Scared of paying above market value

Hi all,

I'm hoping to make my first purchase soon: an IP (house) in Brisbane. However, I've been submitting offers that are too low and not competitive enough. This is mainly because I'm nervous of paying above market value.

I've made a few (unsuccessful) offers. For properties which had asking prices of 'offers over $550,000', I put offers at $510,000 and $520,000. I tend to trawl through the sold comparable properties but it's not so easy as I'm making a judgment on the quality of the sold property based on photos on realestate.com. Then I make a 'safe' offer.

For 'offers over X amount', do you tend to put offers over that amount? Any guidance would be appreciated.

I'll be mostly making offers subject to finance. However, I'm looking to join some auctions. At one auction in Taringa recently, a house was sold for I think $690k-ish. However, another house on that same road (similar condition - but I later found out the height of the high set was of a sufficient height to build under whereas the house sold for $690k was not of a sufficient high to build under) was sold for $800k two months earlier. This made me feel that I was lucky not to go into this auction as I thought the house which was sold for $690k would likely have a value close to $800k.

 

This is your problem, right? You dont know your market. Do more research.

 

There is only so much research you can do.

Even in apartment or townhouse blocks where there are many similar properties, you will still find differences in values due to orientation, noise sources, position in block, inclusions etc.

When it comes to houses, no two are alike, and most are sold infrequently.

True market value is only established when the property is sold. An anxious seller and few buyers may mean a lower price than expected, but on that sale day that is what the market is prepared to pay. Next week a similar house nearby may come up for sale just days after several motivated buyers entered the market. This may sell for higher than expected, but that is the market value on that sale day.

The share market is perceived to be volatile, but that is partly because the actual value of each share is published each day.

The suburb you live in may go through a short slump with few buyers around, but most won’t be aware of this unless in the active buying or selling process. Sudden surges in demand tend to get the publicity as agents scramble for more listings.

What to do?

Keep looking at actual sold prices. Just remember that these are past prices, and the market may have moved.

A local RE agent should be able to give you a list of recent sales and their prices. I live in a suburb attractive to Asian buyers and we get regular newsletters from the local agents listing sales in the previous month or two.

Talk to agents at open houses to get a feel for value in the area you are interested in. And when you find a property you are interested in, make a realistic offer. In the early stages of an “offers over” campaign, you probably have to be close to or above the target figure rather than $40K under.

And if truly unsure, maybe pay for an independent valuation before making an offer supported by that valuation.
Marg

 

If the property is unique and you really want it then paying well over market may be the only choice.
In turn your purchase price may well set the "market price"

 

Two issues in my mind.

1. You don't really understand the value of the stock you're looking at.
2. Because of that, you are basing your decision solely on price, not value.

 

Have you thought about engaging a buyer's agent?

 

@Marg4000 I have a slightly different viewpoint on that. Generally I agree with what you're saying. The problem is real estate is an extremely inefficient market where at times, not all the players in the market are alerted to a certain stock that exists. This gives rise for opportunity for 'motivated/aggressive' buyers to search these sellers/REAs out and buy stock at lower prices than they ordinarily would have gotten if the entire market was aware of such stock. I have seen this happen many, many times and it happens for varying reasons imo.

 

If the true marker valye is 550plus.
Say 560 to 580.
Offering 520 in anyything but cold market you are going to get basically laughed at.
Would you say the market is warm . Very warm. Or hot in brisbane? Or the suburb

 

I'm totally with you on that. It's pretty much how we built our portfolio.

 

We have done this too, when the vendor wanted a quick, hassle free sale that would not fall over. Hubby even (very bravely!!) bought one without me seeing it.

But the bottom line is that, on that day, the vendor was prepared to sign off on our offer. If it hadn’t been us, it would have been someone else.
Marg

 

But if you managed to buy it say 50k less than very comparable sales because it wasn't transparent to the entire market yet, then IMO you bought it not at 'market price' but lower. Your an 'inside trader' The probability of it selling more inline with comparable sales IF it hit the entire market is much higher. And as we all know, vendors are sometimes willing to sell lower for a variety of reasons least of which is economic. So they get their payoff (whatever it may be) and the savvy investor gets theirs.

Also, seeking out OOT REAs and working their angle can equally (though through a different route) yield a BMV deal. But this is a whole different story.

 

Thanks for your reply. I'll do more research. However, it feels like there's a limit to it as I'm not an expert in this.

 

Thanks Marg, great advice!

 

Never thought about it this way before.

 

I have. But I thought that given the costs of engaging a buyer's agent and the fact there seems to be some unfavourable reviews of some buyer's agents, it might be best that I do it myself. Have you used a buyer's agent before? If so, how was it?

 

Interesting!

 

Thanks for your thoughts everyone! Appreciate your words of wisdom to an inexperienced wannabie investor.

 

Forget about the listing price and do your market research to come up with the number you think the property is worth and you are comfortable to pay. Keep submitting offers at this amount on properties you like until an offer is accepted.