Chasing the market

It’s really tough when you are trying to buy a property in a rising market. Just when you feel that you have come to grips with sale prices, another one sells that has you scratching your head. This is what happened to Garry and Anna. They started looking when the market was already strong, and then it surged!

The Sydney property market moved suddenly in 2013 and agents and buyers alike got taken by surprise. When an agent lists a property, he/she quotes a price based on recent comparable sales and when the market suddenly spikes they find that competition can push prices way in excess of their initial expectations. It takes a while for their price guides to catch up and reflect actual sale prices.  So, after a few months, you see the gap narrowing between advertised and actual prices.

That said, agents never like to quote exactly what they think the property should sell for.  There is a delicate dance that goes on.  Buyers expect agents to quote low.  So if an agent goes against the grain and quotes accurately, buyers will assume that the vendor wants too much for the property. As a consequence they don’t compete. From a buyer’s perspective, this is a perfect storm! This could be an opportunity to pick up a property for a reasonable price in a hot market.

So how do you avoid chasing the runaway train?

  • You have to be diligent in looking every weekend at property and if a house has it’s first open midweek, you need to be there.
  • You have to quickly react to moving prices, recognize that the market is on the move and be prepared to pay a premium for a quality property.
  • But remain cool headed – don’t panic and pay too much for anything sub standard – you need to pick and choose the properties to pay a premium for.

In a hot market not all properties are created equal. Some will end up being fair value and others overpriced. For example, we showed Garry & Anna a property that needed work and we also showed them one that had been completely renovated. If that first property sold for early-mid $800s (as the agent was indicating) and the last one sold for high $800s-$900K, that shows the craziness of the market.  The first property was not well maintained, the floorplan was all wrong and I don’t think the street was as good as the last.  To make the necessary changes Garry and Anna would need to invest a whole lot more than $50K.  Forget the time and hassle!

The key is to be prepared: ready to buy, know what you are prepared to compromise on and armed with recent market intelligence.  Because when you find the right property you will need to pounce and be decisive.

The steps you need to take to be prepared are:

Finance.

Have your pre approval ready and talk to your bank or broker about what needs to happen to make that an unconditional approval (usually a bank valuation).

Have your deposit ready (a cheque book is ideal).

Due diligence.

Have a building/pest inspector or strata report people on short dial.

Get the contract to a solicitor or conveyancer for review.

Check things like neighboring DA applications, general noise levels, natural light at different times of the day.

Price research.

Be constantly up to date with recent sales information and try to inspect as many other competing or comparable properties as possible.

When you find the right home in a hot market, you do not have time to think.  You need to know what you want, know when you have found it and know what to pay for it.  All that without panicking!

It’s hard to believe that $900,000 doesn’t buy much!

It’s hard to believe that $900,000 doesn’t buy much!

Juliet was buying in a very desirable part of Sydney in a hot market and even though she had a healthy budget, it wasn’t quite enough to get her what she wanted.  It’s tough when your budget is borderline, as so many properties look tantalisingly within your reach but someone with deeper pockets can very easily make them unaffordable.  It can be heartbreaking to keep turning up to auction after having spent money on building inspections and conveyancing to keep missing out by only a small amount of money.

The options open to you are to change location or accept a property with sufficient compromises. But you need to be aware that the second option can affect long term capital growth.  When buying an investment you can be less fussy with regards to location but when you are buying a place to call home, the suburb choice becomes so much more important.

From an investment point of view, the focus is usually very much on future capital growth.  

Owner occupiers pay less attention to this – but I personally believe they should consider this aspect more than they often do.  You see, by making location the number one criteria, the property’s attributes become the things that have to give.  But a property in a great location with loads of negative features will most likely grow in value at a slower rate than a better property in a lesser location.

Some of the compromises that owner occupiers will make to be in their desired suburb include:

  • buying on a main road,
  • an architectural style that is out of keeping with the area,
  • a smaller or odd-shaped block of land,
  • an unappealing outlook,
  • lack of natural light,
  • lack of privacy,
  • a smaller home (like one less bedroom than they could afford elsewhere)
  • no parking
  • less renovated
  • next to a pub, electrical substation or a petrol station, for example.

