers of residential propertys who actually earned their money.

i suspect the auction slug may not cover the extra rental income.

Congratulations go to Peter Blackshaw for finding a new way to be an *even lower* form of scumbag.

Hooray for rich property inverstors!

Auctioning of rental properties is probably a bit unfair. It may not be so good for many landlords either, as people are likely to get emotional and overcommit then not be able to make the rental payments later, leading to action that costs both landlord and renter.

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