Episode 164 | Australia’s underinsurance epidemic: 83% underinsured!? | Marty Sadlier, MCG Quantity Surveyors

How Australians are losing big, even after they’ve lost it all.
Marty Sadlier has over 19 years experience in the building and construction industry, he is the co-founder of MCG Quantity Surveyors which is recognised as Australia’s fastest growing quantity surveying firm; working with big names in business like McDonalds, CBA and Westpac. In this episode Marty breaks the news to Australians about the widespread building defects, the unbelievable underinsurance across Australia and what property investors should be doing to safeguard their biggest asset.
Here’s what we covered:

• How underinsured are Australians?

• How to work out how much you should insure your house for?

• Are online value calculators accurate?

• How does extra costs such as demolish get lost in property owners calculations?

• Can you insure depreciating buildings?

• What is the difference between a valuer and a quantity surveyor?

• Do apartment 5 year valuations increase their premiums?

• How many buildings have flammable cladding?

• Are things improving around building defects or is it getting worse?

RELEVANT EPISODES:
Episode 138 | Simon Kuestenmacher
Episode 121 | Bart Mead
Episode 113 | Dr. Nicole Johnston

GUEST LINKS:
https://www.mcgqs.com.au/elephant/
Fire Cladding Blog
Common building defects Blog
Final NSW Government Report into Building Standards and Quality Blog

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in February 2021.

Veronica Morgan:

How do you know if your house is insured for the right amount and say you haven't burnt down as hundreds of houses actually deed in 2020, would your insurance cover be enough to replace it? He's a bigger question. What is the extent of under-insurance in Australia? We have the answer today and it's going to shock you.

Veronica Morgan:

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 co-host of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates:

And I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage in the services of a professional.

Veronica Morgan:

Don't forget that you can access the transcript for this episode on the website, as well as download our free fall forecast report, which experts can you trust to get it right? The elephant in the room.com did I, you Today we're tackling a particularly big elephant. I know from personal experience how hard it is to arrive at the appropriate amount to ensure your house for you can ask the insurance company, but you'll get nowhere as they disclaim their way out of giving you advice. Now, at least I've got somewhat of an idea of bill costs because I've renovated, but I can still feel the pull to under-insured in order to keep the premium down the bushfires of the past year, I've put insurance into the spotlight and we've been keen to discuss this topic for some time. And today we're joined by an expert in what it costs to build a building. He also happens to know a bit about flammable cladding and apartment bill quality. So we're in for an interesting conversation. Marty Sadlier is the co-founder and director of mcg quantity surveyors, and he started out life as a chippy. That's a carpenter before actually becoming a quantity surveyor. And we're going to explain what exactly a quantity surveyor is coming up. Marty is also a property investor himself, and he does have a passion ensuring that developers and property owners and investors alike do gain a comprehensive understanding of construction costs, all of them and potential risks. Thanks for joining us today, Marty, thanks so much for having me

Chris Bates:

Marty. So good to have you on in a property Sense exactly how underinsured is Australia.

Marty Sadlier:

That's true. Last GE is that it currently sits at 83 of Australians Are underinsured

Veronica Morgan:

Gong, what?

Marty Sadlier:

Yeah, yeah, it's, it'd be it. And it's been that way for a long time. You know, in 2004 the Australian securities and investment commission did their first survey on the back of the act bushfires. And they found that 81% of people were under-insured and the number hasn't changed right through to 2020 being the last research paper on it.

Veronica Morgan:

And so I guess, you know, when they're actually researching actually people who have actually climbed on their insurance, then that's pretty real data, isn't it? As opposed to, you know, the bowfins getting in and just, just applying some mathematics 18 months in actually lost their houses and didn't have enough money.

Marty Sadlier:

Yep. Yeah, that's right. And, and I think the, the real alarm bells for me is that I, that number is massive. Like if you're comparing that to anything else in society, if something was at 83%, it's well past epidemic pandemic you know, everything's sort of at a loss now, you know, there was an attitude of if it's not broke,

Veronica Morgan:

Sorry on that, we'd actually have herd immunity. If we had 81% of people, correct. Significant

Marty Sadlier:

It's staggering that, you know, the crazy number I haven't even actually said yet. And that is that the abs last year, he came out on the back of census and different surveys. That 1.8 million Australians don't have house or contents insurance at all, as 23% of Australian homes, don't have a property insurance at all. Now that doesn't exclude mortgages. And I kind of think, hang on a minute to have a mortgage that you have to have insurance. So who are not dotting I's and crossing T's here.

Chris Bates:

Very good point, actually. So when we do a loan, a client needs to provide a certificate of currency for that loan to settle, but it's not something that's provided on an annual basis. It's not. So even, and even if it's the certificate of currency, if you can't set that policy after a week, the bank doesn't really check on you. So it's not like a green slip with a car, you can't register your car unless you got your green slip. And yeah, it's, it is a huge problem where people can say, Oh, times are a bit tough. Do we really need it to be expensive where we are, cause a flood or fire or something, let's just get rid of that. And hopefully no one else. Yeah.

Marty Sadlier:

And you know, there's a, a good part of like with data in regards to who makes up that sort of percentage of people that don't have any insurance at all. And the abs go into that in a lot more detail and it's things like you know, non-insurance is closely correlated to demographic variables, like the age of the person, their location, their education, their country birth. So they sort of found that in their report that non-insurance trends. And it tends to be associated with those that are either at the earliest stages of their lives, living in cities or particular cities born in non Western countries with lower levels of education or without full-time work, which kind of supports I can't afford it. So I won't do it.

Veronica Morgan:

I'm surprised I can afford a house if they're in that, in that situation, particularly non full-time work, it's rather alarming. They certainly can't afford to have it burned down.

Marty Sadlier:

Well, and I guess that that's kind of the point for me that it's potentially the people that are the most vulnerable that don't have it.

Veronica Morgan:

And of course insurance, you know, it's, it's not food on the table, is it, it's the bill that you sort of put your head in the sand and hope we never need to, to call on that. That is really a, it's a very interesting point. And also the very interesting point about the obligation of, of a mortgage or I always get to confuse the person paying the mortgage or the mortgage or the mortgage, or

Marty Sadlier:

The mortgagee's the person name.

Veronica Morgan:

So the obligation on the mortgagee to actually ensure the property and you sign a contract at the beginning when you take out that mortgage I'm presuming it's in there somewhere is at Christa, you know, the obligation to actually ensure the property. And the, and yet they're not doing it. The pop potentially don't even realize that they have to do it

Marty Sadlier:

Well, an 83% under insurance. Now the definition of under-insurance is that our property is insured for 90% or less of its value. If 83% of Australians are underinsured and 23% of Australians don't have any insurance at all, there's someone not taking a duty of care box. In actual fact, there are multiple people not taking a duty of care box, and I'm not talking about the end user. I'm talking about banks are making sure that that's in play you know, an insurance broker, making sure that you know, that, I mean, insurance broker will say to me, Oh, that's not their problem. It's there. They've got to get the insurance. Well, who's getting the phone call at the end. Who's taking money for a service.