Some of these compromises will affect future capital growth more than others. For instance, being next to an electrical substation would be a deal breaker in my view, since you can never overcome this negative. On the other hand, a home where the neighbours look right in may be able to be improved by some clever landscaping.

After looking at all the houses we showed her, Juliet decided that Leichhardt was the suburb that she wanted to be in.  Yet the house had the most compromises of the lot!  The main one I was concerned about when considering resale value was that the second bedroom is tiny because of the staircase placement.  This did not affect Juliet as she could see that the room layout suited her perfectly as she would mostly be using it as a home office and the balcony it offered was a real bonus.  However for other buyers who want a more typical second bedroom, this would be a deal breaker.

Juliet bought that house – but with her eyes well and truly wide open.  I could see that it would suit her needs but I also wanted her to be aware that other buyers would not view it so positively.  After inspecting it another two times and spending time hanging out in cafes and shops in the area, Juliet decided that she felt right at home in Leichhardt and was completely in love with the house.  And ultimately it was the most affordable of all four properties, so she had the added benefit of a smaller mortgage!

It’s hard to believe that $900,000 doesn’t buy much!

It’s hard to believe that $900,000 doesn’t buy much!

Juliet was buying in a very desirable part of Sydney in a hot market and even though she had a healthy budget, it wasn’t quite enough to get her what she wanted.  It’s tough when your budget is borderline, as so many properties look tantalisingly within your reach but someone with deeper pockets can very easily make them unaffordable.  It can be heartbreaking to keep turning up to auction after having spent money on building inspections and conveyancing to keep missing out by only a small amount of money.

The options open to you are to change location or accept a property with sufficient compromises. But you need to be aware that the second option can affect long term capital growth.  When buying an investment you can be less fussy with regards to location but when you are buying a place to call home, the suburb choice becomes so much more important.

From an investment point of view, the focus is usually very much on future capital growth.  

Owner occupiers pay less attention to this – but I personally believe they should consider this aspect more than they often do.  You see, by making location the number one criteria, the property’s attributes become the things that have to give.  But a property in a great location with loads of negative features will most likely grow in value at a slower rate than a better property in a lesser location.

Some of the compromises that owner occupiers will make to be in their desired suburb include:

  • buying on a main road,
  • an architectural style that is out of keeping with the area,
  • a smaller or odd-shaped block of land,
  • an unappealing outlook,
  • lack of natural light,
  • lack of privacy,
  • a smaller home (like one less bedroom than they could afford elsewhere)
  • no parking
  • less renovated
  • next to a pub, electrical substation or a petrol station, for example.

Some of these compromises will affect future capital growth more than others. For instance, being next to an electrical substation would be a deal breaker in my view, since you can never overcome this negative. On the other hand, a home where the neighbours look right in may be able to be improved by some clever landscaping.

After looking at all the houses we showed her, Juliet decided that Leichhardt was the suburb that she wanted to be in.  Yet the house had the most compromises of the lot!  The main one I was concerned about when considering resale value was that the second bedroom is tiny because of the staircase placement.  This did not affect Juliet as she could see that the room layout suited her perfectly as she would mostly be using it as a home office and the balcony it offered was a real bonus.  However for other buyers who want a more typical second bedroom, this would be a deal breaker.

Juliet bought that house – but with her eyes well and truly wide open.  I could see that it would suit her needs but I also wanted her to be aware that other buyers would not view it so positively.  After inspecting it another two times and spending time hanging out in cafes and shops in the area, Juliet decided that she felt right at home in Leichhardt and was completely in love with the house.  And ultimately it was the most affordable of all four properties, so she had the added benefit of a smaller mortgage!

Property searching for the time poor.

This search had so many issues to deal with!

Property searching for the time poor.

When you have a busy life it is difficult to allocate the necessary time to ensure you inspect every property that might suit your needs. And as well as actually looking for the right property, you need to educate yourself about the market and prices.

