Scott Aggett On What Borderless Buying Really Costs

Thousands of Australian investors are currently holding property they've never seen in markets they don't understand, bought on the advice of someone who's never even been there either. That's the logical outcome of an industry that has normalised the borderless buyer's agent model without seriously interrogating what gets lost when geography becomes irrelevant.

when an agent can recommend the same suburb to hundreds of clients simultaneously the service stops being advice and starts being distribution and somebody ends up holding the bag joining us today to help us pull this apart is scott agate scott has spent more than 30 years on both sides of the australian property transaction as a top performing selling agent as a buyer's advocate as the architect of australia's first negotiation as a service

model. That dual vantage point makes him uniquely placed to pull apart how this model actually works, who it serves, and where it quietly fails and sometimes noisily fails investors who don't ask the right questions until it's too late. Welcome to the elephant in the room.

This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Scott, welcome back. It is great to see you again. This is one of our, you know, close to our heart topics, the fallout from borderless buyers agents. And you're now sort of getting more into this space. So you're seeing it, the coalface.

Welcome. Welcome back.

Thanks. Thanks for having me on the show. Yeah, ready to unpack and get into the weeds with you both.

Yeah, I mean, I'm going to admit it at the start. We recorded this, I think, a day before the budget, and we had a glitch on our system.

So I feel like I'm having the same conversation twice, which only ever happened with Alan Coller as our other guest, which, sorry, Alan, we had to re-record you. But, you know, a lot has happened since we didn't record that. And, you know, the whole bottle as buyers agents model has really been challenged.

And so... Scott, we've done a couple of episodes on it. We did obviously a budget debrief. We did an episode on different models or different types of investment strategies. I mean, you're someone who knows this part of the buyer's agency world quite well.

What have you seen since budget and how has that sort of changed your philosophy as well?

yeah it's really interesting i've seen a distinct slowdown right across i would say all of our price points for our customers and i think a lot of that is to to do with uncertainty and uh really a lack of direction as to which way is going to you know going to be where the the government falls so i think the gray arrow in the wording uh uncertainty about how it's going to impact prices um what change it's going to have when you take investors out of certain predominantly owner-occupied markets there's just a lot of variables that become

murky and that's put a lot of people on ice. And that contradicts what I've seen a lot in the BA space. A lot of these borderless agents are saying it's business as usual, things are booming, their inquiry levels are up. I think there's a lot of marketing hype at the moment.

So I'd love to try and keep it very real because I think there's a lot of uncertainty in the market and people are going to look to experienced people like ourselves that have been in the industry a long time to guide them to what the right path is to get a result.

So let's go and look to, I guess, the damage that's been done by the borderless community, shall we call it that, up until this point in time.

Because I would imagine a lot of people holding properties that they've bought investment properties previously to this budget announcement might be thinking, oh, great, at least I get my negative gearing.

But they also might be in areas where there is no secondary market for those properties that they've bought if they did want to on-sell. And also there's a number of these borderless buyers agents claiming to have the strategy of get in an area, take the rise.

get the clients to sell out and buy somewhere else and capitalize from another rise. Well, this budget, as it stands, skittles that whole strategy.

And so these people are potentially stuck holding these properties that there will be not necessarily a great market for because there will be no investors buying in these established markets. So it does change things markedly. And when we first had this conversation before this,

You know, we were talking about the damage and the danger to consumers, but now I think it's probably even greater. Would you agree?

Yeah, and that was always a massive concern for ours previously throughout, you know, the last five to seven years have you seen that big wave of, you know, I guess, more inexperienced short term thinking there after a quick fee, a quick second and a quick third fee.

Our concern, which we voiced on the show here previously, was that are these people getting the right advice as to when to exit those markets? What is the exit strategy? Who is going to buy that asset off you at the other end?

And that's coming home to roost now, because if you're going to buy in these markets where it's being pumped up artificially by investors, is there enough traffic there for owner occupiers to buy you out of that asset?

Otherwise, no one's going to buy when you've taken all of the growth out of that asset in a short window, which has significantly weakened the yield. You've probably pushed out the vacancy rate risks in that location as well.

It's worth attracting to an investor to come in now who doesn't get negative gearing and also gets unfavorable tax treatment on sale. So, yeah, that's a concern for us. Now, the other problem that I've seen that stemmed post-budget is now I'm seeing marketing from some of the bigger companies.

agencies about let's go buy lots of melbourne units or cheap assets in regional locations at a high yield but it's exactly the same problem there's a quick turnover quick growth potentially that is artificially manufactured but then who is going to buy those assets and that's going to be an underlying concern for us i think for some time to come

Let's talk about the Melbourne unit things because I've seen that. I've seen also negative gearing was never the strategy is aligned. And it's like, yeah, okay, I get that.

But you still have to pay a lot more CGT now on the growth, which could be 47% of every single dollar you make, particularly this high growth buying in and out. So when you think about the Melbourne apartments, I mean, often they're saying, well, Brisbane apartments went through the roof.

Adelaide apartments went through the roof. Perth apartments have gone through the roof, which they have, which is quite surprising. And even the cheapest apartments in those areas have gone up the most. So it's almost like that's the logic.

I mean, when you think about it and you've got to make those decisions with clients, how do you feel about sort of Melbourne apartments?

Firstly, start off with this outliers in every market, right? So I hate generalizing by saying Melbourne apartments because you're in different suburbs that we could break this up to. But the overarching theme here is significant underperformance for decades in Melbourne apartments.

If we just take out a couple of the outliers that have performed extremely well. So the mass market are buying into areas where there is a huge amount of choice still.

Sure, the yields are really high, but the argument that I'm seeing is that it is cheaper to own than it is to rent. But that argument's been true for decades and those markets haven't moved.