Veronica Morgan:

Hmm. Although how many insured, I mean, that might be a block of apartments would have an insurance broker, most individual house owners don't have a broker. And as I said in the intro, I mean, I know myself and I get asked the question by my clients, how, or how do we know what we should be insuring the property for now? Okay. So most people have got no idea what it will cost to replace their house. And, you know, as I said, I just recently did a complete renovation. So I've got a very good idea on what it will cost, but the actual money that I paid the builder, wasn't it, there was more than that. There was all the consultancy fees to get to that point council fees. You know, there's, there's a bunch of incidentals that landscaping, if it wasn't covered. You know, so how, how do most people work out? How they shouldn't insure their house

Marty Sadlier:

Form look quite cynically, I guess people take advice off someone. They used to know that it is to catch up with a guy down the pub who knew someone who was a builder type scenario. And that's kind of sad that in most cases, the, a person's home will be their biggest asset and their research and priority to go into looking at what their potential risk is. Seems like people spend more time researching the cost of a second TV for spending and you know, the priority that we get around that isn't there. And I guess that's the insurance world. They have a bad name, we're paying, it's not going to happen to me like the whole, you know illness type scenario. And it, it's very scary that people just take the advice of, of someone that will they do a quick search or read a paper and go, Oh, I can build a new project home for X amount. That'll do. But this is very much missing from that. There's just so much missing from that.

Chris Bates:

So I think a lot of people come up with the Mt for what they need to ensure buys what the bank obligates them to insure. So, you know, if your example, you buy a place at say 1.5 million, they may value the land at say 900 and say that the house is, or the building's about 600. So, you know, but that, that valuation is Tom, pretty quick. It's done by being 20, 20 or 30 minutes. If, if that going to someone's house, they don't hang out hours and hours really sort of doing a cost analysis of what it would be to replace today. And so people were just taking that number and saying, well, that'll do, but you know, obviously that's not good enough.

Marty Sadlier:

No, it's not. And so if we just touch on that point, if we're going to go down the road of a value and our value, as I use values all the time, they was for, for, in my opinion, for their part that they play cannot be replaced, but are we stepping or are they stepping out of their lane in that regard? I mean, you're, you're getting a value of come around and do a property valuation. They're not looking at it from a cost to build they're looking at it from a sales valuation point of view. So we know that value was, do replacement cost estimates on properties, but they'll have a disclaimer in their report saying we can't stand by this, use the services of a quantity surveyor, but they're still doing that sort of report. Now they're looking at it applying a cost per square meter to a generic house.

Marty Sadlier:

And you're there for 20 minutes. I mean, I don't understand how, you know, people are really happy with that from from that offering that it's still disclaim it out and it's just applying a cost. I mean, you, you need to look at various things, you know, the location of a property in regards to, is there going to be transport issues? We're gonna be able to get materials in here. You know, it's so many parameters that need to be applied. But it's, it's really one of the main reasons we're looking at underinsurance that it, Oh, we've got something. Yeah.

Veronica Morgan:

So you should be getting more though than less than obviously it's a cost, but you know, building process changed dramatically.

Marty Sadlier:

Yeah, they do. I mean, we've seen that in, in recent previous here, sorry, with, you know, steel prices, exponentially change in Australia, virtually overnight sort of went up hundreds of percent Dera. And then, you know, suddenly steel was in coming in from India or there just changes in world markets. You'll see certain materials change and with innovation, you know, like, so you'll start to see new building products come onto the market. But then for a little while, you know, you might pay for that because aid is not much competition from an installer's point of view. People need to learn the product. So there are different things why things change. And you know, there are certain building materials you cannot use anymore now as best as one of them. So there are certain things that need to be applied when you're looking at at that now, and if you're looking at it in replacement cost estimate value of a warehouse that has an asbestos roof. Well, if that has fire damage, it's not just the replacement cost of the asbestos roof. I mean, that whole site now becomes contaminated. So if you're looking at a replacement cost, it's not just look up the paper and get an idea of what it would, Oh, I can get a warehouse built for this.

Veronica Morgan:

Right. So, you know, the insurance companies, you know, they, they are very much, well, we can advise you on this, you know, you have to make your own decision and then they'll give you various tools like online calculators and stuff, and just sort of, Oh, I've got a brick, brick house, tar roof, you know, I mean new windows or whatever. But it's all, you know, I wonder about that because, you know, you can plug it all sorts of stuff into that, and God knows what it spits out and let's face. I wouldn't want to trust my rebuilt to that. Are they helpful or are they just sort of a bit of a bypass?

Marty Sadlier:

Hi, look, there, there are tool. And they can be give you a bit of a guide, but I wouldn't insure my house off it by any means. And I've done analysis of calculators in, in 2005 at CIC did a a review of five construction cost calculators. I haven't seen an update on that. So I did my own last year and, you know, the percentages, you know, from the large like, well here, here's the big problem with calculators your in a many cases, trying to fit a square peg into a round hole because, and I say to people, look at it open, you know, click on one and do your own research, you know, go home and try and fit your own house into a cost calculator. You might only have three options to drop down from, like, it might be a single story house, a double story house might only have, you know, you might have a brick one, you could try and fit your property into that.

Marty Sadlier:

And let's be honest with architecturally designed homes and they're all different. So to try and even allocate the right answer to a couple of the parameters you need to select from is kind of impossible. So you know, the calculators are inaccurate and at the bottom of the calculator, before you click on it, whether you go on to all the different insurance companies or banks, websites, there is a disclaimer that, you know, do not, you know, you can't sort of take this to the bank, so to speak, you need to do your own research and get it independently assessed.

Chris Bates:

It's one of the main things. Do you think that we need to be insured for though? Like obviously fire's one, but what are some of the things that people aren't thinking about that can completely destroy their home and lady huge liability at the end of it. And that's the thing, right? If you have a house say worth 1.5, you've got a mortgage on it at 1.3 and it does burn down and you haven't got insurance. What have you left with the land cost if that, you know, as to what to get rid of the house. And where does that, where does that loss come from? Right? You might have lamb on, and we were five, 600,000, then you've now owe 700 grand to the bank. Then you have to go bankrupt, et cetera. So what are the, what are the main things people are forgetting when important?

Marty Sadlier:

So insurance, yeah, it looks so the big things for me are that as a, as know your climate. So if you're in the tropical North, you're going to be having a heavy rainfall events psych clones, and the like, and, you know on the coastal areas, we get storms, we get high wind and flooding type scenarios. And that's not to say that at the central West or the middle of Australia and the floods, but certainly the big things for me would be, we have big fire seasons, which we've just gone through in the 1920 Christmas. And then we'd get big flooding events. We're in a London year at the moment. You know, the rainfall we've seen damage already. And then we have our pioneer is where we have snow falls,

Veronica Morgan:

But then you've also got, you could have electrical fault.

Marty Sadlier:

Yeah. There are plenty of places, a dodgy air conditioner or a dodgy on, or toaster have taken a house out.

