Spend more or lose out?

Hi everyone,

We are looking at bidding for a house next weekend. It’s a ppor and we plan to live here for about 10-15years before moving on. The house we like is old, needs a lot of work but it’s big, which we like (family for 5). I know the house is only worth a certain amount in this current market but my dilemma at the moment is setting a budget. I’m worried that another buyer might be interested in it too and we can both bidding on it until it exceeds it’s market value.

What would you do? Set a budget of what you think the property is worth and bail out once the bidding goes past this amount? Or spend more on the housing knowing you’ve overpaid for it but at least you got it. We like the house but we wouldn’t say it’s our dream home. We are currently renting and would like to buy ASAP so the prospect of renting for even longer while we wait for more properties to come onto the market isn’t too appealing either.
Thanks everyone for your guidance

 

A few things to think about.
What is market value? What is a property 'worth'? Especially in a rising market?
What are the consequences if you don't buy it? If you don't have any property, does it mean you can afford less next year?
If you expect the property to be worth more 10-15 years in the future, how much would it matter to pay more now?
Say a property is worth $1m now. How much would it matter to have bought it for 500k 10 years ago, or 550k 10 years ago?

For someone looking at property now, everything looked 'cheap' 10 years ago.

 

Buy now or risk being priced out(of your area) forever.

That's what many, many people will face soon. If not already.

 

I’ve been tracking this particular market for the past 3 months and for the past 2 weeks, prices have gone down. I will be buying now, just not sure whether I want to buy this house for more than it’s worth or wait for the next opportunity.

@Trainee, you do raise a lot of good questions for me to think about. Would people pay an extra $50-$100k for a property if they plan on holding it for 10-15 years?

 

You are taking a chance. If you aren't willing to offer more, you run the risk of not getting the property. What are the risks of that outcome?

'worth' and 'market value' are subjective, because it includes people's expectations of the future. Why didn't everyone buy last year? YOU think it's an 'extra' 50-100k, but just need one buyer to think it's worth more than you do (i.e. they don't think they're paying extra) to lose it. In a FOMO market like now, it can get away from you pretty quickly.

But if the market peaks or crashes from now, you would be better off not buying.

How good is your crystal ball?

 

That's not a lot of time to have P/B report,plus the money side of things sorted as once the hammer falls you own the property no-inbetweens..

Plus most will be sold subject to a silent reserve price and only the vendor and the R/E will know that number..

A simple way is wait till the property is on the market,if the price is above what you see value then walk away as all it takes is 2-5 people that want the property and if your in the zone mindset wise you will pay more then you first wanted too..imho..

 

The risk of the outcome is that we wait for another property to come on the market which we like. Which also means paying rent until we buy.

That’s my dilemma. All it takes is one other bidder to think the house is worth paying more for and the price escalates quickly and then it’s overpriced.

The B/P inspection is booked for this coming week. Our mortgage broker has given us the ok to bid for this property.

This property is already on the market. They had 4 weeks campaign and will go to auction 8th May. The agent has given an indication of the reserve price and it’s a reasonable price. Yes that’s my dilemma, do I walk away if the price goes too inflated or suck it up and just pay it to secure the house.

 

I bought late in 2019 when stock levels were lowish. I went to auction and managed to secure the property after paying probably 5-7% more than what I thought it was worth. As the market was starting to heat up, and I liked the home, I was comfortable paying above as I knew the speed of the market meant the value of the home was actually the price I was prepared to pay.

Fast forward to yesterday and a home just like mine down the street sold for almost 50% what I paid in 2019. Most people think the market has much to move.

 

What if the market moves and you can't buy a property at what you think is the market value? The risk is your buying power drops. How long are you willing to wait for the market to fall to where you think it should be? What if it never gets there?

Overpriced compared to what? Its just your opinion. Which is up against everyone else's opinions. It doesn't even need to be a majority against you. Just enough to bid higher than what you are willing to.

 

Wow that’s crazy! In the space of 2 years. Although the market has been pretty crazy lately. That is a good point, paying more than you think it’s worth with the expectation that it will grow higher faster in this market.

The problem is, I don’t think the market will drop to what I think it should be. I’m more worried that another bidder will pay more for this house than it’s worth in this current market. Like you’ve said, all it needs is one person to think it’s worth more and will pay more. My issue is whether I should pay more just to get the house or let it go. I’m thinking from your statements, you think it’s more risky to let it go than to spend a little more and get the house? I’m inclined to lean this way now after much consideration. My husband really likes this property and he’s willing to pay any price to get it. I’m a little more reluctant.

 

Look at this from another angle ,what happens if the property is not in the value range or above what your broker has set your lending limit and you have to find another 100k to close the sale..

Sometimes it's better to set your limit ,,then the agents works all the people and you go into that zone where you become carried away and end up trying to find the extra funds ..imho..

 

And what is the advantage of letting it go?

No idea about your market. Maybe it will crash tomorrow and stay down for a hundred years. Who knows. But you need to recognise that unless you can predict the future, risk goes both ways. You don't seem to be considering the risk that the market will simply move away from you, and you lose out because you can no longer afford the type of property you want (and could afford now, but at a price you think is 'high'). This is the frustration that Sydney house buyers are living through.

 

Thank you for your advice @willair. That would be a scary situation. Currently the price we’ve set for this property is about $100k less than what we are asking the banks for. And we have a lot of savings in our account to make the difference if the bank doesn’t lend us enough money. So I feel confident that the financing of this property shouldn’t be a problem.

 

Give hubby his head! Nothing ventured nothing gained. Seems biggest issue is being left on sudeline rather than paying 10 overs

 

No over paying on a property. Yes I understand that ‘overpaying’ is also subjective

Yea that is true. I’m putting more weight on the possibility of overpaying rather than the possibility of the market moving faster than my current budget. Hrmz...all good questions to ponder on. Thank you

 

Ha! It’s be the first he’s gotten anything right lol

 

Set a limit. It will take much of the emotions out of the situation when it comes time to make the call. But set a limit at the point you are paying say more than 5% extra than the last comparable sale. Or something you think is past the point of pain

 

I would look at this akin to setting a stop loss while trading.

 

Yes I agree. I want to set a limit before auction so we don’t get caught up in the frenzy. My issue was deciding on what that limit should be. But I guess a 5% on top of what I think the market value of this property is worth would be a good starting point. Thank you.

 

Then I expect that you will spend $50k of that extra $100k of the loan you have applied for....

@Trainee, you do raise a lot of good questions for me to think about. Would people pay an extra $50-$100k for a property if they plan on holding it for 10-15 years?[/QUOTE]
Yes, I have paid over market for a house I wanted, 10 years later it's worth double and I've had a fantastic place to live in the entire time

What Willair means is go to the auction and keep your hands in your pockets UNTIL the auctioneer says "we are selling today, the property IS ON THE MARKET", being that it has now reached the vendors reserve amount and will be sold at the fall of the hammer

Yes, it is currently advertised, so either you make an unconditional offer over the current price guide well prior to auction (letting the agent/vendor know your price point) or it goes to auction. *Id make a low(ish) written offer prior to test them out