SONNY BILL'S HOUSE

SONNY BILL'S HOUSE
Three lessons for all property players.

By Neil Jenman.

Former rugby league player, Sonny Bill Williams, sold his Sydney home last weekend.

And he didn't do too well.

Back in October 2005, Sonny Bill bought the home for $1,275,000. He sold it on Saturday (September 6) for $1,215,000. That looks like a loss of $60,000.

But here comes Sonny Bill Williams' first lesson for all property players.

When you buy real estate and sell it again, the "costs" are a lot more than just the difference between your buying price and your selling price.

This is one of the biggest troubles in the property market - for homesellers, for homebuyers and for property investors. The reported figures do not tell the full story. Sometimes, the figures don't even tell half the story.

Property is an expensive game.

Watch carefully and see what happened to Sonny Bill.

When he bought the house for $1.275 million, he would also have paid stamp duty of $55,619 and legal fees of at least $2,000.

When he sold the house for $1.215 million, he would have paid around $25,000 commission plus around $10,000 in advertising and auction expenses.

Therefore, Sonny Bill's total expenses - to buy and sell - were, at least, $92,619. Add this figure to his "reported loss" of $60,000 and you can see that he had a total loss of at least $150,000.

Remember, Sonny Bill Williams is just one property player. There are thousands of other players who, between them, spend tens of millions of dollars on "unreported expenses".

These expenses are NOT recorded among "official" real estate statistics. Mum and dad buy a house for $500,000 and sell it for $600,000. It seems like they make a profit of $100,000. No, they don't. The costs of buying and selling are not recorded in the real estate statistics.

So, in summary, the first lesson we can learn from Sonny Bill Williams is that property is a much more expensive game than we are ever told - before we play the game.

The second lesson that Sonny Bill can teach us is even more important. And if you think that a lot of people miss the first lesson, well, more people miss this next lesson.

If the first lesson was about "unreported" or "unrecorded" losses, this second lesson is about a bigger loss. It's a 'Hidden Loss' and it happens to thousands of auction sellers every year.

It's the hidden loss of selling at auction. And it hit Sonny Bill Williams big time.

You see, if you (or Sonny Bill or anyone) gets talked into selling by auction, you are not told that auctions get lower prices.

On the contrary, many agents will tell you the great real estate lie - that auction is the best way to get the best price. That's impossible.

You see, at auction, the person who buys the property seldom pays their highest price. They don't have to pay their highest price. They only have to pay a little bit more than the person who offered the second highest price.

This is a huge point that most auction sellers, including Sonny Bill Williams, probably never figure out.

In Sonny Bill's case, the buyers, a lovely-looking couple, Michelle and Gary, were reportedly prepared to pay a lot more than the $1.215 million they paid.

They told The Sunday Telegraph - http://www.news.com.au/dailytelegraph/story/0,22049,24307490-5013110,00.html - that they were "willing to pay much more". But they didn't have to pay more. Because the second highest bidder stopped bidding and so Michelle and Gary made one more bid - which was well below their maximum - and they bought Sonny Bill's home.

How much more would they have paid?

Well, only Michelle and Gary know that. Perhaps another hundred thousand, at least; maybe two hundred thousand. It doesn't matter now. It's too late. The property has been sold and Michelle and Gary have grabbed themselves a bargain. They are delighted.

So, too, is Sonny Bill Williams. His girlfriend said he is "thrilled with the price".

In total, with the unreported costs of the expenses plus the hidden cost of selling by auction, Sonny Bill Williams must have lost at least $250,000.

And yet he's thrilled?! It doesn't make sense.

Well, yes, it does. There's more to the Sonny Bill story.

As all rugby fans know, Sonny Bill Williams has just got himself a new job. He used to play Rugby League for the Canterbury Bulldogs where he was paid $500,000 a year. He now plays Rugby Union for a French club where he reportedly gets over $1 million a year.

So, here's the third lesson that Sonny Bill Williams can teach all property sellers. If you have just got a multi million dollar pay rise then, you too, can afford to lose money and sell at auction.

If not, if you are just a normal mortal who wants the best price for your home, then, always remember four words when it comes to auctions.

Auctions get lower prices.

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This article is published with the kind permission of Neil Jenman.

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