Veronica Morgan:

So, okay. So what's the answer. So if an individual wants to insure their home, doesn't want to under insure, how does, how do they know that? No, whether they're under insured or not, and B you know, the premiums, Oh, God, I come with the other, my premium is like $3,000 or something. I mean, you know, it's like a lot of money. And so then do I then go and pay a quantity, surveyor, what are you touch or something has it, how does it work?

Marty Sadlier:

$600 plus GST. And we go out to the site and we'll do an assessment when we get the plans and we'll go through the whole kitten caboodle on that. And that's

Veronica Morgan:

Sort of joking about that to be quite Frank. I didn't actually know what that is.

Marty Sadlier:

Yeah. Well, because I guess the, the thing for us is that there is more than just the construction value that you need to sort of be insured for that that's only really part of the puzzle. So when you're looking at property insurance, you also need to allow for demolition. So if you buy a block of land and build a house on it and you go, okay, I built that house for $400,000. So that's all I need to insure my property for. Well, no, because if your property burns down, you now need to get rid of all that debris that wasn't there before, when it was a Greenfield site. So you're already underinsured. The other thing is that you need to allow for all of the consultants and all of the different soft costs that come along with that, with going back through councils and getting development, approvals, and planning, approvals, and the engineering that you may not have paid.

Marty Sadlier:

If you did it as a project home, the first time there might've been some sort of caution there. The other side of that too, is that you also have to allow for cost escalations. So if you build a house today and it burns down tomorrow, you then have to allow for what other construction materials and labor going to cost in the future, because we're not cooking our fingers in a house or Rex itself tomorrow. You know, it may be that we have to go three months through planning approval. Another couple of months in getting drawn up with the architects and the like, and then we might have to go and wait two or three months to get a builder from a tender. And then it might be a nine month build. So some that were at 18 months before we're even stepping foot back in it.

Marty Sadlier:

And that's not E I haven't even in any of this discussion, even noted the time it takes for an insurance company to come out and do an assessment on that. I mean, there are people still living in camp of trailers and caravans and tents from the fires of last Christmas a year later, because they still aren't able to get a full assessment on their property. So if we're now adding 30 months before you're back into your home, look at what is the replace, what do I need to insure my property for? I need to be looking at when, if it did burn down, when could I feasibly get back in? What would it cost van? Because that's what you're paying the builder. Not now,

Chris Bates:

Is there any, I don't actually the answer to this. Is there any limits on how much you can insure your home for, let's say you are being super conservative and you, you know, you say it's worth 600, but you want to insure it for a million we'll ensure it's still allow you to sort of go that much above what it potentially could.

Marty Sadlier:

I mean, they would, they would, they would probably be wanting to ask the question why, and then hopefully they would be saying, you need to get it independently done because they want to cover that risk because I'm going to burn my house down and I want to get a better one. Yeah. But I guess that's the point, right? That you'd need to speak to your insurer and get an understanding of, well, if my is worth a thousand, a million dollars to replace, and the premium I pay on that is 3000 to add a hundred or $200,000 buffer. It may only change the premium by 50, $60, and then you'd need to run that scenario.

Chris Bates:

Yeah, that's right. Is that actually 300,000, you know, can make a huge difference.

Marty Sadlier:

Well, yeah, as we use that example where if your property is worth a million dollars and you only insure it for 80% of its value, so you only insure it for 800,000 and then, then it burns down. The insurance company will say, hang on, you're only insured. You are only prepared to cover the loss of 80%. So we're only going to pay you 80% of what you were prepared to insure it for. So you're now only going to get paid 80% of the 800,000. So now you're already a few hundred thousand short of what you're going to get. What was the net benefit in that if you had just been paying an extra 20 bucks on your premium or an extra 50 bucks for a hundred dollars on your premium per year, as a risk factor that you might've been able to in that instance, get another 20 years of payments and adjust.

Chris Bates:

Are you seriously saying though that if, if the, if the insurance company says, well, actually you've deliberately underinsured, so we're going to deliberately undercover you. Yeah.

Marty Sadlier:

There are a couple of different scenarios. There, there are two main insurance policies in Australia, which is the total replacement value. And the other policy is usually the sums insured. So the sums insured is where you agree on a value. So you cover that value. The total replacement is that they will cover the, whatever the total replacement cost is on a property. However, that is based on them building something similar to what you had. You don't have the input on that. So if you had a four bedroom brick home before, they're just going to build a four bedroom brick home, they're not necessarily building it to what you want, how you'd, how you'd need it, what it actually was before. They're just going to give you just the carpet standard, build it. Like they don't have to worry about doing the exact light for like,

Chris Bates:

We've got a huge growing portion of multi dwellings, townhouses, apartments, et cetera. And, you know, less than they detached homes as a percentage every year, are these issues just as prevalent in that space? You know, when you buy into a strata building, you know, you check that, you know, the Australia's got the insurance, but not many people would go and say, is that enough for the building? Are these problems even worse or slightly better?

Marty Sadlier:

Yeah. there would be an argument. I haven't got the exact data on that, but the, the argument that we hear back from brokers is that it's potentially worse because what you have in that scenario, yes, it's mandated. They need to get it done. So that's great that it's mandatory that they have to have it, but the issue you have there is that you, you know, say a unit book of 50 people also then have 50 people's opinions on what they feel it should be insured for. So yes, you get an independent person, but that then needs to be voted at an AGM. People need to agree on it. You then have a mix of owner-occupiers and investors who, people who want to spend money on something and they don't. So, you know, there, there is a real issue with that. And you know, we've only seen in recent years, Opal tower and mascot tower, and the defects that come in, these buildings that, you know, you need, it's not just in that event going to be a storm coverage, you know, you could be looking at defects or whatever it might be in a building or fire systems, failing or waterproofing failing that you'd be calling on your insurance other than just, you know, for those storm events on a house.

Veronica Morgan:

So you're saying that mascot towers, and I'm presuming you don't, you're not privy to actually the terms that they're insurance policy, but are you saying that potentially a defect like that that occurred 12 years after the construction was done could be covered by insurance?

Marty Sadlier:

Well, there's a, that that's, that's the argument that's going on at the moment or whether the insurance company is going to cover it because they would be fighting that it may have been malpractice by someone whether it be engineering or building those people don't exist anymore. So there are, there are plenty of horror stories of, you know, if we're going to beat up on insurance today that you know, if they can get out of it, they will, which probably a little bit unfair in that instance. But, you know, if they, if they don't have to pay out and be a liable to replace a whole building, because someone has done something, you know, at fault, why wouldn't you be recording that? But the problem would be that is that party, you know, is that beneficial to the owner because that party would, could just declare bankruptcy and you're still at a loss of not having anything to replace.

