Patrick Bright exposes the traps property buyers need to avoid and the tricks real estate agents use to make a quick sale.
You’ve decided that 2010 is the year to buy your first property. Now you need to work through the various options to determine what type of property you want to own and where it should be located. Before you start looking around, take the time to evaluate the following options so that you enter the property market with a plan that fits in or works for your future.
Do you want to buy a home or an investment property?
It can be a difficult decision to choose between buying a home and an investment property. Some people are frustrated with the moving that goes along with renting property and want security through owning their own home. Others believe the financial benefits of an investment property outweigh the negatives associated with renting. Here are a few things to consider in helping you make up your mind:
There’s no doubt that an investment property will help you when it comes to your bottom line. There are significant tax deductions that come with property investment that will allow you to move ahead more quickly financially, compared to buying a property as a primary residence. However, bear in mind that investment properties are liable to capital gains tax if you sell down the line.
Renting your primary residence allows you to relocate without significant expense
If you change jobs and want to move to be closer to your new place of work, then the financial cost of relocating from one rental to another is no big deal. However, if you own your own home and need to relocate then the buying and selling expenses can be very costly indeed. Be prepared to spend tens if not hundreds of thousands of dollars on expenses such as stamp duty, legal fees and pest and building expenses.
Many people want the security of having their own home from which they can plan for the future, renovate small or large and have peace of mind that they know where they’ll be living – without worrying about tenancy agreements. If you can comfortably afford to buy your long-term family home in the location where you want to base your future then go for it. However, if you just want to own your own place and are prepared to make sacrifices to do it then you really need to evaluate your options. You may be better off developing a financial plan that will eventually lead you to your dream family home rather than buying a substandard property that you won’t be happy with.
Hidden traps when buying your first property
There are plenty of hidden traps and pitfalls that prospective property hunters fall into every day. People forget that buying quality real estate at the right price is a process that takes time, dedication and plenty of energy. Here are a few common mistakes to avoid when you start your property search:
Don’t just start searching all over the place hoping that the ideal property will just turn up. If you take this approach then the chances are that you’ll waste plenty of time and energy and end up purchasing something that doesn’t meet your needs, or is beyond your budget.
Instead, make sure that you’re prepared when your start looking for your home or investment property. Firstly obtain finance pre-approval so that you know what your budget actually is. Then take the time to develop a comprehensive ‘needs’ list and a ‘wants’ list. Refer back to these lists whenever you look at a property to check that it ticks all of the boxes on your needs list, so that it doesn’t disappoint you down the track when the excitement of buying wears off.
When you’ve been looking for a few months and haven’t found many properties that have a strong appeal it can be an exciting moment when you finally discover a property that you really like which also meets your needs. The challenge for many is to keep their emotions to themselves and not shout them out to the world.
Always be cautious of what you say when you view a property as you don’t want to give away your negotiation power by giving the sales agent too much information. If anything, you should be trying to source information from the selling agent such as why the vendors are moving and if they have bought elsewhere and need a quick settlement. Any information that sheds light on their level of motivation to sell can be very beneficial when negotiating down the track.
Be wary of trying to speed up the process simply because you’re sick of spending your weekends going from one open home to another. Buying a quality home or investment property takes time and effort. It’s likely to be one of the biggest financial purchases in your lifetime so you want to get it right. Avoid the temptation to skip important steps such as researching recent comparable sales to gain a good understanding of current values, or undertaking pest and building inspections.
Real estate agent tricks and how to spot them
When looking for property it’s always important to recognise that the sales agents work in the real estate industry six days a week on average. They understand what processes are effective when trying to secure a sale and they will use these proven methods to try and obtain the highest price for their clients – not to mention the additional commission they will pocket on any increased sale price tag. Here are some common strategies that you should look out for when on the property hunt:
Beware the ‘other buyer’
Have you noticed that when you’re interested in a property there always seems to be another buyer? The property may have been on the market for a few months with little to no interest, but just when you register an interest another party turns up! Call me sceptical but I don’t pay much attention to these often phantom buyers. On many occasions many of these other eager buyers seem to disappear when I decide to call the sales agent’s bluff and walk away from the negotiating table, leaving the property still on the market. Don’t let the prospect of a second interested party con you into making a ridiculously high offer. Do your research, determine what the property is worth and then negotiate on facts and figures rather than the fear of missing out. If the other party is real and prepared to pay a higher figure than you then walk away and find another property that meets your needs and is within your budget.
The advertising spin
These days we’re seeing more and more sales agents focusing on online advertising to showcase their listings. There are images, floor plans, detailed descriptions and even virtual tours. While this information can certainly give you an indication of what the property has to offer, don’t be misled into believing that what you see online is what you will get in reality. The images and descriptions can make the property seem far more impressive or suitable than it actually is. There’s no substitute for personally inspecting a property to ensure that you know exactly what you are buying – not only to view the property but the surrounding area as well.
A verbal agreement
Finally, after months of looking you’ve found the ideal property and have agreement on the price. Don’t pop the champagne cork or start planning where you’ll put the furniture just yet. A verbal agreement is worth nothing when it comes to buying and selling a property. You must have a signed contract that has been exchanged with the vendor’s legal representatives before you start celebrating. If you don’t then you could be in for a big disappointment if the property is sold to someone else before you sort out the paperwork.
Liaising with a variety of selling agents can be tricky. The majority enjoy a good chat and seem genuinely interested in finding out more about you so that they can let you know about any properties they list that might meet your needs. However, no matter how friendly a selling agent seems you must remember that they are hired to represent the seller – not you. Their aim is to always secure the highest possible price for their vendor and they will use any information that they know about you in areas such as your available funds or your motivation to buy in order to put a high-priced deal together. After all – that’s their job! So, while it’s important that you establish a good communication channel with selling agents, don’t jeopardise your negotiation position by giving away key information in idle chatter as it can come back to bite you should they list a property that you want to purchase.
Patrick Bright is a real estate author and buyer’s agent. His bestselling titles include ‘The Insider’s Guide to Buying Real Estate’, ‘The Insider’s Guide to Saving Thousands at Auction’ and ‘The Insider’s Guide to Profitable Property Investing’. For more information on Patrick Bright or EPS Property Search, visit www.epspropertysearch.com.au