And in fact, they've so underperformed that when you look at even the worst of the house markets that we've looked at over the last decade, they crush the Melbourne apartment market performance over the last, say, 10 years. So I would want to see not only...

the apartments move in price, but I would want to see them keep pace with houses that we're investing in.

Otherwise, why would you ever look at something that's got strata costs, that's got risks of body corporate blowouts with special levies and those types of things, or the risk of oversaturation if development does become attractive at any given point and the government manipulates the development market and all of a sudden there's an oversupply of like-for-like apartments and everyone wants a new shiny object.

So I'm still really hesitant to go into that strata space. Rather than buy air, I'm more comfortable buying a high land value component. And I want to see a historical performance that is outshining some of the decision-making that these guys are pushing forward for requirements.

So I think the behavior that we've seen, you know, with these larger buyers agency groups and probably even the smaller ones too, really, is really just showing spin. It's like, okay, well, how can we repackage what is affordable? Because we've got to find something to buy that our clients can afford to buy.

They can get the money for, they can get the borrowing and they can afford to buy it. So it's repackaging that and making that look like it's a good investment. And so, you know, and a lot of that's come or the ability to do that has come out through the democratisation of data.

Everyone's got access to data, whether they're able to interrogate it or analyse it in a way that really is beneficial for their clients or not, I will question. But everyone's got the ability, particularly now with various AI tools, to package up that data. So it looks very, very compelling.

And then, of course, the conflict of interest really is that it's in the business's best interests, not in the consumer's best interests. Now, I guess, what are you seeing out there? What are you seeing in terms of some of the tools that are being used or misused?

And, you know, you're setting up your business. You've got Next to Grind too. You're trying to say, well, we don't do it like that. We're better than them. You know, how do you make sure you're better than them?

Because, of course, the proof is in the pudding with property and it takes a good five to 10 years before it actually shows whether or not the strategy was right or not. Yeah? Yeah.

Yeah, well, I think sticking to fundamentals is the most important thing. And that's what you can hang your hat on, isn't it?

It's looking at the same metrics that drove these markets previously through different cycles as to where they're positioned now and the likelihood that they're going to continue to outperform the market long term. So that's what we want to really hang our hats on.

It's factual evidence like that, that we don't need to spin a story out of to create a win. I think the easy win for buying something like a Melbourne apartment is there's lots of them. The yield is very high.

You can very easily paint a picture that look, we're out pointing the market here with these out of line returns. That's so affordable, which you just addressed just then, which attracts a lot of different buyers.

But if there's no growth there, that's really what's going to really move the needle in terms of your wealth creation long term. It's not making extra $100 a week in rent. That's my belief anyway. So, you know, I think that's a concern.

In terms of the data that they're leaning into, I've seen one pretty prominent buyer's agent leaning into, well, there's no cranes in the sky, so therefore there's no supply, which means, you know, the price...

The crane metric, yes.

Yeah, that mid prices are going to go up like really quickly and that there's going to be a rush on Melbourne apartments. But I just don't believe that to be true.

And if it was true and if I'm wrong and I'm happy to eat my hat, then I'd rather buy an entrance to that market when it's a year down the line. And I can confidently say that the market has moved. There's been a fundamental shift and change in terms of consumer behavior.

And that would give me and my clients a lot more confidence to enter a market like that if it made sense down the line.

Well, that's an interesting one, though, because that consumer behaviour could be all the investor clients of these larger buyers agents, in which case you could be following the herd.

It'll change, though, the ownership percentage within the suburbs. So that's how we track that to see if there's a fundamental shift in the amount of investors that are buying there.

Yeah, I mean, a lot of these apartments already own 60%, 70%, 80% sort of investors. I mean, if you're buying high yield... Wouldn't change. You get a 20% increase in price. So doesn't that, like, reduce your yield? So all of a sudden it goes from...

you know, a 5.5% yield to a sort of 4.5% yield. It goes from investors like it because I can potentially be really cheap on negative cash flow. Then all of a sudden it gets to a point.

So it's almost like the price growth reduces the yield, which reduces the appetite for future investors, which wasn't a big deal under old negative gearing, right? Because, okay, well... If it's a good asset, yeah, I pay a bit more, but I get 40%, 50% of it back in tax.

I'm betting on the growth, but also if I get the growth, I'm only going to pay 25% tax on it. I'm not going to be paying 40%, 47%. And so I guess I wonder with these sort of high-yield companies is that isn't it just really a short-term bump?

Once the, to get that, till that yield goes no longer attractive to investors, you're basically only going to get that short, that 10, 15%, which doesn't even cover your costs. 5% stamp, selling costs, buyer's agency costs, tax. Yeah. The first 20% just goes on cost pretty much.

So is that sort of how you feel about it? And any of this sort of buying and sell, fast growth? Yes, there was an argument there prior.

Yeah, I can't see how we're going to be a really aggressive spike in capital growth. I just don't see those fundamentals there, in particular in that Melbourne market, let alone some of the other markets.

It might be affordable, but I just don't see the huge demand for it unless it's manufactured as Veronica just referred to.

Oh, and also investors can bow, right? So like... If it goes from $400,000 to $450,000, the investor's like, oh, I'm getting out. I've been wanting to get out of this thing for a long time. And, you know, in the previous sort of boom, they were much more confident.

You know, you can see in Brisbane, houses went. It was a lag. And then Brisbane apartments went. You know, the same in Adelaide and Perth. So once the housing prices get too expensive. So Melbourne house price hasn't even started yet, right?

And not in those locations. Not in the locations where these apartments are prominently based. They haven't had a huge run, the house market. So that's why...

Well, there's not a lot of houses in Southbank.

