How To Buy Hot Property In a Sellers Market

As prices in some of Australia’s stronger residential markets such as Sydney and parts of Melbourne continue to increase, it’s wise to know which way the market’s heading and adjust your expectations accordingly. Recent weekend auctions in the country’s hot markets have seen auction clearance rates top 84% in Sydney and 73% in Melbourne. With investor confidence on the rise, low interest rate levels and no dire news being brought forth from the media, it seems the market is on a roll as we move into the Spring season.

But talk to any real estate agent and they will tell you that there’s a groundswell of buyers looking for property and simply not enough selling. Basic economics tells us that when limited supply meets with increasing demand, prices are pushed up. In these hot markets, sellers will generally hold a stronger position as they know that if the first buyer won’t accept their price (within reason) there are many more behind them who probably will. This tips the scale toward the seller and it then becomes known as a sellers market.

The problem comes when a buyer enters the market with knowledge from 3, 6 or 12 months ago. They may have expectations around price and where they see value that are quite different from what is happening on the day. This creates a disconnect between the buyer and the seller.

The reality is, in a sellers market, it is usually the buyer who has been in the market for some time who will secure the property. This isn’t necessarily because they have seen more properties during that time (although that helps) but more so because they have become used to the speed with which the market is moving. They understand that the value of the property is not what it was worth when they first started looking, or even what it was worth yesterday, but what it is worth today given the speed with which prices have moved since then.

So if you’re in a hot market and looking to buy here are a few tips to literally get you up to speed.

1. Inspect properties and record sales prices

Start by inspecting 80 to 100 properties before moving forward with any offers. Not only does it increase your market knowledge as to what a property is worth, it also helps to avoid wasting time on properties that you couldn’t really afford in the first place.

Also, record the prices these properties were sold for. Rookies will make the mistake of thinking that if an agent is asking above $600K then it’s worth $600K. More than likely it will be selling for around 10% more.

2. Set new expectations to gauge the speed of the market

Don’t get stuck in a time warp thinking that you can grab a bargain in a sellers market. Your efforts to save yourself $20K or $30K will often mean you're ceremoniously ejected from the negotiating circle for someone who has a finger on the pulse and understands that they need to pay what it’s worth in todays dollars.

Yes, you may get your way and find that one desperate vendor who is willing to take the first thing that’s put in front of them and a sales agent who doesn’t know any better. This could cost you months of time and the market may have moved twice that by the time you get around to buying.

Remember, no one ever saved their way to greatness. Investing in a superior product that performs well over time creates real wealth and if that means spending a little extra than what you felt comfortable with then that may be worth it.

3. Have a Valuation undertaken

It always pays to get a professionals opinion, especially when it comes one of the biggest investments you’ll probably make in your life. Remember, the bank will always refer to a valuer to gauge the true value of a property before lending money out and so should you.

A reputable Valuer can provide a number of different comparable sales of similar properties to the one you’re looking at. It can also reduce a lot of stress and guesswork on your part and give you a line in the sand to work from before considering an offer on a particular property.

So remember, if you’re a buyer in a sellers market it pays to move your expectations with the market rather than trying to fight against it, hoping the sellers will see it your way. The key is to secure a quality property at a fair price and avoid getting left behind. Otherwise you may find yourself standing in the same spot wondering why you can’t afford the very same property in 3 months time.

Josh Masters specialises in helping time-poor professionals build their own successful property portfolios. Working for Your Empire, he averages just over one property purchase a week for his clients, helping them locate, negotiate and often renovate properties in Sydney’s blue chip suburbs with an eye to building sustainable property portfolios.

Josh is a licenced Buyers Agent and is soon to publish his first book 'Why Property Why Now'.

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