Veronica Morgan:

Well, that's the thing, isn't it look, I mean, back to how apartment buildings and strata buildings ensure, you know, I read so many strata reports and basically one of the things I look at is, okay, is insurance current and, and what are they, what's the building you're short for? When's the most recent valuation and, you know, have they increased it since then? How often are they get it done, et cetera, et cetera. And it you're right. It AGM is they vote, whether they're going to get another valuation or not. And, and even then the value is doing it, not according to the surveyor. And, and then, you know, if they increase it, it's a bit, you know, liquor finger and stick in the air and go on and knows at CPI, whatever, what do we put it up by it? You know, it's all very sort of arbitrary and very much hopeful, you know? And and yeah, and even when we're looking at them, I think, well, we just got to hope the value and knew what they were doing.

Marty Sadlier:

Yeah, that's right. And you, you're putting your trust in other people in that instance. And that's not necessarily always the best way to do it. I did a webinar recently with about 30 insurance brokers and I asked them when it comes to property insurance who do you owner comes to you and says, I've got a property I want to make sure it's insured properly. What do you do? And we found there were five main buckets that our insurance brokers fell into and they sort of said user values, a quantity surveyor using online calculator, just to add three or 5% CPI to last year's cover or not my problem. Based on, you know, you've got to come up with that yourself. And

Veronica Morgan:

As a broker, like if you can't turn to your broker to get some more valuable information, there's something seriously, right?

Marty Sadlier:

Yeah, that's right. And, you know, the, the percentage in that didn't really fill you with much confidence, you know, it was, Oh, it's up to them or you a good push, or that was just adding three or 5% to the previous sort of value. But I, I had an instance where Phil, a good friend of mine, valuer rang me the other day and left a voicemail on my phone. And I had to ring him back and I've kept it because it just tickles my fancy it, he said I'm just doing a report for someone on a it was a big unit building and thereafter a replacement cost. Really not sure what I should be putting on that. Can you give me a bit of an idea of a cost per square meter so I can wrap it up.

Veronica Morgan:

Now

Marty Sadlier:

That to me sort of says where we're at as an industry and why we're 83% under insurance.

Chris Bates:

And I, I personally, I can't blame the value here too much because the reality is what they're getting paid for by the bank and the competition that they have to hence why they have to charge so little is only allowing them to have so much time. And they've also got another appointment in 25 minutes that they need to get to to run a profitable business. And so the value unfortunately, is, is he's got his hands tied because, you know, they're only, you know, they can't run a profit a business unless they do keep doing it faster.

Marty Sadlier:

It comes back to our first point before that there's someone here that hasn't ticked the duty of care. If a bank is driving someone to price down so much, that that's what you're now getting. Where's the duty of care. So is the second part of that argument then from a finances point of view, that as long as the insurance cover covers what the payout is, that we're happy. So does that then mean if I buy a million dollar house, pay it down for 10 years, and it's now only worth 500 that I have to pay the bank out. If I provide them with an insurance policy that covers 500, which is inadequately insured, that they're happy because if it burns down their components covered point, do we, how are we really trying to fix under if we're still at 83%, there must be scenarios like this happening.

Veronica Morgan:

I'm sure there are, if you like what you're hearing here, please share this episode with others, you feel would benefit. And while you're at it, why not leave us an iTunes review five stars, please. Every review helps make it easier for other people to find us and hear what our amazing guests have to say. We love hearing your questions and we're planning more listener Q and a episodes. Please send your questions in. You can send them via the website, which is the elephant in the room.com today. You or directly via email two questions@theelephantintheroom.com. Did I, you, as we talking in all reality, this is, this is not just in this area of sort of real estate or property. It's in so many different aspects of buying property, owning property. It is all about this. I don't get paid enough to properly advise you. So, and also I'm liable to get sued. So I won't advise you I'll give you some useless little tidbit of information or direction, and then disclaim my way out of it that go, it's all on you. You know, this is in DEMEC and yet property is our single biggest asset class in this country. I'm sitting here, just scratching my head. And I mean, look, there's a bit of a 10. Yeah,

Marty Sadlier:

What's the revenue property, property markets, 6.7,

Veronica Morgan:

It was 7 trillion. Then it went back down a bit. Then it went up again. It's probably more now because seriously prices have gone through the roof. Again, low courtesy,

Marty Sadlier:

83% of a 7 trillion market is underinsured. And it's not just you know, your building insurance, right? It's also life insurance and, or other insurances, but I guess it's you know, the government's always, I guess not wanting to regulate. But you know, should we just be putting this back onto the individual and just saying, look, if you should be just doing what you need to do, cause you shouldn't rely on the government to take control of this issue. I think that you've hit the nail on the head from my point of view. And to give you an example, if, if you want to fix the solar industry in Australia and you want to make sure that, you know, we're, we're all doing a bit, then you make it mandatory that every new house has to have a solar hot water system. You just make it mandatory. And that takes the competition out of it, right? Because you're not trying to get someone to get a Lego or someone. So, you know, if you want to fix insurance and you just make it absolutely mandatory, you have to have it independently assessed.

Veronica Morgan:

Hmm. But then are there enough independent assessors out there to do the job? Right?

Marty Sadlier:

Does, if you build it, they will come. I guess, you know what I mean?

Veronica Morgan:

It flows in and this is it complicated because of course it flows into the next thing, which is basically, you know, you've got under-qualified people then assessing and giving advice. You know what I mean? So it's, it's complicated. Yes

Marty Sadlier:

It is. And that's when you come back to what you're saying before that, then you have competition where you have a pop-up that is driving the price down, or suddenly, you know, it's going to bring those different, you know, sort of people out of the woodwork. You know, you see that with the government of the day said, let's do the whole insurance roof insurance scheme. And suddenly you had people jumping up that weren't qualified going in and getting killed. So it definitely happens when you do big roll outs like that. But yeah, crazy industries, I just jump in. Yeah. But I just don't know where the people have really rationally sat down sort of thought, you know, everyone likes to tap on the shoulder, but do I really want to get a tap on the shoulder from insurance company while I'm still watching the smoke rise off my property saying by the way, you're gonna have to chip into a a hundred year short.

Chris Bates:

It's a really good point because we we refer our clients to a general insurance broker for, for home and contents insurance. And they go to the market and figure out who they use. I've never actually put two and two together, which is definitely a big learning for me here is to really check how they're helping clients figure out what to insure for. And if they even offer to our clients to get it independently assessed with a surveyor. That's how, I mean, one of my takeaways is going to be encouraged clients to pay $600, even if it's, you know, that they think that it's around the right Mark, what $600 when you could be talking hundreds of hundreds of thousands of dollars that, you know, just to, you know, they can basically destroy their financial future. So I think that's the big takeaway on this for our listeners. It, you know, pay you $600 and not just through Marty's business, but any sort of surveys out there invest,

Marty Sadlier:

Invest in your investment.

Chris Bates:

Yeah, exactly. I mean, on a different tangent, you know, putting that side of the conversation to bed, you know, obviously there's been lots of issues pop up with buildings. You mentioned Opal tower mascot before, but now there's also been flammable cladding issues and buildings light up in Melbourne, for example. Yeah. Probably FECA these problems from your understanding and sort of how's what has the most of the solutions, I guess?