I mean, it's Southbank alone, but you've got other areas as well, like Malvern or, you know, other areas like South Yarra. Yeah, there's house markets there that are mixed in with that, but they haven't had a huge, huge run.

A good example of that, Chris, would be, you know, we put a client, my brother-in-law actually, into West Gladstone in Queensland a few years ago. And it was a very deliberate strategy to get quick house price growth because they were priced out of the Gold Coast market. They needed that opportunity.

top up in terms of their deposit funds to be ever able to buy a family home because they just didn't have the earning capacity to do that and change that.

So we deliberately went into that market, but we deliberately knew we were going to exit as quickly as the signs or the warning signs started to flash. Now, we got out of that market at the right time. That did about 80% growth in two and a half years, which was phenomenal.

But the yield, as to your point before, went from whatever it was, 7% down to about 4.5% or wherever it sat.

It's slight rental bumps over that two and a half year period as well. Now, the reason why that sold to a buyer's agent and to an investor, and there was only two investors that made offers on the property, all the other buyers were owner occupiers. None of them made an offer.

This is only like in the last two or three weeks is because there's a growth story there. So people can see that element. Well, wow, this thing's flying. It's still growing at nearly 1% a month.

we can see the data that it's coming off a cliff decreasing in that cycle, even though it's still going up, but the rate of that growth is slowing. You can't do that in the Victorian apartments. So you buy that high yield.

And to your point, that yield then softens that next buyer comes in. They were only ever going to buy because of the yield, which is no longer there. There is no growth story. So that,

My concern is that that wave that West Gladstone has got now, and I think that's a mistake by the buyer's agent to put their client there. That's the wrong time to enter that cycle. They're probably very transactional and they're saying, look, this thing's booming. It's still growing at 1% a month.

You know, jump in now. It's a 4.5% yield. Fantastic. The average yield in Australia is 3.12%. Yeah. What a great story. But it was a horrible story, which is why we exited out of it and took the money and run. Yeah.

It's a really interesting kind of dynamic that they're pushing there in terms of the milk price.

You know, Kate Bacos put on LinkedIn only today, she reposted a blog from a Mackay property manager.

And this, and I opened up the blog and read it, and the Mackay property manager was talking about yet another management that they've turned down, which was an investment property purchased through a buyer's agent.

The blog said that they believed the buyer's agent had led their client to pay $100,000 more than they should have for this property. They hadn't done a proper inspection. They hadn't done a pre-purchase, and they also hadn't done a pre-settlement inspection. They were building issues.

I think from memory they had a building inspection, but it obviously didn't highlight issues. So they needed something like about $100,000 worth of work to be done on the property in order to make it in a rentable condition. So this is after already having overpaid, in this property manager's opinion, by $100,000.

But this is one of many examples they were basically highlighting, that this has happened over and over again. And I've heard similar stories in many, many regional markets, but this literally was today that I read that. And that is just horrific because that's the sort of thing you're talking about there.

You're talking about somebody who has gone and entrusted a buyer's agent who supposedly has all this experience and access to data and you don't need to go and inspect the property because all you need is the data. And the person holding the can here is the owner, the client, not the buyer's agent.

And in fact, you've got local property managers that go, no, sorry, I can't help you. So that's a pretty diabolical situation. But from what I gather, it's not that uncommon. Have you heard stories like that?

Yeah, we've heard a number of those stories and typically it's in very regional locations like that with cheaper assets. That's a concern of ours as well is going and buying those regional assets that are of low cost.

You know, you replace a roof or you replace a kitchen, it's a significant portion of the home value. And those older houses that are super cheap for a reason are just a capital X, you know, risk away from costing you an arm and a leg in that situation or possibly...

an unsaleable home or an unrentable home. Certainly true as well. I wrote a blog piece about this on the weekend about how this is more applicable probably in Victoria than anywhere else with the minimum standards that they've changed in terms of the rental rules.

So it's things like heating, window coverings, window locks, all these things. So typically a lot of those older homes just simply don't have that. So you might go in thinking the house on paper looks rentable or looks okay.

But it could easily cost you $5,000, $10,000, $15,000 to get it up to rentable condition. And there's some external risks there that may not happen in other states as well. So it's being wary of all those things.

Scott, I'm seeing some – I know I keep going down this marketing. It's just – I don't think it's giving the industry – like it's really – we and I launched another podcast called Street Secrets. Long story, but it was because I was very frustrated –

around what was happening with the buyer's agency industry, all the hard work that they've built for 10, 20 years of, you know, building a really strong service, you know, local expertise, real value add, a high trusted professional service. It's like a super emotional part of the journey.

Like I rated what the great buyer's agencies have built and then I've seen this new wave come in. And I think the last month it's gone like the, what frustrated me is that, you know, they're now saying, oh man, you know, don't worry about negative gearing because it's not lost, it's quarantined.

Or don't worry about this because it was negative gearing wasn't a strategy. Or don't worry about this because, and they just keep coming up with new sort of ways. Almost like they're using client testimonials from 12 months ago saying, hey, this client bought 12 months ago, now it's going up 40%.

Like the rules have changed. Like is that, you're finding it quite, oh, I'm going to buy 50 properties myself this year because, you know, I can and whether they buy 50 or not, I even got 50 properties.

But it's almost like they're trying to go in overdrive when they should have, if there were just being common sense here, they would probably just take the foot off the pedal and just provide a bit of extra education and say, look, okay, this needs to be much more carefully considered.

We need to be rethinking our strategy. We need to be, you know, because things are changing. Are you noticing that? And How have you, because you've got a business that's doing investment for people, how have you had to digest it and how have you had to change your marketing and your strategy?

Well, it's had a significant impact on my business. I'd say not just over the last month, but over the last three months.