These guys were particularly time poor, so they were learning on the hop. Michael & Naomi’s brief was wide and accepting at the outset. But we very quickly established what was important to them by looking across a wide spectrum of property within a short time frame.

Most searches do not happen like this. Buyers spend many weekends searching in a specific geographic area and never compare different options in real time. So they might only venture to the Lower North Shore, for instance, after many weeks or even months traipsing through open houses in the Eastern Suburbs. In the time it takes to get your head around one area, the rest of the market has been growing in value and you can easily find yourself priced out of what you could have afforded at the beginning of the search.

So, while it may initially take a large commitment of time to search in more than one area, in the long term it will save time as you can come to a quicker decision on preferred area.

Auction underquoting.

It’s a common complaint of buyers: that agents underquote on auction properties. Sometimes it is very deliberate, after all, they are trying to quote low in order to generate the maximum amount of competition. Other times they really don’t know themselves.

For instance, with Michael and Naomi’s search, it was easier to judge where the Bondi property would sell for as there were similar properties around that had sold over the previous 6 months.  In the end it sold prior to auction for $2.41M and we had been discussing a figure around the $2.4M mark, so no surprises there.

It was a lot harder to pin down the price of the Dover Heights property as there we no direct comparables and very few sales at all to review over the previous 6 months.  And as it so happened, the market in that price bracket suddenly surged, which resulted in enough buyers being interested to create a competitive auction and push the price way over what was quoted.

Now we always knew it was going to be a long shot and Michael and Naomi stretched themselves to $2.5M so they could know that they gave it their all.  The agent, however, had been quoting under that figure and the reserve turned out to be closer to $2.8M, as I deduced by the way the auction ran.  A classic case of “quote it low and watch it go”.

It’s really hard when you fall in love with a property that is borderline affordable. There is a lot of money and energy to invest in order to give yourself what is probably only a slim chance. But on the flipside, you would kick yourself if you didn’t go for it and it sold within your means.

Renovating for sale versus for living.

Both the Bondi property and the Dover Heights properties had been recently renovated. The Bondi one, in particular, had quite an impressive initial impact. But when you looked a little closer you could see that there were a lot of areas that had been facelifted rather than renovated. What I mean by that is that it was renovated to sell instead of being renovated by an owner to live in themselves.

You don’t want to buy something that has just been tarted up yet has structural issues that have not been addressed. “Lipstick on a pig” is how Michael described a renovation that looks better than it is. That said, just because a property has been renovated for sale it doesn’t mean that it is a bad property, but it is important as a buyer that you know what you are getting.

These renovations focus more on impression than substance and will often feature “fashionable” fittings and finishes that can date very easily.  If they aren’t quality inclusions they won’t wear well either and can easily end up looking shabby.

There are some telltale signs. Here are some that I picked up while looking with Michael & Naomi:

  • Tired old aluminum windows left and disguised with plantation shutters.
  • Floating floors laid over existing flooring.  Much cheaper than replacing with a new floor.
  • Unresolved floorplans with quirky flaws like access from the garage through a wardrobe.
  • Practical considerations are often overlooked, like ensuring storage is adequate.

A building inspector I respect says “some houses look better than they are and some are better than they look”. But by being aware of some of these tricks of the trade you can make a buying decision with your eyes wide open.

Property searching for the time poor.

This search had so many issues to deal with!

Property searching for the time poor.

When you have a busy life it is difficult to allocate the necessary time to ensure you inspect every property that might suit your needs. And as well as actually looking for the right property, you need to educate yourself about the market and prices.

These guys were particularly time poor, so they were learning on the hop. Michael & Naomi’s brief was wide and accepting at the outset. But we very quickly established what was important to them by looking across a wide spectrum of property within a short time frame.

Most searches do not happen like this. Buyers spend many weekends searching in a specific geographic area and never compare different options in real time. So they might only venture to the Lower North Shore, for instance, after many weeks or even months traipsing through open houses in the Eastern Suburbs. In the time it takes to get your head around one area, the rest of the market has been growing in value and you can easily find yourself priced out of what you could have afforded at the beginning of the search.