Marty Sadlier:

Yeah. Well, it comes back to our discussion before about values, right? Everything is about competition. So if someone can build something cheaper or quicker, they're going to find a way to leverage over their competition and be able to put their point of difference for when they're going for a tender. So they've got to set themselves apart somewhere. So we're always seeing that with new building materials. And I guess that's where we, you know, we've got to with the aluminum composite cladding that someone was building in previous building materials that were a bit slower, a bit more heavier and cumbersome that now suddenly, you know, they could use a quicker product. It looked just as good and it met the requirements. So you suddenly now see a different product, hit the market and then like anything people need to catch up and compete. So suddenly lot of buildings were being built with it. And it kind of got away from people that, you know, was it really the right product? Was it fit for purpose and apparently, and absolutely we've been found wanting in it that it isn't a superior product and we've got big flammable issues on buildings to be,

Chris Bates:

People knew about this when they were putting these on the buildings. As a lot of oil companies are known issues smoking, you know, goes on like there's a always, sometimes people know about the truth before they it comes out into the mainstream. So do you think that the building industry was aware of from book clotting issues as they were putting it on buildings?

Marty Sadlier:

Look, I think there's an argument to say that they, they must have, or because you would have to have had the program had to have been assessed to meet the building code of Australia. And I just don't think that all the checks and balances were done and I think people were putting this up, knowing that it wasn't suitable. I mean, there's been analysis from our MIT university that developed a combustibility ratio on the cladding and compared it to other products. And, you know, when you talk about the polyurethane sandwich panel, which has an ELA, minium phaser, a polyurethane sandwiched in the middle of another re Ella minium panel. So that, that, that's what makes up the sandwich panel. You know, when they, when they did the testing on that from the combustibility ratio they compared that to say timber cladding, which had a combustibility ratio of three.

Marty Sadlier:

Now that ratio is how they work out. You know, it's actually a ratio calculator by the amount of heat released from the burning material by the amount needed to ignite something. So when they looked at timber cladding, it had a ratio of three when they assessed the sandwich panel, it was 25. Wow. It was just basically meant that when it gets hot, so why it spread so dramatically and so quickly, which we saw in London in the Grenfell tower is that when you have say timber on a building, it tends to burn in the direction of wind or a direction up. Whereas with the cladding it melts. So it drips down. And because it's at a combustibility ratio of 25 times, so it heats up 25 times greater than it needs to ignite itself, hot, dripping down ignites. So it went up with wind in the cavity, it lights below because it drips down and it goes sideways because the ELA, minium front and back heat up to 25 times what it takes to ignite the middle. So it just ignites

Chris Bates:

A little bomb pause, really, when you think about it like that all over the city that just widening to sort of get lit up, but, you know, we're all just crossing our fingers and we'll be getting done. Have really,

Marty Sadlier:

The Victorian government sort of was looking at a 600 million package and they were saying there was 500 buildings that needed, that were going to be replacing within a four month period, you know, well that the 5th of July of that year, they had already the task force had went out to audit. These buildings had already had a list of, you know, 2000, 200 odd buildings and the government was going to be replacing 500 of them. So, and of that 2,200 buildings that had the flammable cladding in it nearly 900, it was about 860 odd of those buildings were actually classified at moderate to high risk that this was going to be the mill in the, you know, the billions to 600 million.

Chris Bates:

Is there still materials that PIP builders are using today that might not be using flammable clubbing or [inaudible] or other things, but, you know, from your understanding, is there sort of materials that, you know, builders they're still using today, maybe it's wiring, maybe it's I know

Marty Sadlier:

It definitely isn't, it it's happening all the time. So there are different papers to come out each month or each year that sort of outline, you know, issues. Last year, there was electrical wiring where there was a lot of homes had to be rewired because they were found the installation on the wiring wasn't I think it was like important. And that would have been a cost cutting exercise. You know, I can buy my wiring from Australia that meets all the requirements and is for all intensive purposes, pretty Bulletproof. And that is $5 a linear manner. Well, no, no, no. I'll just get it from China or somewhere else. That is far less. And I'm now still competing at the same price point, but my overhead is a lot there. So, you know, it's and what happens you've then got the reworks.

Veronica Morgan:

Then this is an enormous amount of trust too, because let's face it. If you get a property renovated or built, you're trusting that that builder is actually choosing or developer or whoever is actually choosing the right materials. Aren't you?

Marty Sadlier:

Yeah. But what, what you walk past, you accept. So as a consumer, we do that to ourselves too, because we then try and screw the Sparky down and say, Hey, you know, my other quote was half of what yours, and then we'd go with that cheaper version. I mean, we've, we've done it, we're doing it to ourselves all the time,

Veronica Morgan:

But it's also it. Yes, we do it to ourselves, but it's the uneducated consumer, isn't it, it's the idea of being price driven. It's the idea of not being properly informed as to really what you are choosing. And this is rife, as I said earlier, I mean, you know, it's rife across well it's throughout property in various guises, various aspects of it. Just sort of on that sort of insure another thing that I wanted to ask you about on the insurance side of things as well. I know this is sort of into defects but buildings depreciate, right? So it sort of feels a bit weird that, you know, there's one way of thinking about, you know, the li the value is in the land and the bed, the building depreciates, and you can actually get tax deductions on the depreciation of it, et cetera, et cetera, et cetera. But if at all burnt down, you don't want to be insuring it for the depreciated value, because then you won't be able to replace it. So therefore you have to think with two different ways or do different lenses in terms of what buildings cost to build, then, then you get, you know, and, and Chris touched on it before, we're saying, you know, can you overinsure so you can, you know, potentially replace it with a better building, which is sort of cool idea, I guess, but especially if the cost isn't so bad,

Marty Sadlier:

And in that instance, you wouldn't get the extra volume and you have to upgrade, but yeah, you wouldn't be, you couldn't go and build a 10 story or 10 bedroom home if you had ensured that the four bedroom home.

Veronica Morgan:

No, but if say I had a, you know, a modest clad building and I decided I wanted to have actually an architect designed concrete instead, you know, could you feasibly, which has also four bedrooms, you know, could you feasibly do that?

Marty Sadlier:

Yeah. You physically couldn't potentially also make a current affair. Which would be wonderful, but yeah, I mean, that would just come out in the auditing purposes, I guess, and scenarios that they would do, but yeah, the reality is yes, you can,

Veronica Morgan:

But, and then, and then sort of applying the sort of same sort of thinking in a way to build defects and build quality of new property and what we walk past and what we what we demand is that, you know, fundamentally we are all trying to screw down the cost of everything. And so then we are our own worst enemy, right? And so in an apartment building, if you aren't paying for that quality, the different design, the different materials, the workmanship, the actual, you know, there's a premium involved in that. Are you potentially setting yourself up for worse, for bigger problems in the defects area? I mean, do they go out, is there a correlation?