So I started with three interest rate rises, a war and a cost of living crisis, and ended with a month's worth of rhetoric from Chalmers and Albanese about what they were going to do before they dropped that hammer blow. So

I don't know how you can hide from the fact that it's going to put people in a position where they're going to retreat and just be a little bit more conservative in terms of their thinking, which I think is a natural thing for a lot of people to do.

And we've still got customers that have got confidence to move forward. They want to build wealth through property. And if the fundamentals are still there for them to invest, they will. But a lot of people that are on the sidelines, this is a secondary need for them.

It's not like they're buying a place of residence. it's like a holiday house, right? Like that's the first thing that goes when you're tightening the belt. So I think there's going to be naturally a check back.

It may only be short term until the language is corrected and people can then form a correct path of how they want to move forward. But it is concerning that it is sort of business as usual and there's a rush to still be transactional and to be volume driven. I think

Part of that, Chris, is driven by a lot of people who've got mouths to feed. They've got big businesses and structures that they've put in place. They've got big marketing budgets that they continue to spend and they need to find assets to match up that to keep the wheels turning.

And they've also got bitten by the of building extreme wealth really quickly themselves. So they're building big portfolios. They're driving very fast cars. They're going on very luxurious holidays. And I don't think they want to step back from that.

I think a lot of people will get bitten by that and like that lifestyle. So yeah, that is a risk. I mean, I've seen this, Veronica will agree, in real estate, being a sales agent, we used to see this all the time.

This was so frustrating for me that you'd go in to win or compete against someone in a listing presentation, and you're just constantly competing against the ego-driven agent that over-quoted to win the listing, who would then under-quote to the market to get that thing sold. They're the ones driving the 911.

They're the ones going on the private jet to Europe or whatever it might be.

um but there's not a lot of care in terms of duty of care and what they're doing to look after those clients it becomes very transactional so it is not just buyers agents i think it's across lots of different industries but it's rife unfortunately in the property industry because you can make a lot of money very quickly

With a very low barrier to entry.

And a very low guard of who's actually watching and slapping you on the wrist. I mean, if we go back to look at what happened with old mate at Ray White there, you know, I just don't think the punishment fit the crime.

So it's not much of a deterrent for people because they've made their money and effed off overseas or wherever they want or come back with a new reincarnation and another industry spend.

Yeah, and look, I mean, this is the thing that, and this is something that listeners may not be aware of as well, that sales agents typically only operate in one jurisdiction, in one state or territory, right?

Maybe the exception, if you're up in Byron Bay, you might go over to, you know, up to Koolangatta perhaps. or south if you're in Tweed.

You know, like, so generally speaking, though, you only need one licence and you only need to know how to buy, or sorry, how to sell a property in your local area.

You need to know the contract of sale, you know, what documents you need, what vendor disclosure is, what you need to do and don't do regarding quoting. Like, it's quite contained in terms of what you need to know in order to be able to operate. And there's a very clear...

which is your Office of Fair Trading or your Consumer Affairs or whatever it is in your state or territory. Buyers agents, however, when they're borderless, they are equally governed, but they're governed by each state and territory jurisdiction. And most of them, many of them do not know that.

They do not know that there's different legislation in different jurisdictions. States and territories. And I know this because I'm on the board of PIPA and we see the applications for membership coming through all the time.

People saying that they buy in across the country in various States and we go, excellent, show us all your licenses and they don't have it. And some of them even argue that they don't even need it.

And so because there is no national oversight of buyers agents, there's no actual, there's no one checking, you know, we're a, we're a industry, um, and we're checking to make sure that our members are compliant.

But even if they're compliant, it doesn't necessarily mean that they mean anything either because it's quite easy to get a licence once you've got one.

But this is something that I think consumers don't even recognise, that their buyer's agent might be buying in Perth and they might be based in Brisbane, but the rules are different. The laws are different. The buying process is different. Federal disclosure is different. Well, you get... to know beforehand and the buyer beware.

The standards of buyer beware are different. And this is really quite horrific when I come across stories from sales agents and the lack of due diligence and care that is being taken by these buyers agents who don't know.

And there's also a lot of games that go on with sales agents against buyers agents. If you're not clear of what's happening in real time, you're getting played in Victoria where you might be otherwise in Queensland. So, yeah, it can be very confusing going between states day to day.

But even for an inexperienced buyer's agent to come up against an experienced sales agent in the same jurisdiction, I see Sydney buyer's agents going up against Sydney sales agents, a very experienced sales agent is going to eat that buyer's agent for breakfast. They're going to dialogue them out of the room, right?

And out of tens of hundreds of thousands of dollars potentially of their client's money. But it is interesting, though, what I see is that there's this sort of that really transactional, the particularly unattractive thing around sales agents that the consumers, the public do not like.

The public rate sales agents as the most recent Governance Institute survey showed that sales selling agents are the lowest.

Below sex workers.

Below sex worker, below used car salesmen, below even politicians, believe it or not. They're the lowest in terms of trust. Whereas, and then the buyers agents, this whole new generation comes out trying to actually out, out detrust them, untrust them. What do you say?

They're trying to outdo them in terms of the shit stakes. You know, it's just outrageous. Yeah. But there's no oversight.

Now, I think that consumers need to understand that when they are looking and engaging a buyer's agent and when they're hearing all this bravado and this sarsping, they need to sort of step back and hang on. How much of this is real?

There's a couple of things, though, that are confusing for me because we've both done both sides of the transaction and the whole time... You and I have both been very vocal about underquoting, right?

So from a sales agent perspective and from a consumer and from a buyer's agent, underquoting was rife and has been a really big problem over the last few decades. The government never seemed to want to tackle it. This is very similar on the buyer's agent side.

Well, they do, but it's how they tackle it, right? You know, you're in Queensland. Your government up there has tackled it very effectively. They've just outlawed quoting.

