Schizophrenic market movements in the likes of Sydney, Melbourne and Brisbane are wreaking all sorts of havoc among buyers, struggling to pin down anything close to an accurate price point for property in certain postcodes.
Things have got so ludicrously out of hand in some of the more sought after market enclaves, with frenzied bidding wars bumping up final, fall of the hammer prices by as much as 25% on the quoted marketing guide, regulators have stepped in to change the rules.
In Queensland, a new law under the Property Occupations Act bans agents from revealing the reserve, or amount a property is likely to fetch at auction. Not even a price guide is allowed as at the beginning of this year.
While many local real estate agents think this is a step backwards and puts both buyers and sellers at a distinct disadvantage when entering into the auction process, others believe it will curb ongoing issues around under quoting and price baiting in today’s fast moving market.
Mind the gap
A Property Observer report from November last year revealed a staggering 14.34% average variance between advertised price guides and final auction prices across all Australian cities.
This margin of error grew to 15.4% in Sydney, where ongoing pent up demand and supply shortages have caused values in some suburbs to skyrocket by as much as 30% over the last two years alone.
Of course the ongoing issue around how ‘creative’ real estate agents might be when determining a reasonable guide price at which to advertise an auction listing, is still a consideration in the overall scheme of things.
Property Observer cites the example of a dwelling sold in Sydney’s North Willoughby, which clearly demonstrates the problem with would-be buyers relying on prices set by selling agents.
Despite a comparable unit selling in the exact same apartment block for $860,000 in 2013, it was listed with a price guide of $750,000, before this was revised up to $790,000.
Not surprisingly, given the breakneck speed at which Sydney’s current housing market seems to move, the property finally sold for $980,000 – a 19% discrepancy on the agent’s initial guide.
While it may be impossible to correct the issue of such broad disparities between price guides and what the market is ultimately prepared to pay for real estate in different areas, you can (and should be) prepared as an educated investor when it comes to understanding how much a property is really worth.
Before you start raising your hand at the next auction, or making an offer on a private treaty sale, set your own limits according to the following six rules and make sure you stick to them!
1. Base it on facts
Research is incredibly important. If you don’t feel confident going it alone to gather local information on the market and current and historic price movements, including comparable sales, then perhaps you should consider…
2. Asking the experts
And by this, I don’t mean real estate agents! While they can be a valuable source of certain information, impartial advice on what you should pay for their vendor’s property is not something they’ll necessarily be willing to give.
A professional buyer’s agent with an intimate knowledge of the area can be an excellent sounding board when determining whether you might pay that little bit more, or walk away from a deal that could see you over-capitalise.
3. Get a valuation
Having your own independent valuation done will not only give you peace of mind that you’re not paying too much, it can also assist with the lending process should you need to query any subsequent bank valuations for loan approval.
4. Keep looking
Familiarizing yourself with local market movements by attending auctions and keeping up to date with what’s selling in the area, will give you a distinct advantage when determining a reasonable price to pay for potential additions to your portfolio.
5. Know your competition
If you’re trying to acquire an asset in an area where there’s lots of competition from homebuyers, chances are you’ll find auction prices climbing well above what you could justify paying as a property investor.
Remember, homebuyers base their decisions on emotion and are more inclined to over-invest in order to secure the property they have their heart and soul set on. For this reason, it’s important that you…
6. Go in with your head, not your heart.
Avoid getting caught up in an expensive bidding war by keeping it all about the business of your property investment portfolio.
Never lose sight of the big picture objectives you set out to achieve on your investment journey and know that if this one doesn’t pan out, there’s always another deal waiting in the wings. To this end, patience and persistence will pay dividends for the smart property investor.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).