Houses in Australia’s major cities are now some of the most expensive in the world and real estate agents’ tactics are regularly inflating prices so if you’re trying to buy a new home right now use these seven steps to avoid over-paying.
Houses in all of Australia’s major cities (along with Hong Kong and New Zealand) are “severely unaffordable” according to the 8th annual Demographia International Housing Affordability Survey.
The median house price in Australia’s capital cities is, on average, 6.7 times higher than the median household income, making it the most expensive behind Hong Kong where the median house price is 12.5 time median income.
This is something that anyone who wants to buy a home in one of the major cities should be aware of. This is due to strict planning and design regulations, as well as the lack of new land releases.
Warwick Brookes, president of the Real Estate Buyers Agents Association of Australia (REBAA) says tactics used by real estate agents who work for vendors also make a major contribution to forcing buyers to pay too much.
“That’s their job,” he says. “They’re not your best friend. They’re trying to get you the best price for your property.
“Essentially what happens is if a vendor’s agent knows someone will over-pay they will make them over pay and it’s fairly easy to make someone pay 10-15% more than they should.”
Brookes outlines seven steps buyers can take to increase their chances at getting a lower price for their next property.
“In times like this it is more important than ever that buyers research the market, find out how much they can comfortably spend and stick to their budget,” he says.
This is the best way to make sure you don’t get hoodwinked by vendors’ agents. Brookes suggests that you should first determine what you want in a property.
“Most people buy a house on average once every seven years and they buy based on emotion, on what they want and they are more likely to pay more for something they really want.
You should be careful not to reach too far. Comparing properties in different areas, for example, could lead you to compare apples with apples. Likewise, if you limit your research to looking at properties a vendor’s agent tells you are comparable, you may end up mislead about how much you need to pay.
It is best to attend auctions to get the truth about a market and to talk to agents to find out what the recent sales prices were. It is possible to speak with multiple agents in order to find out the truth about recent sales.
Brookes warns against purchasing property online without inspecting or sending someone to inspect.
It’s essential to get professional building a pest reports to understand the total cost of any work you will need to do on a property but don’t fall into the trap of paying for these expensive reports on properties you can’t really afford.
“If a home is quoted as being in the $400,000 to $450,000 range most people believe they will be able to buy it for $400,000 but, in fact, the reserve is over $450,000. The agent knows you can’t afford to buy it but they want you involved to create competition with other potential buyers and inflate the price,” says Brookes.
Brookes mentioned that he knows many couples who bought properties in their late 20s to 30s without ever considering whether they will be able to live there when they have kids. Brookes suggests that you have a 10-year plan in place in order to make sure you purchase the right property in your future.
Consider buying a home that has the potential to be extended or renovated. This will make your life easier and help you get better results in the long-term.
Keep your cards close by your chest. Divulge as little as possible about your personal financial situation to any vendor’s agent. Learn as much information as you can about the seller, and the history of your property.
“The best way to learn about the seller is to call competing real estate agents in the local area that missed out on the listing. Say you’ve had a look at the property and ask them what they know about it.”
Australians are not naturally good at haggling but it’s essential if you wish to come out of negotiations with the best possible price.
“The best way to go into it is to be willing to walk away. The agent and you can then play hardball together. Start with a low price but not too low or they won’t take you seriously. By calling an agent at a private sale, you can save between $10,000 and $15,000 It is as easy as selling your item at an auction.
Brookes says most properties are selling by private treaty at the moment but vendors’ agents sometimes pull unsuspecting buyers into a “blind auction”. This is a situation where they tell you there is another bidder and ask you to put your best offer forward but you don’t even know if anyone else is even bidding for the property.
“Your first instinct in this situation is to pay as much as possible but I have seen people end up paying $60,000-$70,000 more than the next person under them.”
If you find yourself in this situation either walk away or say you’re only willing to enter a bid in a boardroom auction where all potential buyers are assembled and the bidding is done in the open. Then you know what you’re competing against.
Don’ forget to factor in costs such as mortgage insurance, stamp duty, building and pest inspections and conveyancing fees. This will help determine how much you have before you place an offer on a house.
Of course Brookes recommends employing a buyer’s agent, someone who is a professional negotiator. REBAA claims they can help you save thousands of dollars by helping you prioritize your needs and keeping your budget in check.
A buyer’s agent will usually cost you around 1% of the property’s purchase price so it’s another fixed cost you need to budget for but Brookes claims you should at least break even and will usually end up spending less for your ideal home than you set out to.
– By Jackie Pearson