Yeah, but then you've got people that have got no idea what to pay and just get royally screwed in that proviso as well. So I don't think that's a particularly good outcome. No.

Versus New South Wales or Victoria where they play games and they don't create a section 32 and you end up having to go to auction when you don't even want to and you can't buy it for three and a half weeks because there's no contract ready.

There's all these deliberate strategies that are in play live when you try to buy properties in different states. The concern for me though, like the under quoting side of things is there's no real government initiative to do what you said and police this arena. And it definitely needs it.

I know internally in our business, like we have to work with, we go to our conveyances we use in different states. We ask them for cheat sheets and coaching on contract law and things that we can practice.

And we can learn about different things in different scenarios across these different states because there's just so much variance in contract law alone. But there's nothing there. There's no governing body course that anyone can do. If you do the licensing course, you've got to do sales agent or property management or OAS.

It's got absolutely nothing to do with being a buyer's agent. So there's no, even the policing of the guidelines or the framework is terrible.

Well, it's why I created the course that I created. And now Bryce and I, you know, reforming, got the old gang back together and very soon about to re-release or completely re-renovated the program that I had and we're calling it Buyer's Agent Mastery for that exact reason.

Because there's nothing out there that teaches the actual craft of being a buyer's agent and understanding different regulations, different states. But like one example you just talked there about in Victoria, it is possible to take a property all the way up to the point of auction without actually having a contract to sale.

So you can't buy it. You can't actually buy it without one. And so all they can do is generate... I mean, and mind you, their market hasn't necessarily lent into this in the sense that it's a shit market down there at the minute. But...

If it's a hot market or competitive, and certainly in the first home buyer space, it is actually quite competitive in that lower price bracket, then you might want that property.

But the agent's got all the time in the world to basically ramp up competition for it rather than give you the opportunity to make an offer and try to buy it because it cannot be bought. So they're still marketing it. They're still showing it. They're trying to get more and more buyers in.

whilst they drag the chain getting a contract to sale. But in New South Wales, it's illegal to show the property, to even tell anybody about it until you've got a contract to sale and an agency agreement. So again, these rules are different. And knowing that is really key to professionalism.

And yet we've got a lot of buyers agents out there that wouldn't know the first thing about this stuff.

Scott, I mean, there was a big buyer's agency went under, no point even mentioning their name, but obviously everyone would know who it is. A few weeks ago. And they were huge, very prolific in this space. Who are their creditors has sort of come out through the liquidation process.

You're talking a lot of people who have prepaid fees that haven't received services, et cetera.

What's your sort of, you know, is this the canary in the coal mine? Like is this, you know, you mentioned very early on, like it's business as usual for all of these companies.

They've got wages, got salaries, you know, they're also high risk people because they are high risk in terms of their strategy, you know, hiring, growing, making money while they can. They're obviously still got to keep these buns on seats.

So, you know, how are you sort of feeling, you know, are we going to start to see more of these? Do you know that, you know, how do you think it's going to pivot? Yeah.

I haven't heard of anyone else that's under financial pressure like that. So I'm not aware of any other changes that are going to happen in the industry like that. So that will be an interesting space to watch.

I definitely think there's going to be a contraction in terms of staff in general, the buyer's agency in general. Unfortunately in my team, like I had a team of eight, I've,

I've cut that back to six in the last couple of weeks because I think there's going to be a fundamental shift in the next three to six months and I'm preparing for that.

So that's really unfortunate that we had a great team, a great culture, but we've had to make a change because it's effectively been forced upon us, I think, in that regard, even though we're being fiscally responsible. But where I think the change is going to come is right now, it's really interesting.

There was an intersection that was coming later this year anyway, which is AI. And I know everyone's talked about AI across every different industry, but it's really advancing super fast in what we do day to day. And if you were concerned before, Veronica, about people having access to data,

Well, you know, property matching, property scoring, due diligence, everything is basically done now automatically before it even lands in our inbox, if you want it to be done like that. So it's gonna take away a lot more jobs.

So we were already looking at this maybe six months ago, we were meeting with lots of different prop tech leaders in this space. And we could see a path where by the end of this year, we wouldn't be doing the business with eight people.

We'd probably be doing the same amount of business with five people. So I think this all comes together as a really big, you know, I was going to say train wreck. It doesn't have to be a train wreck.

It could be a positive, but it is going to be a big shift in the industry over the next six to 12 months for sure.

It's interesting because obviously we're using AI in our business and I've broken it down into specific things that we do that we want to make sure the AI can do as well as we do them, or better, in some cases better. And I'll give you an example.

One of the things that we do in our business, before we even –

really do much in the way of due diligence for a client is that we give the contractor sale a first pass over because there's stuff in there that we're not lawyers, but we can find red flags in that contract that could kill a deal before we even go any further.

And so I've set up an AI that is trained in the way we do it, not in asking the AI, how do you do it? How would you do it? And also not going to a prop tech because for us, I just feel like a lot of the prop techs

don't necessarily understand due diligence the way we understand due diligence either and my definition of due diligence is well what will kill a deal if i was trying to sell that property in the slow market what's going to kill it and you'll know that scott because when you sell a property in a hot market buyers are not discerning they don't care they'll just they'll gloss over stuff in a in a slow market every little tiny red flag will actually jam yeah

basically jam your engine or stop the cogs turning. And we want to find that stuff out because we don't want ever any of our clients buying a property that's going to be difficult to sell in a slow market.

It's not to say that that doesn't happen because sometimes other things happen, but there's stuff that's readily available. And so we've got that. That has saved a lot of time, just that one thing. And we've done a number of things like that, but I've looked

to individual things that we do and replacing each one carefully to make sure that it does it better, the same or better than we do it. And I think I've seen some AI property reports that are shocking because they're so generic and they really give nothing and they're overloaded with information.