So, while it may initially take a large commitment of time to search in more than one area, in the long term it will save time as you can come to a quicker decision on preferred area.

Auction underquoting.

It’s a common complaint of buyers: that agents underquote on auction properties. Sometimes it is very deliberate, after all, they are trying to quote low in order to generate the maximum amount of competition. Other times they really don’t know themselves.

For instance, with Michael and Naomi’s search, it was easier to judge where the Bondi property would sell for as there were similar properties around that had sold over the previous 6 months.  In the end it sold prior to auction for $2.41M and we had been discussing a figure around the $2.4M mark, so no surprises there.

It was a lot harder to pin down the price of the Dover Heights property as there we no direct comparables and very few sales at all to review over the previous 6 months.  And as it so happened, the market in that price bracket suddenly surged, which resulted in enough buyers being interested to create a competitive auction and push the price way over what was quoted.

Now we always knew it was going to be a long shot and Michael and Naomi stretched themselves to $2.5M so they could know that they gave it their all.  The agent, however, had been quoting under that figure and the reserve turned out to be closer to $2.8M, as I deduced by the way the auction ran.  A classic case of “quote it low and watch it go”.

It’s really hard when you fall in love with a property that is borderline affordable. There is a lot of money and energy to invest in order to give yourself what is probably only a slim chance. But on the flipside, you would kick yourself if you didn’t go for it and it sold within your means.

Renovating for sale versus for living.

Both the Bondi property and the Dover Heights properties had been recently renovated. The Bondi one, in particular, had quite an impressive initial impact. But when you looked a little closer you could see that there were a lot of areas that had been facelifted rather than renovated. What I mean by that is that it was renovated to sell instead of being renovated by an owner to live in themselves.

You don’t want to buy something that has just been tarted up yet has structural issues that have not been addressed. “Lipstick on a pig” is how Michael described a renovation that looks better than it is. That said, just because a property has been renovated for sale it doesn’t mean that it is a bad property, but it is important as a buyer that you know what you are getting.

These renovations focus more on impression than substance and will often feature “fashionable” fittings and finishes that can date very easily.  If they aren’t quality inclusions they won’t wear well either and can easily end up looking shabby.

There are some telltale signs. Here are some that I picked up while looking with Michael & Naomi:

  • Tired old aluminum windows left and disguised with plantation shutters.
  • Floating floors laid over existing flooring.  Much cheaper than replacing with a new floor.
  • Unresolved floorplans with quirky flaws like access from the garage through a wardrobe.
  • Practical considerations are often overlooked, like ensuring storage is adequate.

A building inspector I respect says “some houses look better than they are and some are better than they look”. But by being aware of some of these tricks of the trade you can make a buying decision with your eyes wide open.

It’s scary out there for first home buyers!

It’s scary out there for first home buyers!

Helping Jessica to buy her first home was particularly rewarding for me. She was about the same age I was when I bought my first apartment, so I could easily identify with the excitement she felt about the big step she was about to take. She had caring parents who were there to support her every step of the way and yet there was something blocking them when it came to the crunch.

The Perth market was just starting to heat up and as often happens, the most competitive market segment was at entry level. Both first time buyers and investors were competing in the same space and this meant that open houses were crowded and frenetic, with offers often being thrown at agents by numerous buyers at the first inspection. It was understandable then that Jessica and Karen were being scared off property by the sheer weight of numbers at open houses and the speed at which people were making offers. They were easily put off by those who seem to be more aggressive or have a bigger budget. Add to this that it all seemed so fast and they weren’t being given any time to properly consider this most important purchase.

I have to confess that even I can experience a similar reaction at a packed open house. So it is no surprise that anybody who does not do what I do for a living could be completely put off buying at all. And even if you aren’t deterred by all the other clamoring buyers, when new listings are selling in their first weekend, you don’t have time to second guess yourself. It’s uncomfortable to feel pressured to make decisions without being able to take enough time to properly consider the property.