Marty Sadlier:

Yes. And you, you, now that when you said setting, are you setting yourself up for failure? Because for me, you know, the word setting, setting you up is at the start of a job and deacon university in Griffith university did a joint report on defects in buildings, in residential buildings. And they found that 50 to 60% of all building defects were attributed to the design stage. So people were cutting corners at the design stage. So you're setting yourself up for failure later on. So that that's, I guess also a sign of the fact that a lot of people will get the bare minimum from plans done from their architect. Well, we only need counseling. You need X amount for this to be approved or whatever it might be. And so, and they're not wanting to pay an architect, 40 grand. They want to get it done cheaper elsewhere for 30. So suddenly you're not getting the same quantum and detail on the plans. Now, the report clearly indicated that up to 50 to 60% of all defects would have been fixed in the design stage, if it was better designed in regards to having that stuff documented,

Chris Bates:

I suppose, we're going to be one of my questions, Marty, you've kind of hit a lot of the people do put the blame on the builders, right? You're always in a construction company, but from what I read, one of your blogs, actually, that sort of lifted the Val for Maine said, look, a lot of the issues, potentially a poor design, and maybe the architect that hasn't thought through some of the challenges to build it. And then the issues that potentially could be with defects is, is that sort of what you're saying there?

Marty Sadlier:

Yeah, because people, and it may not just be the architect hasn't thought of it. It could also be their scope that, Oh, hang on a minute, you're going to be too deep. Just do the bare minimum or you are today. I'm going to go with a draftsman. So suddenly you're now going with the draftsman or the architects. So you know, the detail isn't there, you've either tried to push them or pinch them in regards to their fee structure, or it's just an inability on the part of the architect documented properly. But then there's also a growing movement in Australia. And it has been for about 20 years that in the past, when you employ an architect, his or her fee was encompassing of the construction program itself. So they were kept on for the whole job. So they would come out when there was a variation by a builder and say, well, no.

Marty Sadlier:

And that was documented on plan four, nine, four, or this is how you would do it and this, and they would redo the whole drawings and manage it. That costs money. So what did we do as a consumer? We went, we're not going to pay for that. We can manage it ourselves. There are many, many buildings in Australia, residential homes that the architect does up the plans. That's it hand the plans over to the builder. And it's now the builder to go away because Hey, we've saved money. We don't need that architect. So they've never been able to do that additional drawing to help detail how that head being should tie into the roof to avoid water.

Veronica Morgan:

This is interesting actually, because for, for starters, we interviewed Dr. Nicole Johnson, who's one of the co the co author of that report. You mentioned earlier, and back in episode, 113. So if you want to go back and hear that, listened to Nicole and explaining all about that whole report about defects, and please do so on, on the actual, you know, that they're working together of an architect and a builder, and a for starters, you know, if you're buying a project home that that's not the way it works, you know, you're buying a project home, you're buying a package. And basically it's, it's like a, it's like a factory, it's like a manufacturing plant, but if you are having an architect design your home and I've, I've had, I've done three lots of renovations with architects, and it's been, the experience has been different each time.

Veronica Morgan:

And the one I'm in at the moment, for instance, I, I didn't get my architect to manage the process, but that's partly because of the relationship I have with my builder. And also, I know that my builder will, we'll go to the architect, you know, throughout, but yeah, I did have water problems and which the builder has come back and we worked through processes. But part of the reason that I had water problems is because the way in which the council regulations forced the house to be built meant that all the water. And then of course, we literally, it was to built and design design, a built in a drought. And then, and then Elena broke literally a week before I moved in. And then we sort of went, Whoa, got to fix all this stuff. So, so, and what are, we'll find that the, the course of least resistance let's face it.

Veronica Morgan:

So it's been quite good actually just to get this house water tight, but big part of it was the sheer volume of water going into one small part of roof. And that is, and part and parcel. We go back to actually why it was designed that way. It was designed that way because council made certain requirements, you know? And so it, that you have to have this, this ongoing fluid relationship, pardon the pun with the architect and designer and the homeowner, and an understanding that this stuff, isn't, it isn't just designed and then built. And then you've got a nice water tight house that there are often things that have to be worked through in the actual execution of that building and function.

Marty Sadlier:

Yeah. And we are, you know, when I was building, we always loved a good rainfall event just after you had done the roof for her, just cause you can kind of find where your issues are. You know, when you're building in perfect conditions, sunny conditions, you don't get that that benefit against, but that just also shows that the counselor put a change or a clause in there that you need to do a certain thing probably for a height reason, or you know, a distance from a fence or whatever it might be that you have to make that change that is there a flow on effect that okay, or a duty of care that, okay, there's a change architect. What are the ramifications of that change at, do I now need to put a one 50 mil round gutter on that bid or an extra panel pipe or whatever it might be now that may have just been an oversight and not known. And, and that's where there are just on every construction job our lessons learned you can't get it perfect all the time, but the reality is that you would hope that that's not an ongoing issue that is fixable that is, you know, with a bit of a return investment that you don't want to pour up heap into it to never get back. But sometimes those little issues are quite big across a whole apartment block fragments.

Veronica Morgan:

Yeah. And it also comes back to the willingness of the builder to come back. And so, you know, I didn't screw the screw, the deal. I didn't leave not enough in it, so that there's nothing in it for my builder to actually to make sure I might build has been fantastic. I've I've recommended to loads of people be very much because of this, you know, there's been in any building. There's, there's going to be, it depends on your definition defect as well. It's their willingness to come back. So, and I think what is important though, what you're talking about though, is that they do start at the design phase. If there's a problem there, and you've got builders that just build without questioning and don't sort of challenge or go, Oh, if you do this, you know what I mean? So it's a collaborative exercise in order to actually get it right, because the builder has certain expertise that the architect doesn't, you know what I mean? So together it's, it's, it's getting the better outcome

Marty Sadlier:

Approach too. Right? So if, if you were looking to employ someone in your office, you might say to them in the interview take me through an example of how you problem solve something or how you manage conflict or whatever it might be. We don't seem to go through that same process. When we're interviewing a builder, we've got three builders sitting in front of us. We've got three different tenders and we're saying who can do it? You can do it cheaper. Why can't you match their price? And when we fixate on cost, right. I ask builders, okay, take me through your defects on your last job. And they instantly put up a brick wall. Oh, we don't have defects. We're quality builders, blah, blah. Yeah. Okay. No worries. We'll get past the puffing up exercise. And then we'll actually say, let's have a discussion about it.

Marty Sadlier:

This is not a bad thing you want to understand with your builder. What are they? What's their going to be their approach when there is something that they don't quite agree with on the plane, you want to know that they're going to come to you. You don't want to go to this. It's going to go. We don't have the fix because guess what? Every job has a defect. If they're going to say they don't have defects, that's because they're glossing over it. Ah, that could just put a panel up over that now. I'll know. All right, you want to know? Yeah. You know, there's an old way to say, I want to work with a builder that says I had so many defects on the last job. Now, if the reason is because the plans are inadequate and or whatever it might be, if it was a workmanship issue, well, that's an issue, right? But you would want to know that a builder is coming across these things and coming back and closing them out. And it being amicable, you know, across, you might not agree with it from that home though, that's costing you more money, but you're probably getting a better job,

Chris Bates:

I guess, up protocol. I'm not a gray on this one, but I guess we're building better phones and building better cars and better lots of things. Right. Do you think that we are going to be building better houses, apartments in the future? Or do you take the other view that ultimately there's way too many conflicts about fast and furious, make a profit, getting, making money, like from a development point of view. And ultimately if this was 2040, we'll be saying the exact same things, but just a different version of them.