And so you're reading them and you're not really sure whether you're actually finding, reading something discerning or not. You know, it's like a Am I comforted by the fact there's so much information in that report?

I don't know. It's also really conflicting ideas of what a home is worth. So we take out any of the digital valuation tools as well and make sure it's done manually because there's so much variance. But that's pretty scary for a consumer because they're relying on those –

And I remember even, you know, 10, 11 years ago when I was an estate agent, people would come to the door and, you know, not by Chris, but by another mortgage broker would turn up and say, well, my mortgage broker tells me that it's worth X.

Your mortgage broker should buy it for you. You know what I mean? Like it's not worth a hundred grand more than that. I'm just about to sign a contract for it. So do you want to be in the real game or do you want to live in your mortgage broker's game?

Like you would still be looking in six months time. So we used to see this all the time. And unfortunately that hasn't changed. Those tools have got better. But they're still really dangerous for buyers agents that are using that.

I've seen some of our competitors, you know, due diligence and analysis come back to us from clients that had already paid a fee or whatever to use them. And they come back and say, can you run your eyes over this property?

They're using ranges, you know, low confidence at like 900, high confidence at like 1.4. Yeah, how helpful is that? Yeah.

The fuck is that? That's not an analysis. So there is ways that you can cheat and cut corners and do that really cheaply and run a more efficient, more profitable business, but they'll end up in a trash can at the end of the road.

So I think there's a lot of it that still gets done manually, but it's more about property matching and property scoring and things that is where the efficiencies are. That was a very manual process previously. AI is going to make a big difference even within our business.

But it's those types of things that I think we're going to come along at some point this year and make a big impact in this business.

So I do fear, and maybe it's a good thing, Veronica, maybe it's a good thing that they cut out a lot of the inexperienced BAs, the people that were just in it for the money short term, that don't see a path to how they can win and just give up and get out of the industry, as well as a lot of sales agents on the other side of the fence that do the same, that are

Oh, yeah. We regularly have these purges and it is a good thing. I don't see that bad at all. Can we talk a bit about the sight unseen thing?

Because one of the reasons that they've been able to efficiently buy in markets across the country without really having to get out of their seat is because they will buy sight unseen. At its worst, I've seen WhatsApp videos from sales agents that buyers agents have bought on the strength of.

At its best, they hire, you know, a... I don't know, a local building inspector or a local property manager, which I don't condone, but that's at best at worst. What are you seeing and how do you mitigate that?

Because obviously that's a very real challenge for a business who does want to be able to advise clients regardless of where they're buying.

Yeah, well, I mean, we've got a very thorough due diligence process that we go through, but this is a challenge that we've discussed before, that if you're going to buy borderless, you have to make the decision, I guess, at the start, are you going to give heavily localized opinions and be an expert on the ground there, which is fantastic if you can do that.

But if someone's coming to you for independent advice, they're not going to get that from you because you only know your core market. You're not in a position to give them the right advice nationally.

So if you do it the other way and you give them the national advice, then the challenge is you can't physically be everywhere if you're going to give independent advice like that that is unbiased across the country. So therein lies the challenge. You could argue either of those is right or wrong.

I'm sure you guys have both had a very strong opinion that you'd like it localized before. But to get it localised, you need someone that's giving independent advice above them. I don't know that's happening either. So there's challenges on both of those sides.

So yes, the danger is exactly what you just referenced then, those key points. The only way to mitigate that for us is to build really good long term relationships and try and focus in less locations.

So be quite concentrated into the locations and be constantly prepared to update and move and then be on the ground, boots on the ground,

build those relationships again do that physical work and i of course try to physically inspect as many of our property purchases as i personally can as well so i'm on a plane constantly doing that but even still that is a challenge i can't get to every property some of our clients are looking for very specific things that are in random locations and um the challenge is exactly what we've referenced here and we make that really clear to them up front like this is you know if you

We might have to pay a local buyer's agent who is the expert on the ground to physically go and do that work for us. We might have to leverage onto third-party contacts like that because we can't physically go and inspect all of these properties if they're in very regional locations.

Scott, wouldn't I just... So Brisbane's at, what, 100% plus. If you go back to 2019, Perth, same. Adelaide, same. Perth, both houses and apartments, pretty much. So those markets have had huge runs.

um which has gone from maybe affordable to you know affordability stretch it's the top of a really strong bull and so you could say the rates are still who knows when rates are going to come down but that could be a massive tailwind that gets it to another level but you're already starting at a high base if you're a new investor you know sydney prices are already much higher right and yields are already quite low melbourne yields are quite low prices are to enter into the housing market already quite high and even they haven't got up

their entry prices is quite high.

What, like, where is the, and without negative gearing, with a higher CGT, like, I'm finding it really hard, like, because there's the new investor, the rent investors have been hard because they're going, well, I could take advantage of a 5% deposit scheme or I could buy a home that goes to me tax-free.

So they're probably better off because of no CGT, to potentially look at a home, like a young person, if they can, even if it's a short timeframe, not paying CGT is a huge advantage. Unless that, you know, potentially there's some market there. And then people who have got a home,

Like they've either got two options. They can upgrade their home, right? Which I think a lot of people will do now as well. Which will do, yeah. But a lot of people go, I've got my, you know, I'm happy with my neighbor. I've got my kids in school. I don't really want to.

So we've got equity. They can put it into shares, which is a whole other strategy. We're not sure what's going to happen with CGT on that. Let's just park that one. But if they want to go into property, they're going to have to borrow 105% of the purchase price because...

