Henry is looking to buy his first house. He wants to ensure that he makes a good purchase as it is one of the largest financial transactions he will ever make. He is struggling to find the best deal, especially when a lot of speculation and uncertainty is coming into the property market. This drives him to look for different ways that he can buy a house for less.
Here are some tips that could help Henry and other potential homebuyers find bargains:
6 Tips To Spot A Property Bargain Like A Smart Buyer
1. Get A Pre-approval From The Lender
Make sure to be pre-approved for a loan before you start looking for a house if you don’t want to miss out on properties you wish to buy. Buyers tend to apply for a loan after they’ve found a suitable property. But the loan application process can take longer than expected. Sellers are not going to wait until you get pre-approval if there is a high competition among buyers. You also don’t want to discover later that the lender won’t lend you what you need. The pre-approval process helps you estimate how much you can borrow, which can help you negotiate and get the best deal.
2. Study The Recent Comparable Sales
Proper research will help you identify some spots for property bargains. First, you need to know the value of the home you hope to buy. One of the best ways to determine that is to look at recent sales of similar properties in the desired location and compare them with your property in terms of price and features. You can start assembling a list of comparable properties that meet your criteria and evaluating them carefully. This will allow you to arrive at a good estimate of what the house you want is worth on the market. In this way, you have enough data to back it up and you can give an offer to the sellers confidently.
3. Consider How The Market Is Shifting
The property market moves in cycles and there are times when they favour buyers or sellers. Studying the market properly helps you determine how the current market favours you and how it might work against you. Here are some market indicators to watch:
Auction Clearance Rates
The auction clearance rate is a great indicator of the market’s status. As a rough guide:
- >80%: It’s a seller’s market with prices rising rapidly.
- 50%-65%: The market is in equilibrium.
- 50%: It’s a buyer’s market with prices falling.
A change in auction clearance rates, in either direction, lets us know the market is shifting. A high clearance rate indicates strong buyer demand, making it a seller’s market. In this case, you might need to make a stronger offer because sellers will have plenty of alternatives to consider. If the clearance rate is falling but by less and less each week, then this lets us know the best time to buy may be approaching. When it stops falling, it is a good sign that the market has reached bottom and this can be the best time for some to buy, as there is more wriggle room to negotiate. You could put in an offer 10-15% lower than what you think the property’s worth to test the seller’s situation.
Rising interest rates cause auction clearance rates to fall, as borrowing power declines and people struggle to meet monthly mortgage repayments. The market turns in buyers’ favour, with property prices falling. This can be the moment for you to spot bargains on good properties. As of December 2022, the Reserve Bank of Australia has increased the cash rate to 3.10% – the highest in 10 years. This has helped cause a seven-month decline in the Home Value Index, as values fell a further 1.0% in November. If you can keep up with the repayments now, you can buy for less and benefit from a lower price and lower interest rates once they stop going up.
The Ripple Effect
The ripple effect is the tendency of property price growth to start in high-end inner-city neighbourhoods spread towards the surrounding areas. Once prices rise or fall in the premium suburbs, the change then flows outward, to less expensive suburbs and then other capital cities and regional areas. Changes in one key area can propagate outwards and affect the prices in neighbouring locations. If the expensive suburbs of a city are going up in price, you can look for opportunities in the surrounding areas.
4. Find Out Why The Vendor Is Selling
Finding out why the vendor is selling is crucial to success, as each one has a different reason to sell. You can start by building a positive relationship with them. Why are they selling? Have they already bought elsewhere? Are they looking for a quick settlement? What are the non-price factors that make the vendor tick? By knowing these, you can identify some factors that you can use to your advantage. For example, some sellers are keen to sell quickly because they have already committed to their next home. You can make an initial offer and let the sellers know that you are not willing to make increases. If the offer is genuine, sellers may sign the deal, as they don’t have time to wait.
5. Seek Properties That Have Had Trouble Selling And Appear Undesirable
You can ask agents which properties they have had trouble selling and start looking at these. You can look at properties that have been on the market longer than seven weeks. The vendor may have had unrealistic price expectations and may now be open to a lower offer. Inspecting properties that appear undesirable and ignored by buyers can give you some advantages. They may be good properties that have been ignored due to poor marketing, bad pictures or a difficult location.
6. Take Emotions Out Of The Way
The basic idea is to stay detached during negotiations with agents and let them know that the house you are willing to purchase is just normal and you can walk away if you don‘t get it at the price you are asking for. It can make sellers worry they may lose your offer, which can help you get the deal in your favour. Even if you think the house is ideal, don’t let them know because it will hurt you in negotiations. Buyers often get emotionally attached to a house and go beyond their budget to buy it. Keep looking if you can’t afford it because there is always the next one out there.
Things To Do When Looking For A Property Bargain
- Do proper research
- Know you budget
- Understand the location
- Work with experienced professionals
- Organise a professional building inspection
- Negotiate as much as you can
- Be prepared to walk away
Mistakes To Avoid When Looking For A Property Bargain
- Be prepared to walk away
- Don’t skip a mortgage pre-approval
- Don’t make assumptions
- Don’t rush
- Don’t let emotions get in the way
- Don’t go beyond your budget
- Don’t take decisions without an expert’s help
We Can Help!
Let Home Loan Experts brokers help you get a pre-approval, so you don’t miss out on the property you want. With Home Loan Experts, you’ll be prepared to find a bargain and take advantage of it. Please complete our free online assessment form or call us on 1300 889 743 and one of our mortgage brokers will make sure you get the finance you need to purchase a property.