Whatever your reason for selling your property, getting the timing just right is key to achieving the maximum return. Unfortunately, market conditions can bolster or ruin your hard work and efforts to get the highest price, so it’s important to keep an eye on the market so you keep your expectations realistic.
If you are about to list your property for sale, here is our ‘reality check’ guide to knowing the market and avoiding any surprises later on.
1. Be aware of multi-speed markets
As mortgage brokers, we see multi-speed markets a lot these days. Multi-speed markets are when different property prices brackets sell quicker or slower than other price brackets. There are also multi-speed markets between regions. For example, Central Coast properties below $700,000 sell a lot quicker than say properties over $1,000,000 in the same region. This is because of the demand for sub $700k properties is greater than the million dollar properties. First home buyers currently receive stamp duty discounts or exemptions for properties under $800,000 – so there is more competition in this segment.
Even though Sydney and the Central Coast are relatively close geographically, there are multi-speed markets within the regions and often a delay between impacts from the Sydney market reaching the Central Coast.
For example, the Sydney market started to slow significantly around October 2018, whereas the Central Coast has only started to experience a small slowdown since January 2019.
The impact of multi-speed markets means sellers need to get accurate and up-to-date information on their market from local experts, not newspaper headlines.
The biggest problem with the property market is that the conditions can change weekly and are susceptible to a vast array of external factors, so make sure you arm yourself with as much information as possible.
2. Check out the competition
Before you put your property on the market and are persuaded by your real estate agent to list, it’s important that you check out the competition. By attending open homes in your suburb you’ll get a gauge for value for money and the level of interest from buyers. If you find there are very few people attending the open houses or the property is taking a long time to sell, then now might not be the time to sell.
3. Sell and buy in the same market
Particularly when property values are dropping, and the market is slow, selling and buying in the same market is a good way to minimise lost capital growth. However, it only minimises losses if you are buying in a similarly retracted location.
For those who sell in a low, and buy in a high, this is where you find your money doesn’t get the same level of value as it did before. The best outcome is to sell in the high and buy in the low.
We’ve seen a dramatic change in the number of properties on the market since the end of 2018, which indicates that those who are selling at the moment, have to – which means buyers know they can negotiate as they have the upper hand.
4. Be prepared to discount your price
An interesting indicator of the current market is the amount of vendor discounting from the original advertised price. Nationally, over the three months to April 2019, 75.6% of properties sold for less than their original list price. That’s quite a large figure, which tells us that the real estate agents are still a little off in their valuations and buyer activity.
Taking a closer look at Sydney and the figure jumps to 78.1% of all property sales were at a price below the original list price over the past three months.
5. It will take longer to sell
In a strong market, properties sell quickly, but in slower markets where the stock levels are high and buyer urgency is low, properties take much longer to sell. Over the three months to April 2019, the median time on market for dwellings nationally was 60 days, an increase from 35 days in the previous corresponding period.
Sydney properties are taking on average 62 days to sell, up from 31 days and 72 days for Regional NSW suburbs, up from 50 days.
Taking longer to sell does have additional costs, particularly if you’ve decided to rent furniture to style your home for sale. Often home stylists offer a 4 week fixed price package, so if you’re property is likely to take longer than 28 days to sell, you’ll need to budget for an extension. Always negotiate the additional weekly costs before you sign the agreement to keep the furniture for longer and budget for additional storage costs for your own furniture.
You may also need to budget for additional advertising costs with your real estate agent as the original ads move further down the online search results.
6. Buyers may struggle to get finance
This is one of the biggest reasons why home owners are reluctant to sell in this market and that’s because buyers can’t get the same level of finance that they could a few years ago. Credit lending has tightened significantly, which has reduced the number of buyers in the market significantly. The number of properties going to auction has diminished significantly as securing a pre-approved home loan is trickier in a slow market, and there are less foreign buyers available partially due to the foreign buyer tax.
7. Bank valuations are coming in low
To add to the woes of buyers trying to secure finance, as mortgage brokers, we are seeing bank valuations coming in lower than expected. Bank valuations are now a cost reduction for most lenders, so they are increasingly using internal staff to complete the valuations rather than external professional companies. The slow down in property has a knock on affect to valuations as there are fewer recent sales for valuers to base their decisions on. Valuers are also not using sales that settled late last year as comparisons, as the market has declined since then. They are having to draw on the current sentiment and forecasts for further property declines to base their valuations on.
In some situations, we are seeing valuations come in lower than the purchase price which means the buyer needs to provide more cash, and in some cases, they pull out of the purchase due to the low valuation.
8. Consider leveraging to buy, without selling
So now might not be a good time to sell, but a great time to buy. If your finances allow it, it might be worth considering holding on to your existing property and renting it out, and buying your next property. This can be a good option for those who have a small mortgage on their existing property and the rent received will be positive, enabling the home owners to buy their next property. The rental income will also help support your borrowing capacity.
However, changing your home into an investment property, may trigger a Capital Gains Tax (CGT) event, but you may qualify for a partial exemption as you only produced income from the property for a portion of the time you’ve owned it. Always speak to your accountant before considering any property transaction.
9. Love it, don’t list it
In a slower property market, it might be worth renovating or extending your existing property rather than selling to buy something bigger/newer. Whilst renovating isn’t for everyone, the construction and building market is much quieter now and it’s a good time to negotiate with builders and suppliers. You may be able to access the equity in your property to help finance the renovation/extension costs. If your property has the potential to be the forever home, talk to an experienced mortgage broker like Mint Equity to find out how much equity you can access. The improvements will increase the value of the property so if you do choose to sell later in a more buoyant market, you could potentially make more than selling now.
10. Reduce your costs by refinancing
If selling is purely a financial decision, you might be able to improve your interest rate and reduce your mortgage repayments, rather than selling. A 1.5% discount on a 4.99% interest rate for a $800,000 home loan on P&I repayments will reduce repayments by $702 per month. And if switching to an interest only repayment (even just for a short amount of time) will reduce the repayments by $1,963 per month.
Reducing your interest rate to improve your financial position is worth considering while you wait for the market to pick up. Just keep in mind that if you refinance and plan to sell later on, don’t take a fixed interest rate as there will be costs to break the agreement early.