Unless they've got their home paid off, which is very rare. It's like usually an older buy pool. It's usually a 50 plus. And then resi property doesn't really make sense to them because often if you're 50 plus, you should be trying to get as much money as you can into super often.

And then potentially, you know, leveraging up into... Resi's hard because it's just a lumpy asset into retirement. It's hard to consider that. So the one with debt that's a homeowner that doesn't want to move, yeah, they've got borrowing capacity.

When they're borrowing at 105%, 6 plus percent interest rates and yields at four and a half, even if you get five, and then you're adding cost, you're talking like $20,000, $30,000 a year at best.

If not more, like you're talking even 50, 60 grand a year. I just don't know. And then you go, well, okay, I can manufacture a higher yield on a good asset because I can build a granny flat.

We've got to still pay for the granny flat and it's cost expensive to build a granny flat and you're devaluing potentially your asset to the owner-occupier pool because you're losing your backyard.

And if you buy that house, the fun house isn't, or both those houses aren't negatively geared anyway. You don't have those benefits.

And it's targeted to an investor and an investor is only going to want it if it's at a certain yield. So you're limiting your price growth because you're diminishing your future buy pool. And it's not the number one buy pool driving prices up.

So, you know, I don't know what the strategy is here around buying established property. Then the pivot is going to new property, but then... Greenfield Estates, we know the challenge is there. Obviously, it's no secondary market. High density, we know the challenge is there. The small townhouse lots, we know there's challenges there.

There'll actually be a premium on those because developers will have not enough stock. They'll have too many developers. Duplex sites in good cities don't stack up because the cost to buy the land and do the build. I just don't know.

When we're at brokerage, we're like, well, how can we best place help our clients around their next best decision? We don't want to get paid on the transaction. We get paid as a broker, but we also want to make sure they're getting the right deal. How are you thinking about it?

I'm just interested. Yeah, I think there's four clear paths post budget. One is to buy regional or cheap properties with high yields and give up on negative gearing in the CGT benefits. I think there'll be a lot of transactional buyers agents that pile into that.

We've already discussed that's a high risk strategy that I don't want to play in that lane at all. Second thing is buying established duplex pairs where you can get a high yield, but they're unicorn assets in growth locations and everyone's going to be chasing those for the same reason.

So I think they'll be hard to find and they'll be priced out from a value proposition.

The third thing is self-managed super fund, which we have already seen a lot of our customers say, well, I'm going to put more money into super and I'll buy inside that vehicle, which is untouched and is obviously going to be very attractive for the right candidate that fits that brief.

And the fourth one is what you referenced, which what we call or our version of this is where the sweet spot is in new build is ready build assets. So post budget, we've gone around Australia.

I've created a spreadsheet of three or four hundred ready build properties that, you know, negate the need for a construction loan. They're standing so you can do building and pest reports. You can physically inspect them. You get rid of the developer insolvency risk and the cost and the design change blowouts.

So that is where I think you can mitigate a lot of the risks. But only if you buy in predominantly owner-occupied locations, infill sites. where you choke out the future supply pipeline, that you've got established infrastructure already in play.

And by that, I mean hospitals, schools, transport, shops, parks, all of that already established. So there's only a finite amount of those opportunities, but that is where we see is a really good

Yeah, but then you've got to overlay that with city because you can't buy into art very late in the growth cycle in the other cities often because build prices have been quite high. Unlikely to build prices to go up another 50%. So the cost to...

You know, that's what's helped a lot of markets, right? The replacement costs of places have gone up just because that's sucked out more supply. But at current prices, it's already factored in. And then land prices have already gone up in a lot of these locations.

So you've potentially got to buy in the low and non-boomed land value and where there was a pretty good... done at a reasonable price.

And then also if there's five townhouses in there, three probably on the road, the two at the back that are quieter, that have got the north... You're going a long bow here, Chris.

Well, that's what I'm saying. I've been thinking more that other people are going to want to buy them.

Well, they might buy the one that's the north-facing rear at the back that's got the great, but then the busy road, like the SMSF option, I think that's going to get shut down. There's no way in the world in two years' time... Limited recourse borrowing arrangements go through the roof.

They change and people are punting their self-managed super fund. Property spruiking goes through the roof. Like, yeah, you've got to think the power in the super lobbies to the government are going to be like, hey, you're sucking all my money out of my industry super funds. Like, shut this down. And there's already...

The other thing too, what about state governments and their stamp duty? Because we've had an instant slowdown in two of our biggest cities, Melbourne and Sydney, and we've got a growth slowdown in the three next biggest cities.

So we're going to have our state governments start getting a bit upset too about all of this. This is a bit of a rolling parade at the minute. But the other thing that we haven't been talking about is that there still are people that can afford to invest in property.

And they are the people that have already invested in property and have been in the game for a long time and have a lot of equity, but also have income from property. So in terms of this being to equalize and level the playing field, there are people that can still play.

And I have had conversations with people who see established property as an opportunity, particularly in the current slowdown where you've got a lot of inertia And a lot of people thinking, you know what, I'm not going to do a thing.

There's a contrarian and clearly a minority, but people who are in a position to be able to do something and they've got cash or they've got lots of equity that they can tap into and they've got a borrowing capacity and they've still got negative gearing.

Because they've got an income from the properties that they already own. So that is a minority, absolutely. But if you're in that position and you're looking at established markets, there's actually an opportunity there. You're not competing with other investors. You're only competing with homebuyers.

We know that homebuyers do drive up prices because they are more emotional. But when you've got less other competition in the market, there's less people to push them forward. right up. So I think there's opportunity there. It reminds me of immediately post GFC. Yeah, totally.

I was going to say the same thing. There'll be tons of people that do that. And that's a smart move for people that can afford it. I was talking to a high profile owner-occupier buyers agent in the East and South of yesterday.