It’s a double edged sword, do you make a snap decision in order to secure a property but run the risk of buying something that you regret? Or do you take your time to think it over and take the risk that another buyer acts so fast that it’s gone before you know whether or not you want it?

There are a few things you can do to beat other buyers in a hot market:

  1. Hire a buyers agent to give you not only a time and tactical advantage but for quality advice on property selection so you can quickly make a wise decision.
  2. Look at as much property in your price bracket as you can so that you are well educated in terms of both values and what characteristics a good property has versus a dud.
  3. Get to now the active agents in your area. Be friendly to them and engage in conversation if possible so they will remember you. This may surprise you but they often have “favorite” buyers and this may give you an inside edge.
  4. Set up database alerts on both domain.com.au and the active local agent websites. They often email their database before new listings go live online.
  5. Look for overpriced listings. Just because it’s been on the market a while doesn’t necessarily mean anything is wrong with the property. But if it priced too high buyers tend not to even inspect it. If you know values and are prepared to make a low offer, you might find that you can negotiate a deal without competition from other buyers.
  6. Auctions can be your friend. Not only are they a transparent sales process but a property with an auction campaign is not as likely to sell after only one open house. Then you have more time to do your due diligence and you may still choose to submit a pre auction offer.

And the final word: don’t give up. Remain positive and keep a handle on value and sale prices and you will end up getting your dream home without buying a lemon or paying too much.

 

It’s scary out there for first home buyers!

It’s scary out there for first home buyers!

Helping Jessica to buy her first home was particularly rewarding for me. She was about the same age I was when I bought my first apartment, so I could easily identify with the excitement she felt about the big step she was about to take. She had caring parents who were there to support her every step of the way and yet there was something blocking them when it came to the crunch.

The Perth market was just starting to heat up and as often happens, the most competitive market segment was at entry level. Both first time buyers and investors were competing in the same space and this meant that open houses were crowded and frenetic, with offers often being thrown at agents by numerous buyers at the first inspection. It was understandable then that Jessica and Karen were being scared off property by the sheer weight of numbers at open houses and the speed at which people were making offers. They were easily put off by those who seem to be more aggressive or have a bigger budget. Add to this that it all seemed so fast and they weren’t being given any time to properly consider this most important purchase.

I have to confess that even I can experience a similar reaction at a packed open house. So it is no surprise that anybody who does not do what I do for a living could be completely put off buying at all. And even if you aren’t deterred by all the other clamoring buyers, when new listings are selling in their first weekend, you don’t have time to second guess yourself. It’s uncomfortable to feel pressured to make decisions without being able to take enough time to properly consider the property.

It’s a double edged sword, do you make a snap decision in order to secure a property but run the risk of buying something that you regret? Or do you take your time to think it over and take the risk that another buyer acts so fast that it’s gone before you know whether or not you want it?

There are a few things you can do to beat other buyers in a hot market:

  1. Hire a buyers agent to give you not only a time and tactical advantage but for quality advice on property selection so you can quickly make a wise decision.
  2. Look at as much property in your price bracket as you can so that you are well educated in terms of both values and what characteristics a good property has versus a dud.
  3. Get to now the active agents in your area. Be friendly to them and engage in conversation if possible so they will remember you. This may surprise you but they often have “favorite” buyers and this may give you an inside edge.
  4. Set up database alerts on both domain.com.au and the active local agent websites. They often email their database before new listings go live online.
  5. Look for overpriced listings. Just because it’s been on the market a while doesn’t necessarily mean anything is wrong with the property. But if it priced too high buyers tend not to even inspect it. If you know values and are prepared to make a low offer, you might find that you can negotiate a deal without competition from other buyers.
  6. Auctions can be your friend. Not only are they a transparent sales process but a property with an auction campaign is not as likely to sell after only one open house. Then you have more time to do your due diligence and you may still choose to submit a pre auction offer.

And the final word: don’t give up. Remain positive and keep a handle on value and sale prices and you will end up getting your dream home without buying a lemon or paying too much.