In my previous column Beware property bargains we looked at the reality of finding a bargain and that on balance they are a rare commodity. In this column we’ll explore the steps you can take to help improve your chances of finding and identifying what may well be an undervalued property.
Tips for the bargain hunter
Finding a property bargain is probably more about good luck than good planning. Listed below are some tips and hints that may help you avoid buying a lemon and help get you a better deal on your property purchase:
If the asking price is way below market value for similar properties the warning bells should be ringing. You should check what’s driving the price down before getting your cheque book out. For instance, there’s nothing wrong with buying something that needs work. Just make sure you know what the work is, how much it will cost and whether you’re prepared financially and emotionally to undertake it.
- Keep an eye on sales results and time on market
Properties that have been on the market for a while could mean one of two things: that the vendor is not prepared to budge on price and is no hurry to sell or, if you see the asking price coming down, an indication there is room to move on price and that you could end up paying less than you would otherwise expect. This is especially so if the seller needs to sell such that he or she may be prepared to accept less than market value in order to get the deal done.
- Keep and eye on housing stock levels
In a seller’s market, when demand exceeds supply you can expect to pay more than the asking price. But when the tables are turned and the pendulum swings to the buyer, over-supply can mean you can negotiate much harder to get a better deal.
- Look out for forced sales, mortgagee sales and deceased estate sales
Often the trustee for an estate, or a lender who has repossessed a property, whilst under a legal obligation to get the best price possible, will look for a quick sale to realise an asset and/or recover a debt. In such cases the prices achieved may not be at the same level if the sale was conducted between a willing buyer and a willing seller. Furthermore, these properties are not always in the best state of repair and are sold on an as-is basis which can be a major turn-off for some buyers. So fewer buyers combined with an understanding of a property’s potential (following say a renovation or subdivision) can result in some big savings and even bigger profits down the track.
- Consider renovation and development potential
As referred to above if you can see the potential in a property that others cannot you’ll be in a position to exploit unrecognised value. For instance, some buyers only focus on the superficial aspects of a property such as the general state or repair, damaged or peeling wallpaper, leaking taps, an over-grown garden or a run-down kitchen. They fail to consider things like original features, the state of the floor boards (that are perhaps hidden under carpets and could be polished), the size of the block and its location. In other words, they see only the problems and not the opportunities. This might help keep the sale price down and even if you don’t get a discount off the asking price, you could create considerable value above and beyond what you paid – meaning you did in fact get a bargain.
- Be mindful of the property cycle
The best time to find as bargain is when the property market has bottomed out and is about to recover. Of course this is easier said than done because no one can predict with certainty when this will be. It is a judgment call that should be based on research, independent advice (and remember property developers and selling agents are not really independent) and a willingness to take on some risk. If your timing is off, you may find the market has further to fall meaning it’s the seller, and not the buyer that may have got a bargain, at least in the short term.
You’ve got more chance of turning your purchase into a bargain if there’s something special or unique about the property that is not reflected in the asking price. For instance anything that makes a home stand out (such as location, land size, history, views or period features) will raise desire and demand from buyers which in turn will push prices up. And remember you’re much less likely to come across these in new high rise developments than you are with stand alone or lower density established properties in well sort after areas.
In my earlier column
How to negotiate when buying a home we looked at how to get the lowest price when buying. The same principals apply when looking for a bargain. In particular, if you ask the right questions you may learn something about the seller’s circumstances or position that will help you negotiate a better deal.
A final thoughtDon’t be seduced into buying something just because it’s cheap. Property that is cheap is cheap for a reason and the last thing you want to do is buy a lemon – always do your research and be mindful of any advertising that indicates you’re buying a bargain. Be wary of property spruikers and sellers who advertise “property bargains”, “heavily discounted prices” or “priced to sell”. In all likelihood this is a ploy to seduce you into thinking you’re getting a bargain when the reality is you are not.
Do you have any other tips for finding a property bargain? Do they really exist? (Share your views below)]
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Peter Boehm's first book The Great Australian Dream: A Guide to Buying Your First Home is now available from all good bookstores and online. It discusses the numerous challenges Australians face in entering the property market and provides straightforward advice, hints and tips on getting past them.
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