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Buying Property: Utilise your Maximum Budget

Veronica Morgan takes us behind the scenes of Episode 6 with her expert advice on buying property and why you need to compare apples with apples. 

Darina was like so many buyers where she had a maximum budget that she could go to, yet had a lower figure that she really preferred to spend.  This made perfect sense, especially when she was also preparing for retirement in the foreseeable future.

What complicated things for Darina was that she was looking to buy her new home in the inner suburbs of Melbourne, where the majority of properties were going to auction, a sales method that she was not familiar with.  To add insult to injury, the market was pretty hot at the time and auctions were resulting in sale prices often soaring well above the agent’s guide prices.

So there were two things going on that complicated Darina’s search: the first was that she was looking in a lower price bracket than she could afford and didn’t like anything she saw, and the second was that she was finding it difficult to navigate the auction process.

Let’s tackle the first issue first.  It’s human nature to want more than we can afford so by looking under her maximum budget it’s not surprising that she wasn’t getting excited about the houses on offer during our search.  But then she told me that there was a house that she had seen previously and loved, only thing was that she would have to spend all her money to buy it as it was likely to sell for $50K - 100K more than the houses we looked at together. 

After seeing what was on offer for less money, Darina decided to go for the more expensive property.  It was a lovely home, but my concern was that she hadn’t been looking at apples and apples – she had seen one apple and was then comparing it to loads of oranges!  If she had been looking at the higher price bracket all along she may well have seen other houses that she liked as well or even more than this one.  So she ran the risk of not being able to put this one house in perspective, maybe even thinking it was better than it actually was.

The second issue was that Darina, like nearly every buyer out there, had to learn a way to understand the auction process and how to interpret the agent’s price guide.

It can be a bit dangerous making assumptions about what a property will sell for based on what the agent is quoting.  You certainly can’t take them at face value! There is a general rule of thumb with auction guides that many buyers use: simply add 10% to the price the agent is quoting.  But this can be a bit hit and miss as different agents have different approaches.  Some habitually quote low, others try to be realistic.  So it is important that you understand values yourself so that you can make your own mind up.

Many buyers seek to save themselves from the potential of missing out at auction by making a pre-auction offer.  Basically you need to make an offer strong enough to entice the vendor to sell now rather than wait in the hope of a dream price on auction day.  Darina had made an offer on this house prior to our search and the agent had not attempted to close the deal.  Ultimately it sold for almost $50K more than she put on the table, so the vendor would have been happy.

If you make an offer and the agent doesn't bite it's usually because he/she is confident that bidding will take it to that level on the big day.  If you make an offer and they do sell it to you, then it’s because you are the strongest buyer in that moment and they don’t want to risk having no other buyers to push you to that level on auction day.  It’s a calculated risk on their part – so your offer has to be just as calculated!

It’s tough out there for home buyers.  Auctions can be heart breaking!  But an educated buyer can learn to read the market and buy well.  Nothing beats your own research and a thorough understanding of property values.  That’s why it is so important to make sure you compare apples with apples.

Veronica Morgan also blogs on her website: www.gooddeeds.com.au/buyers-tips-and-the-property-market.

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Posted by PropertyReport
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