Hot tips for buying well in a rising market

By Nila Sweeney

Buyer’s agent Frank Valentic from Advantage Property Consulting shares his successful strategies for buying in a hot property market.

The property market across Australia is, as teenagers may say, so hot right now. Signs include a rise in median house prices (property prices in all Australian capital cities increased by more than 5% in 2009; Melbourne alone increased by 34% in the past nine months), competitive bidding at auction and high clearance rates.

A hot property market also indicates a market in favour of the seller, not the buyer, which suggests a greater demand for residential property than there is supply. In fact, stock levels are still down by 10% on 2007 supply levels.

So if you’re looking for your dream home or a well-positioned investment property, it’s time to learn how to recognise value, then get creative with your buying strategy and the way you negotiate.

How to find value and recognise a good buy
Step one in purchasing any property is the ability to identify a good deal – and it all comes down to homework. Do your due diligence and undertake a sales comparison of similar properties that have sold in the last three months in your chosen area. Also consider engaging a buyer’s agent or valuer who has access to detailed sales data and is experienced in valuing property based on its location, existing condition, accommodation, style and land size/content.

To help with your research, you can also buy reports from Residex, RP Data or Australian Property Monitor. These providers offer recent sales information to help you assess if the property you’re eyeing is a good deal or just market value.

Also, always organise a pre-purchase building report. If there are structural building issues and maintenance concerns, it may give you some leverage in getting the vendor to negotiate the price downwards.

I’ve found a property, now what? 
Found what you’re looking for? It’s time to negotiate. While not everything in real estate is negotiable, experienced negotiators can secure top-notch deals in any market. In the current hot property market, those who can negotiate can still pick up some real bargains.

Good negotiators will track down vendors that need to sell and are motivated to sell. I call them ‘D’ vendors who are desperate to sell due to death, divorce, debt (or financial hardship), distance, deadline or disaster (due to business or work hardship).

Skilled negotiators ask many ‘why’, ‘what’ and ‘how’ questions to find ‘D’ vendors who are willing to negotiate. Use these tips to help you negotiate a good deal when you see it, and gain an edge to secure the property you’re after.

1. Make the first offer
With most properties receiving multiple offers, try to get a box seat for negotiations. Make the first offer and have the agent agree to come back to you with the final right of refusal to beat the highest offer, or to submit a counter offer. By making the first offer, you are in a position to negotiate with the agent so that you are the only person given a second offer opportunity.

2. Have a property to ‘trade in’
Having a property to ‘trade in’ may help you move into a more favourable position in the negotiation process. Nothing gets a real estate agent more excited than knowing they may be able to list another property while selling the one they have.

When the agent knows that he or she may be able to profit from two sales commissions instead of one, it could be to your advantage. If you don’t have a ‘trade in’ property yourself, what about a property owned by any family, friends, work colleagues or neighbours who are looking to sell?

3. Use syndicate purchases to leverage buying power
If you are buying houses or apartments around your city’s median price, you will have strong competition from homebuyers and investors – creating upward price pressure.

If, however, you joined a syndicate of purchasers to buy a block of flats for, say, $2.5m, your competition shrinks as there are less people with this investment or purchase capacity.

Our company regularly buys whole block of flats on behalf of syndicate investors to leverage buying power to avoid competing with small investors and buyers at the popular end of the market.

4. Make multiple low offers
If you are purchasing an investment property, it should not be an emotional decision. Never buy an investment property based on emotion and personal taste. Instead, focus on quality, blue chip, investment-grade properties that ‘D’ vendors just have to sell. Separate emotion from your purchase and make at least five multiple offers which will give you a better chance of finding a vendor that needs to sell.

Finding value and a good buy is a numbers game – the more offers you make, the more chance you have of finding a good buy and a motivated vendor needing to sell.

Tips for buying through private sales or auction 
The property on your radar could be for sale at auction or as a private sale. Keep these tips in mind to maximise your chance of getting the best deal possible.

Private sale buying techniques
Knowledge is power when it comes to negotiation. Find out as much as you can about the vendor’s position to obtain real insight into whether the property is worth bargaining for. Ask questions such as:
  • Why is the vendor selling?
  • Have they purchased another property?
  • What settlement terms would be most preferred?
  • How long have they owned the property?
  • Was it an investment or owner-occupied property?
  • Is it tenanted?
  • Have they had any offers?
  • How long has the property been on the market?
  • Are the vendors just testing the market or are they ready to sell?