And he said, you know, he's got multiple clients that are openly saying to him that, you know, I want to buy a $5 million house for $4 million. I want to buy a $14 million house for $10 million. So go and find it for me.

And it doesn't matter if it's today or if it's in a year's time. I'll wait.

Same deal. I've had that conversation with people.

Yes. You're waiting for a floor, right? And there'll be opportunities like that. We are talking about 100% as they hear.

Let's be real. Totally.

That's exactly right. But what we've been slamming, there's no opportunities. It's all shit. I'm saying that there is a small segment of the market out there that is in a position and they've been helped by this budget and they're in a position to potentially really make their situation a lot better.

So we have to acknowledge that.

And there's positives in buying those ready-built properties, I feel as well. You get full warranty, you get a brand new asset, which is less capital expenditure risk. And if you buy in the right location, that's a good asset to hold long term. Massive depreciation.

These things are pretty much cash flow positive from day one if you've got a reasonable deposit. Otherwise, they're not hugely out of pocket. So that's been really attractive for a lot of our clients. In that instance, they're very comfortable buying that type of asset.

It's just a slight change in mentality in terms of what they were originally looking at. I think you're right. It just does look like that is probably the one option.

I would just say, like you've done, is you've gone and, what, done 300, 400 builders, whatever. Like, you've almost got to be like, okay, let's not avoid those because, you know, there's a townhouse there.

I know pretty well as soon as they can make money on this, that house is knocked down, that house is knocked down, that house is knocked down. And then this street just becomes full of townhouses. Then there's, like, a quality of the build, like...

you can build a townhouse 10 different ways or a hundred different ways. And the quality is going to vary and the builder quality is going to be hugely different. And the size of the townhouse, does it suit families? Does it suit just singles, couples?

You know, I mean, there's, it's kind of like if you overlaid a really high quality build, it's going to age well in a good street. That's not going to get full townhouses that suits a more of an aspirational ex home house by who can't afford a house, but want something ready built. Yeah.

potentially you can get yourself it's just i just don't know whether they exist on scale and also if they were really good wouldn't they have already been not that's what i said there's a finite supply of that in the right locations but what you just referenced there is what people were already buying now chris three years five years seven years older like they were buying those same houses they didn't know the quality of the builder they're not even checking that you know who built this property five years ago or seven years ago

So they're buying those average quality homes as it is today. And they're buying them at mass. Well, they have been for years in these master plan communities. So I don't know that there's been a huge amount of checks there previously.

All of a sudden, people are going to start demanding they get done now. They should if they're buying here. But I don't think that was happening previously.

No. All right. Well, this has been a bit of a robust conversation. It's a lot more robust than the first one that we had that didn't get recorded properly when there was a glitch. There's a lot more to talk about and it's probably a lot more relevant too, actually.

So it's probably a good thing, really. Scott, just to take us out, we've been talking about a lot of dumbos, but have you got a specific property dumbo for us, a story that we can learn a lesson from?

I always love a personal story, but I don't know if you're going to give us one. Oh, God, you put me on the spot.

I don't have one. I think I've used one.

How could you be put on the spot? You know we always ask you for a Dumbo.

I don't have a Dumbo today.

Really?

It's getting late today. Yeah.

What about the, I mean, what about the whole, I mean, the buyer's agency. I mean, is that really about the success of the individual product? That's their marketing, right? I've got five properties by 25. I've got 60 properties. Do you even believe these numbers? No.

Do you believe that they have what they... Because they haven't really gone on reference. Some of these portfolios are going ridiculous.

There is no transparency. No one's ever called to account on this stuff. We're going 10, 20, 40, 50, 60, 100 mil.

I don't know.

I don't know how in the world, when I look at a borrowing capacity point of view and a lending point of view, I just don't know how they're even able to resurface this.

The only thing that can get you there from a serviceability is just have these heaving cash flow businesses, which is why it's going to remain transactional. Because that's the only thing that keeps the wheel turning is to make sure you've got massive incoming fees. Well, that's true. Because they can't grow that fast.

They're not like outperforming you, me, and Veronica in terms of stock picking. They're getting all these amazing wins that none of us can see purely because they've got a business that shits cash.

Yeah, I mean, that's right.

But then even still, like there's – even when you do those numbers, right, and you say, okay, well, your business is making four mil, like then you've got $20 million of debt and, you know, then still you still haven't got that – your portfolio hasn't grown from there to there. I just –

And then the clients will say, you're so successful because you've got this huge portfolio. Why have you got such a portfolio? Oh, because you're running a buyer's agency, not because the properties are going up.

And that's, I feel like it's just, I don't know, why do we, as consumers, why do we fall for that? Like, I don't know. Like, I don't know. It's hard to-

Because we believe there's a secret sauce. Everyone really wants a silver bullet, that's why. And it's so much easier to think, I'm going to go down that path because surely, you know, it's got to be easier than doing the work, right? And so we all fall for it in all walks of life.

Thanks, Scott. Have I told you about the Dumbo that employed people to negotiate for owner-occupiers instead of investors? Did I tell you that one?

No.

Want me to finish on that?

Yep, do it, give it.

My jumbo of the week. So I had another buyer's agent employ me to negotiate for owner occupiers. And I said, why do you only need help with owner occupiers? Because you buy for owner occupiers and investors. And she said, well, investors are easy.

You just have to tell them the numbers and it stacks up and then they just pay that number. Okay, I get it. Okay, I have a clue how to negotiate and I'm out at that point.

She's not dumb, her clients are. But anyway, God.

Thanks, Scott.

Scott, on that note, thank you.

Talk to you soon, mate. I appreciate it. Bye. All right. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au, or you can email us directly at questions at theelephantintheroom.

And hear what our amazing guests have to say.