how much to offer...

[foz]

hi, I am new to the country and am trying to buy.

Now please don't flame me for asking but...

On meeting a mortgage advisor, he volunteered the following information;

"property is selling at between 15% and 20% below the advertised price, so go in with a -20% offer and move up as necessary"

I suggested that this was the case to a real estate agent yesterday and he visibly lost his lunch, scoffing at those figures.

Now, I am not new to buying houses, but this is a new market to me, these are recessive times in the market and the real estate agent has vested interest in convincing me that what I have been told is way off.

what's the truth?

I am in brisbane suburbs bTW, thanks in advance for any feedback.

Foz.

 

[buzzlightyear]

What are comparable properties selling for?

 

[foz]

I don't know. Once the property is under offer it is confidential as to the agreed sale price. The property sold searches bring up figures that are out of date.

 

[Jacque]

Hi Foz

I don't know about Brisbane (different market) but 20% under asking would be rejected outright by the majority of vendors here in the Sydney market; times may be tough but only a small minority of desperate sellers would consider selling for 20% less if they had a realistically listed property on the market in the first place. Consistently offering lowball amounts won't get you very far with agents either- they'll know what you're going to offer before you inspect the 4th, 5th, 6th property and won't even bother showing you properties after a while, and you'll soon be known as a tyre-kicker.

This isn't to say you shouldn't give it a shot, but know your market first so that you can spot a good buy rather than just accept that 20% off the asking price is a "bargain" (and which asking price? The price it was first listed at 3/6/8 weeks previously? The price it's been dropped to for quick offloading? The inflated price the ambitious vendors have asked the agent to list it for?) - because, as the saying goes, "it ain't necessarily so!"

I'll give you an example. I know a vendor who put their house on the market at $1.2m recently. Beautiful house, but overpriced and being ambitious for this market, they wanted to recoup what they paid in 2003 ($1m) and a little more House was exactly the same as when they purchased (only 5 yrs older, obviously). If you had gone in and offered 20% under, you would have been tickled pink to buy it for the "bargain" price of $960K. And yet, had you done your due diligence properly in the first place you would have discovered it was actually worth $900-920K in today's market.
The property eventually was remarketed with another agency some weeks later (different pics, ad copy) when the vendors circumstances changed and they needed to sell quickly. It sold for a tiny $3K under the "new" asking price of $845K for $842K- a great buy for the astute buyer who picked it up. However, he only got it a .99% discount off the asking. Do you think he's pleased? My oath he is!!

By now I'm sure you get my point
When purchasing, it's not about how much you can get off the asking price. It's about knowing the market intimately enough to recognise a well priced property, an overpriced property, a TGB property (They've Got Buckleys!) or a real bargain, no matter what the asking price. You need to conduct your research and get out there and work to ensure that you're not overpaying and are being realistic about prices in general. It takes work, sure, but if you want to get ahead of the pack and snare yourself a good buy, it certainly isn't going to happen by routinely offering 15-20% off.

Hope this helps anyway and best of luck with your purchase.

 

[Jacque]

Just an afterthought....

I ran some stats lately on a suburb that I've recently done some work in: Castle Hill. Over the last 6 mths, the large majority of freestanding houses have eventually sold for an average of 2-7% off their FIRST listing price. Yes, there were exceptions (about 10-12 selling for 20-35% less, with one selling for a whopping 49% less! Very ambitious vendor methinks!) and there always will be, but I guess what I'm trying to point out is the reality of what prices are doing, at least in one suburb and the misconception that it's all about how much you can reduce the asking price by, because it's certainly not.

 

[GreenTreeFrog]

Great post Jacque.

 

[foz]

yes, I thought it was a astronomical figure when I was told it. However, knowing the market is taking time, I have only been down under since august. It is so hard when there is a such a variety of
A, structure,
B, location (streets change banding depending on bayside aspect, so one house next door can be 30% cheaper because it doesnt have a bay view), and
C, plot size and geography (is it flat usable space).

Looking at a property that is a good location, medium flat plot, small property that is on for 515. That's a reduced price, and they had it on with two agents. so that suggests to me that the previous price was ambitious, this price seems like a bit more ready to meet the market. Thing is I don't KNOW the true value. I am thinking that I just set myself a limit that I would be happy spending and engage the agent. Thing is I don't want to be left with neg equity because I lack experience of the area. I guess I'll go with my insticts... thanks for all the helpful advice Jacque!

I also don't want to offend the vendors or the agents. I am savvy enough to know a buyers market when I see one, just not long in the tooth enough to be able to spot a bargain.

 

[Perp]

When purchasing, it's not about how much you can get off the asking price.

I'm 100% with Jacque.

Thing is I don't KNOW the true value. I am thinking that I just set myself a limit that I would be happy spending and engage the agent. Thing is I don't want to be left with neg equity because I lack experience of the area.

There's no such thing as an absolute "true value" - if you're the ultimate buyer, it's worth whatever YOU are willing to pay for it - you're the market maker!

With regards to negative equity, that should only be a challenge if you over-extend and/or attempt to speculate (ie sell within a year or two for a quick profit). If you can comfortably afford the repayments and plan to hold for at least 5 years, then you shouldn't be too concerned about this. The possibility of having a short-term equity loss is part of the business.

If you think long-term, you may find it easier to see your current dilemma in context. What was that property worth 10 years ago? Maybe it was $300K. Do you think you'd be particularly bothered today if you discovered you'd overpaid, and bought for $310K? Not particularly. It's pretty easy to get within 5% of the "true" market value, and in light of future years that might experience 20 or 30% rises, I think that's close enough - though of course you don't want to pay any more than you have to!

 

[Rolf Latham]

Hya Foz

The mortgage person should stick to mortgages

While the statement may hold true in isolation in one property demographic its just a silly general statement to make.

An offer of 400 on a list of 500 in most places and at most wont get to contract.



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