Asking these questions will help to build a picture of the vendor’s situation.

Auction buying techniques and tips 
The current hot market still provides opportunities for savvy bidders to purchase property through auction. Bidding at auction can, however, be emotional and stressful. It can be a rollercoaster ride where other bidders re-enter the fray or new competition emerges just as buyers think they have beaten the competition.

There are many different strategies that can give you an advantage at a public auction:
  • Dress to impress. Wear a suit to create the perception that you have the money and budget to beat the competition.
  • Park your prestige car (if you have one, otherwise borrow one if possible!) at the front of the property. Stand next to it and create the impression that you have the funds to buy the property.
  • Position yourself towards the front of the auction near the auctioneer. This gives you a bird’s eye view of your competition so that you can see whom you are bidding against.
  • Ask a question at the beginning of the auction to direct attention towards you – specifically one that may make other buyers hesitate. For example, has the body corporate raised any special levies? What about the development plans next door? Is the car park on the title? Hopefully these questions may unnerve inexperienced bidders.
  • Keep your body language and gestures positive and confident at all times. Try to make direct eye contact with competing bidders with an ‘ice-cool’ stare.
  • Set a pre-auction limit and stick to it. There is no use getting emotional at an auction and overpaying by tens of thousands of dollars.
  • Question the agent as to how many contract requests and building reports have been commissioned, especially in the current hot market where there is a lot of competition. Wait for someone to make a low bid before placing a higher one of $10,000–20,000 below your estimated reserve price. For example, if the agent is quoting “$270,000 plus” for the property and someone opens at $250,000, you should increase the bid to $300,000 to show that you mean business. This also cuts out the bargain hunters, as even lower bidders can get emotional and increase their bidding levels – which has a snowball effect of increasing everyone else’s budget.
  • Ask the auctioneer “is the property on the market? Has the reserve been met and are you selling?” Hopefully, the bidding will stall and the auctioneer and agent will go inside for a break. They may try to convince the vendor to lower their reserve price and put the property on the market for an unreserved sale. Hopefully they tell the vendor that there are bidders present who won’t bid until the property is on the market.
  • Call out all your bids with full numbers, for example, instead of “$1,000”, call out “$301,000” so other bidders hear exactly where the bidding stands. Call out all your bids confidently and assertively like you are not going to stop and will continue until you buy the property. Volley bids straight back without hesitation so it looks like you won’t stop.
  • Break down your bids to slow the bidding if required. For example, if the auctioneer asks for $5,000 bids, offer $1,000 or $2,500 bids so that the momentum is slowed.
  • Use knockout bids, by doubling or tripling another bidder’s amount to try and psyche them out. You can also pretend you are out and wait until the third call, before coming in again with a knockout bid.
  • Use a third party to bid for you, such as a buyer’s agent, to prevent you getting carried away with emotion and spending too much on the property. A professional buyer’s agent, solicitor, friend or family member can negotiate on your behalf and separate the emotion from the property deal.
  • It’s a lot to take on board; however, buying a property is an important purchase and savvy negotiators and investors can still buy well in the current hot market. With strong growth predicted to continue this year, get on the property investment train before it passes you again.

More hot tips:

Tip 1 – Search for ‘off-market’ opportunities
With a high demand for properties and a low supply to draw from, expect multiple bidders or offers on well-positioned properties.

Try to target these properties before they are advertised and hit the market:
  • Regularly contact local agents to ask them about new opportunities.
  • Consider using an experienced buyer’s agent with well-developed relationships with real estate agents and a pipeline of ‘off market’ opportunities.
  • Try the old-fashioned, direct approach of doorknocking vendors or sending letters; not all vendors will want to pay agents thousands of dollars for advertising and commissions. Start pounding the pavements and make as many contacts as you can – it’s a numbers game.
Tip 2 – Buy unrenovated properties
To find value in the current hot market, you need to reduce your competition. Unrenovated properties are always considered a harder purchase as additional time, energy and money must be put towards them.

We have always found a higher demand for well-renovated, designer-style properties, as opposed to ‘ugly duckling’ unrenovated homes. The worse the condition, the better off you’ll be, as the idea is to scare away as many buyers as possible.

Frank Valentic, of Advantage Property Consulting in Melbourne is REIV Victorian Buyer’s Agent of the Year 2009 and REIA Australian Buyer’s Agent of the Year 2010. Finalist and winner in 2008