Marty Sadlier:

I think that there will always be different versions of things just because of trial and error and new things that come out. But as a consumer, we need to hold everything we do to account that if we want to get a quality product, then you have to understand there's a difference. Now I know people will say to me, it's all about cost. It's all about cost and I'll go, okay, what car do you drive? I drive in the CDs. Okay. It's not all about cost, right? Because you could have bought a home day. So it's all about costs that suits your priority. Now, if you want to go to prioritize a building or renovation that you're doing, then you're probably going to get the high and day outcome right now. I'm not trying to throw them under the bus from a quality point of view, but from a standing in a marketplace, if, if you're just going to accept the lowest amount, then you're kind of going to get the issues you come along with that.

Marty Sadlier:

I think the industry will improve because people will demand it. I think there's a, you're saying seat buildings now and, you know, kudos to the, the, the newer generation that they're, they're very green. And, and you know, and I'm talking about the environment that they're wanting to see sustainable materials, and they're wanting to see a sustainable buildings that are thermally better than just having a ducted air con pumping along all the time. So I think that the industry will change. There'll be some teething problems because there's going to be new products that we'll be using in 2040 that haven't even been thought of yet. You've only got to see the, you know, the, the expansion and growth of electrical products in buildings now than 40 years ago with, you know, the sea bus used to be a big thing and kind of not even there anymore, because it can all be built into individual products. You know, being able to turn your front light on from kilometers away. So it was dying to see changes there that will need to come out and be teased out. But we need to work as a group, collaborate with a quantity, surveyor, an architect, and a builder. You need to get that round table going at design stage. Now that yes, that comes at a cost, but you're going to be saving on defects and variations later on because you've had some collaboration at the start.

Veronica Morgan:

It's the same as when you're buying an established property. If you had collaboration at the start, got good advice from, or, you know, I say, it's, it's takes a village to buy a property. And, and, but the problem is we've got expensive property in this country and where people cut the corners is on the advice. Yeah,

Marty Sadlier:

Yeah. You put, you'll get people who get a building and pest inspection and we'll come back that this property has got termites. And now the mentality and the vocabulary and around that will be, I just wasted $600 on that house. Cause I've got to buy it. I kind of think you just saved a million dollars. Yeah,

Veronica Morgan:

Yeah, yeah. Unfortunately, and there's, there's sort of behavioral biases around this as well that they talk about setting us up. We set ourselves up to basically get get in situations that could be very, very expensive. Now on that, do you have an example of a property Dumbo for us?

Marty Sadlier:

Yeah. So one of the ones I wanted to sort of go through was we get a lot of commercial properties that comes through when it comes to replacement costs of buildings. So, you know, the, the main one that I want you to sort of go through, I guess, was one that we did recently on a on a pub. So we do a lot of hotels in, in what we do. They tend to be a really common commercial job that we do, but this client had owned a pub for quite a while. And the insurance broker who we were dealing with had been telling them to get an independent assessment done for many, many years and they sort of weren't interested. But so anyway, they finally convinced the owners that they need to get assessed if nothing else, to draw a line in the sand.

Marty Sadlier:

So that for the next 10 years I didn't do anything. And this was in Collingwood in Melbourne and the current currently short value they had it for was four and a half million. So we've got the plans, went to the on-site assessment, went through the whole property, had a massively car park out the back. And our assessment came back in that it should have been insured for 9.2 million, including demolition the cost escalations. There was a partially heritage heritage component on the facade on one of the sides. So everybody came in at 9.2. So it was, you know, in near enough to double. So we, we presented the report back to the insurance broker who took it to the owner and they, their feedback sort of speak to them was they had decided to keep the insurance at the previous amount of 4.5 million because the licensee that was in there, the tenant had been there for many years was a really good guy and looked after the place and they didn't want to put it up because it would affect his premium.

Marty Sadlier:

You'd have to pay a lot more than you want to upset the applecart. So they were just happy to leave it as it was. Wow. I've just kind of the building. Yeah. And once again, there's a mindset that you sort of think, you know, hang on a minute, you're prepared to take knowingly, take that on. Knowing that you're under-insured and we see it in that same instance where they'll go, Oh, okay. We'll just this year. And then we'll do a little bit more next year, underinsured just cover it. And we see that a lot with pumps because they tend to be in families for a long time, like in family groups or trusts and they handed down and inherited. And the like, and if they're working from a benchmark, that's a long way, it's been adding 3% to it each year. They're never going to get there in theory because their base was wrong to start with.

Veronica Morgan:

Yeah. Yes. Oh dear. I find that interesting though, that they'd prepared to take it basically a $5 million gamble.

Marty Sadlier:

Yep. Yeah. And the insurance broker at that point was, had a duty of care that they had to also mention that to the, you know, the potential insure that we're going through. So there was going to be some disclaimers in that instance. So I'm sure that was going to come back to bite them from probably not getting insurance, knowing that there was a report that had already been done, but it was just the mindset. Oh no, I'll go worry about that. That's

Veronica Morgan:

Really unlucky

Marty Sadlier:

60 years already. And nothing's happened. Okay.

Veronica Morgan:

Oh dear. Ah, interesting Dumbo. Well, Marty, thank you for that chat. I mean, it's alarming actually, and very disconcerting. A lot of the things that we just talked about, you know, I'm going to go mull over a bit actually to see how we can advise our clients particularly on when they're buying a house. And they're after settlement is, you know, because we do get asked that a lot, you know, how do, what do we do? And I think that recommending that they get a quantity surveyor to do a report, I think is a great step to do to you then that, that peace of mind.

Marty Sadlier:

Yeah. It's just putting it into perspective. I mean, we know people that spend more on car Polish for their car than they do a depreciation schedule that gets them money back.

Chris Bates:

It's all, that's human Marty.

Veronica Morgan:

Well, if it's an investment property, you can use it as a tax deduction, but yeah. Yeah.

Chris Bates:

And I guess the other real thing is, is the issues with cladding and building issues in apartments, which oil listeners would have heard enough of on 160 odd episodes. But you know, those issues aren't going away that might've been off the front pages for a while, but they're still around those apartment blocks. They're still getting built. There's still issues there. So just be super careful if you're anywhere near these or you own them because yeah, it won't be long to the back on the front page, as I mentioned.

Marty Sadlier:

Yeah. And there are some people that are really struggling in apartment blocks to get insurance on that because insurance now flammable cladding have that as an exclusion. So they'll say you we'll cover you, but if it's because of the mess and exclusion, so are you, how are you really covered? You know, there is an effect and a mindset that needs to change. People need to be aware of these things. Yeah.

Veronica Morgan:

No more ostriches said on the elephant, in the room, things again, body, thanks so much.

