Nobody ever wants to pay more than they need to for a property. Not only is there the purchase price, but there is stamp duty on top and don’t forget the associated mortgage fees and costs like Lenders Mortgage Insurance (LMI).
And with the only person between you and the seller being a biased real estate agent, who’s pay is based on the sale price, how can you be sure you’re not paying too much?
Now we aren’t going on a real estate agent bashing expedition, as there are some great agents out there who have excellent business ethics, but buyers need to remember, the seller is the real estate agent’s client, and they have their best interests at heart – not yours.
So, aside from the real estate agent telling you the price expectation, what can you do to ensure your offer is reflective of market value.
Sellers want more… but it’s too late
The property market is changing weekly, and for the first time in a long time, we are starting to see bumps in the road for sellers. After 12 months of continuous and rapid growth, things are starting to slow down.
Watching the rapid growth and price increases over the last 6 months, home owners have seen others cash in on this growth and have an expectation that they will too. Property is all about timing, and listings hitting the market now after such rapid growth are starting to stagnate as buyers dry up.
Particularly on the Central Coast, we’ve seen a slow down in new listings since the government and banks have restricted foreign buyers and made it more difficult for investors to get a mortgage. With fewer listings, real estate agents need to build their sales book, so they certainly wouldn’t want to disappoint a potential seller buy quoting a lower sale price.
Don’t worry about the listed price
A perfect example of the Central Coast premium property market being overpriced at the moment was when a real estate agent said to one of our clients “Although it’s listed at $2.3M, the vendors need to sell. I think they’ll take an offer around $2.1M, which is what I valued it at originally”.
When the client told the agent that even $2.1M was a stretch to their budget, the agent encouraged the client to still inspect the property as the seller “had bought elsewhere” and was “motivated”.
In the space of a 3 minute conversation, this client has potentially saved $300,000 to $500,000 off the purchase price.
Let’s tackle how to find out if the property is overpriced.
Research is power and money saved
Be sweet to the agent
It pays to be nice to the real estate agent. A harsh or arrogant approach will never help. Ask open ended questions like, ‘why are they selling?’, ‘how long has the property been on the market’ and rather than the price expectation, ask if they have received any offers in writing yet. Agents will often say ‘interest is around the $2M mark’ but ‘interest’ isn’t a formal offer and can use this phrase to help drive offers up.
Get a property report
In the aforementioned case, we provided the client with a property report which showed that the seller only purchased the property 2 years ago for $1.87M. The property report also showed recent sales in the same street and suburb, all of which were superior properties sold at lower prices. Also, currently listings in the report showed other properties for sale at more reasonable prices.
Knowing what the current owners purchased the property for will give you an idea of where their expectations may sit and if they will lose money on the property if sold for less.
Monitor the number of days on market
Property reports also show the number of days the property has been on the market. A typical campaign will run from 4-6 weeks (28-42 days), so anything over 45 days in a popular area like the Central Coast means the property is not attractive to that many buyers for some reason.
Google the property address
Old real estate advertisements can bring up photos from previous campaigns, and you’ll be able to see if the current owners have made any improvements to the property. This will help you assess if the property is now more valuable regardless of market growth.
Monitor the market and auction clearance rates
If you have the time, go and see as many properties as you can, watch the crowds, talk to the agents and keep in touch with them. One of our other clients kept in touch with an agent after seeing an overpriced property managed to secure it $300,000 below the original listing price. The buyer had let the agent know that they loved the property but because of the refurbishment work they wanted to do to the property, couldn’t meet the original price expectation. Constant contact with the agent meant the buyer was informed when a price reduction was initiated.
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Keep in touch with those in the know, like Central Coast mortgage broker Mint Equity. We have relationships with key industry contacts and real estate agents who give us the honest truth about the market. We consolidate that information with market data and present it in a way that is easy to digest. Subscribe to the Mint Equity newsletter to keep in touch.