Sydney Property Purchase: Insights and Strategies (2022)
A potential client approached me for help. They were on a tight budget and looking to buy a property in Sydney’s West. The property was a large family home, also zoned as an R3 development site (suitable for townhouses and duplexes). Competition for such properties is fierce, with interest from families, first-time homebuyers, and developers.
The client felt the price guide was good value, reflecting the current discounted market. However, I advised them that the property, a modern 6-bedroom home, would attract high competition due to its R3 zoning and excellent condition.
Their budget was $1.25M, preferring to spend $1.1M. They were fixated on the pre-auction guide of $895,000, thinking this was the price. I explained that price guides are often underquoted to attract more buyers. This practice is legal but controversial, and many buyers are emotionally driven to exceed their budget.
Many complaints about underquoting come from disappointed buyers with unrealistic price expectations. A property professional can provide an accurate market price, helping buyers navigate this challenge. Their are some pretty strict rules around underquoting a property, however the grey line of minimal price quotation is very strong. The price must reflect the agents agency agreement with the vendor, if not the selling agent is dangerously exposed. One Fair Trading inspection would clarify this.
Emotional responses are common when buyers miss out on properties. A buyer’s agent can help manage expectations and provide professional recommendations. My role is to secure the property for the best price, knowing the value and market conditions before negotiations begin. Pre-auction negotiations are preferred for a controlled environment with less competition.
In this case, the property was listed for auction with a guide of $895K. It went to auction and was passed in, with bidding not reaching the $1.1M reserve. The client missed the post-auction purchase at $1,095,000. This indicates they might not have been honest about their budget or were limited by their bank’s preapproval.
When engaging with clients, I ensure their financial position and spending capacity are clear. This helps determine if they can be competitive or if their expectations are unrealistic.
As an auction expert, I know that small amounts can make a big difference. Techniques to slow and limit price increments at auction require knowledge, perception, and bravado on the auction floor all contribute. Post-auction preparedness is also crucial to secure the best outcome and price. You have to know the market and prices points to effectively negotiate your position and persuade a vendor to close their price expectancy gap.
The Importance of Concluding Transactions on Auction Day
Closing the deal on auction day is crucial. Agents are motivated to finalize the sale, and auction terms (unconditional) remain intact until midnight. Vendors often find the auction process shocking if the final bid doesn’t meet their expectations. They usually opt for auctions to ensure a sale, often due to pre-commitments like downsizing, purchasing another property, or fulfilling beneficiary demands. These commitments typically require a specific timeline, and the vendors have invested in open home inspections and marketing campaigns. Consequently, vendors are psychologically committed to selling on auction day.
In the current market (2022), I’ve been the underbidder in four auctions. Failed or ongoing negotiations are often due to vendors having high expectations from the peak price periods of December 2021 to April 2022. Since then, two rounds of interest rate hikes and negative media coverage about rates and inflation have affected the market. Today’s dollar buys less due to inflation and supply chain issues.
Ignoring inflation and interest rates is risky. Recent rental price spikes of up to 20% mean those delaying property purchases are losing out as inflation erodes savings. Owning property can hedge against inflation, as property prices are likely to rise with inflation, not fall.
Vendors often withdraw properties from the market if they don’t get their desired price and instead rent them out, benefiting from the current rental market shortage and increased rental prices. There’s a significant gap between vendor price expectations and what buyers are willing or able to pay. Some agents promise high returns to secure listings, then work to align vendors’ expectations with market realities using feedback from open house inspections. Most vendors set their auction reserve on the day of the auction.
Many vendors aren’t motivated to sell right now, reducing the number of properties on the market. If a property doesn’t sell at auction, renting becomes a fallback option unless the vendor needs to sell due to personal circumstances. Motivated sellers need to realize the sale to move on.
A transaction involves both buyer and seller agreeing on a price. It’s not just about the buyer. Misunderstanding the market can lead to financial and emotional disappointment. An experienced buyer’s agent knows when to push and when to pull back, understanding the psychology of all parties involved.
Ignorance is not bliss; it means ineffectiveness and self-deception.
For expert property assistance, contact Gary at [email protected].