Chris Bates:

Awesome. Thanks Marty. We want to make you a better elephant rider and this week's elephant rider training is,

Veronica Morgan:

You know, one thing that really came to my mind when Marty was talking, particularly the letter into that interview was around the shortcuts that people take when it comes to property decisions. And he is he's really it, we all do it. You know, we all do it, but it's mind boggling. When you think about the amount of money that we borrow to buy a property, the amount of our own personal wealth that is, is bound up with properly, the fact that we're living our homes and then what, where would we live if we didn't have at home? You know, these are, these are major, major decisions, both financially and sort of mental health wise. And yet we take so many shortcuts. And so currently, you know, we are beginning of 2021 auction clearance rates. You know, I read the paper today, so we're, we're recording this in February.

Veronica Morgan:

And, but the paper today to say that the clearance rates highest in 25 years, you know, and, and close to 90%. And it's when the market is like that. And FOMO is at its absolute greatest. And I've had, I've heard and seen messages from agents basically gloating that this is Firo at its best and they they're loving it. Right. So easy to sell anything pretty much at the moment. And this is when people take shortcuts. You know, this is when you know, obviously when you're insuring it's after you bought the property, but even in the actual due diligence before you're buying the property, eat it, you can't take shortcuts. And I know someone else is probably gonna race you and buy that property before you can actually get your due diligence done, you know, but the reality is that, you know, was it a, you acting heist and unrepentantly at leisure, we have to be careful and extra careful when you've got FOMO going on. And when you are under more pressure because of the rising prices and the general sort of frenzy that's out there in the marketplace. And I, I know that even though I say this, I know that most people still won't slow down and take their time and be careful, but I just have to say it anyway.

Chris Bates:

I mean, it's what we're saying. And we would try to pass an open home on Saturdays in the beaches. And it was actually on a really poor road and the line out the door, I reckon it was at least 50 long, and this was not a great asset. You know, it's a really, really busy road and, you know, car quite tight as well. So it's all cars are flying past each other really narrow road, but busy. And I was just astounded with having these Q as, and it was like quarter to 12 or so hours. And I drove past it again. Cause I was like, I just want to say, yeah, it could, we had to go back past it. And I was on to see how bad is the queue was still long after 12 o'clock after it opened. So I was just, you know, when it's like that, when poor assets, I've just got huge queues and to really assign the people that are super desperate, because that's why they're going and looking at this property and I want it, they just have to feel like that's their only option.

Chris Bates:

Yeah. I was super pleased for a client last week, actually, where they were in love with a property and it was up in the central coast and now they're looking for a little bit, but not too long. And this is why I think they are able to walk away, but they got a building and pest done. They realized that quite a lot of things to the house with Dom, without council approval and big things balconies and all these sort of things. And, you know, and they had to convince themselves not to buy it. No, it completely in love with the property, little bit of desperation because the market's super hot where they were buying as well. And I walked away that property sold for a big price at auction. And so whoever bought it just didn't care and just didn't even want to even didn't do the due diligence or just, you know, just put their head in the sand. So you're a hundred percent right. Veronica. And the problem is the client thinks, well, you know, they do it. I should have just done it. You know, if they're willing to take that risk, shouldn't I take that risk and now you don't, you don't need to take those risks, just keep looking, do due diligence and just be patient, even though it's the hard thing to do.

Veronica Morgan:

Well, here's the other thing that buyers often do in those circumstances. And I remember this when I was a selling agent, right? You get the, you get your enthusiastic buyer. Hasn't been in the market that long and they do a building inspection. They don't buy that one. They do it, another building, pest inspection. They don't want that one. They do another one. They don't buy that one. Then finally go, Oh, bugger it what's the point. I was wasting money on building business sections. I'm just gonna turn up and be, that's what, obviously someone else has obviously done it. You know, if other, if other people are bidding somebody, they must have done it. So it must be all right. So they're effectively deferring the responsibility or, or basically saying, well, they've done it. And I'm just going to abdicate my responsibility and just hope to hell that that person knows what they're doing or did or did do due diligence.

Veronica Morgan:

And it, but, and this is, you know, very, what you would think would be savvy, smart, successful people, making these crazy outlandish assumptions that they then get lumbered with, if they're the ones that actually buy that property. So I tell you what, honestly, in the last couple of weeks, the amount of Dumbo things I've seen and heard of buyers doing, we could do an extra Dumbo episode a week, I reckon at the moment, because there is honest to God, I'm flabbergasted by how stupid some people are when they're buying property. It just is blowing my mind.

Chris Bates:

Yeah. And we're bringing really big advocates on the, off the plan sort of awareness around that. But what we will start to see now is people were forced to go back to new developments because it's easy to buy that there's real pain in the market. And that'll be give people an option. And this is where the developments are off the plan start to really flourish. And also the market's rising. So people are going well, I'm willing to take that gamble that it's going to be worth more when it's, you know, fully bought built. And so they they're attaching what's happening in their family housing market to what's happening in the new townhouses or new apartments. And they're completely different markets with completely different sort of end result, I imagine in a couple of years. So just be really careful don't fall for that off the plan at the moment, because even though you've got pain, that is not the solution.

Veronica Morgan:

Well, actually just sort of quickly on that. You know, I know someone who very recently sold an apartment two bedroom, two bathroom, one by one parking apartment, very nice apartment in a building that's I think seven or eight years old that that easy in an area where there is massive oversupply, particularly exacerbated now through COVID, but also more stock coming on. Right? And so this person sold this property. They bought it in the peak of the market, basically 2017 and you know, so a very small loss, right? And they realized the mistake that they've made buying that property and, and got out and took the hit. And that's a hard thing to do because nobody wants to feel that since that loss of version, you know what I mean? We have that, that we do not want to feel that loss and we don't want to accept that we made bad decisions.

Veronica Morgan:

And so that person you know, yeah, it's not really pleasant, but you know, they've made the smart decision for the longterm and there's other properties in the building. There's a one bedroom apartment in the building with no parking, but with quite a good size courtyard. And that sold recently for roughly $200,000, less than the two bedroom apartment. And, you know, and the people in the building that person made money and they made money only because they bought off the plan in 2012, but they made in eight years, 40% gain. Now that is not a huge gain, particularly when they had an entire property boom in, there were many other people dealt their money. So they were running around thinking that, you know, paying themselves on the back for making good decisions. And I'm like, you actually didn't make a good decision. You lucked it, that it could have been worse because of your timing.

Veronica Morgan:

Wasn't as bad as that other person who just sold, but you, you know, there's no relativity there nobody's sitting down, they're actually working out or what was the opportunity costs? You know, what really was a percentage return. They just see the dollars. They just see that, Oh, I made $200,000 or whatever they made. That means I did well, but that actually didn't. And, and this is, this is the danger, you know, and, and too many property. And, and once again, you know, the very fact that you can own a property, you could what the paid 500,000 or something back in 2012, you know, you gotta be on you. You gotta be on a pretty good wicket and have a good job to be able to borrow that amount of money. You know, these aren't silly people. It's just that when you put them in a property situation, there's very little analytical thought and understanding of really the drivers and really what's going on. And really what's a good decision and what's not,