Tactics to deploy in a hot property market
There’s no doubt the Sydney property market has been and still is a sellers’ market and competition to find the dream home or perfect investment remains fierce.
This however is no excuse to put off buying property if you’re ready. Yes, it’s true that buying at the bottom of the price cycle is ideal but that doesn’t mean you have to sit idle and wait for your lucky break. Unless your strategy is buy and flip, an average owner/investor will be holding onto their crown jewel for eight years or more and generally speaking, and I stress generally, what may seem expensive today will become a bargain in eight to ten years. So even in a hot market, there’ll be good opportunities around if you look hard enough, but the key to success is speed.
Before you even start looking at properties though, you need to get a few “basics” spot on, and it often surprises me how often some people either forget or simply are not aware of these. In my opinion the very first thing you need to do before anything else is setting a very clear selection criteria (e.g. location, budget, gearing, gross and net yield, to number of bedrooms/bathrooms and distance to transport/amenities). Once this is set, stick to it! This will help lessen the effect of emotions that often come into play when you start viewing properties.
Secondly, surround yourself with a team of experts. Our team includes a Bank Manager (whom we refer to as the walking calculator), a Solicitor (who’s always a step ahead of us), an Accountant (who owns a few and understands property), a Property Valuer (to give you a conservative but more realistic property value) and local Real Estate Agents (who often have access to not yet marketed properties).
In the field
Now, you’re ready to start scouting for “the one” that best fits your predefined selection criteria. Remember though competition is fierce, it’s not uncommon for vendors to receive multiple offers so here’re a few things you can do to better your chances.
Forget the rabbit and turtle story, in the game of buying property in a hot market, it’s first in, best dressed
Get an instant advantage by inspecting the property before the first open inspection, this is not always possible, but it never hurts to ask. Find out what the seller’s motivations are, pricing is often only one of their considerations. They might find a shorter/longer settlement or a rent-back period an attractive proposition, be flexible and use it to your advantage.
Whatever the sellers’ motivators are, be realistic with your offer. Ask the agent what amount will get you over the line, then go in strong (not necessarily your best offer but one that gets the seller thinking). In a competitive market, my opinion is don’t bother going in low and dragging the negotiations out, because speed is of the essence and chances are someone else who’s willing to move quicker will win.
Another sign of a hot market is the popularity of Auctions and in our own experience, auctions can be extremely stressful (and costly) for both the buyer and seller. Submit a strong and realistic offer prior to auction, and it may be just enough to win the seller over, particularly in the early stages of marketing, as it saves them from the uncertainty of what happens on auction day.
Coming back to speed, be prepared to make an offer on the spot. Before we inspect a property, we always print out an offer letter and fill in the amount after we’ve seen the property. Make sure you put in a deadline for the offer (one or two business days) to add a sense of urgency and include your solicitor’s details so that a copy of the contract can be sent to them straight away if the offer is accepted. Throw in a thousand dollars as deposit, by cheque or EFT to the agent’s trust account. By doing this, the agent knows that you’re a serious buyer and will work hard to get the deal across the line.
If you’re lucky and the vendor accepts your offer, keep holding your breath…there’s more work ahead.
Until you exchange contracts, anything can happen. We’ve seen two recent examples of vendors wanting an extra $15,000 and $30,000 at the very last minute as a higher offer came in, and I mean literally right before the final signature is signed on the Sales Contract. To minimise this from happening you can offer to exchange immediately after your offer is accepted and use your five business day cooling-off period to carry out all your due diligence (e.g. reviewing the sales contract, obtaining strata inspection report or pest report). However, if you choose to exercise your cooling-off rights, you’ll need to pay the seller 0.25% of the purchase price (e.g. $2,000 on a $800,000 property).
In the current market though, some sellers insist on a ’66W Certificate’ which waives the cooling-off period on exchange. In this situation, this is when you leverage that great relationship you’ve built with your super-duper solicitor to review everything in lightening speed and having that pre-approved loan in place right from the start comes in handy. It’s not common that you can find a solicitor who’ll review contracts over the weekend so that you can sign with a peace of mind come Monday morning, and that can be the difference of you getting or not getting the property. So I can’t stress enough the importance of an exceptional team, once you find these people, be extra nice to them!
If you’ve done the best you can or the seller gets too greedy, be prepared to walk away. Sure you’ve devoted a lot of effort and energy into it already but buying property isn’t an exact science and sometimes if luck is not on your side, remember, there’ll be other properties out there that fit your criteria.
Disclaimer: General Advice Warning
The information contained in this post is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.