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In this week’s episode, Dave, Cate and Pete take you through:
A question from our listener
Some questions for the pod about how to approach a flat/cooling market.
Cate what should you do when you are the only one to show up to an auction and or bid?
Peter, how do you approach comparables when prices are falling?
How do you take advantage of seller FOMO?
I also think a whole pod on climate risk (BAL levels, flooding, future temperatures in capitals) would be good. Keep up the great podcast.
When you are the only one at the auction – What are the risks that our own buyer psychology can create when this happens?
If you’ve done your analysis and you know the property is good, then being the only person at the auction is exciting and you’ve just gotten lucky. But buyer psychology starts to weigh heavy when there’s no one else bidding. Giving a low ball and walking away is some of the worst things that you can do. Ignore the bad white noise in your head saying that there’s something wrong with it.
You might apply some decreased percentage overlays in there. Same as in a rising market, if dealing with a property that had 1% month on month growth, you need to factor that in.
Speaking from a valuers point of view
Use the actual prices of comparable sales, whether the prices are actually dropping or rising. If you break it down on a monthly basis, over a three-month period (if market is moving quickly, don’t take more than 3 months), it makes a total increase of 6% or less, which is an acceptable margin of error for a valuer. The acceptable margin is actually 10%. What a valuer will do in a falling market, they would pick a value on the lower end of the range and in a rising market pick a value on the higher end of the range. We’ve been stuck inside for two years, we’re not missing out on life anymore. Took auctions on field trip – 12 Neville Avenue Thebedon, 600 square metres, fully updated. The record for that suburb was $1.8M, the comparables were $1.1M. The property sold for $1.3M. When a market is going backwards, it’s the best time that you get to buy forever moving forward. It will never get as low as the previous retraction, the window of opportunity is 3 to 12 months. If we look at covid retraction, it was 3 or 4 months. The surge is a lot more prominent in a market that is surging, than a market that is retracting. The psychology we’re talking about here is the fear of paying too much. People twist themselves in knots over paying too much. When really it’s miniscule in the long-run for most people. To buy a property, you have to be willing to pay for it more than anyone else.
Unless you pay more than the lender thinks it’s worth, and you get caught with a valuation shortfall, you’re at risk. But that is worst-case scenario. It’s very rare and if you’ve done your homework, it’s near impossible.
What do you do if the vendor’s expectation is sky high?
In a transitioning market is where the vendor expectations are a long way than yours, then what do you do. Have a peg in the sand of where you’re willing to go to and be prepared to walk away. In a crazy raging market, need to be more concerned about bidding. But for pass ins, take your comparable sales with you. Talk to them about where your appraisal is sitting and why and meet somewhere in the middle. Find out the vendors motivation to sell – vendor will stay or rent it out, that could be a bluff. If they don’t have to move, you might be banging your head against a brick wall. If you’re worried about being the only one, ask about the other buyers, what happened to them? Many campaigns have buyers that are jittery and opting out or they’re chasing finance, haven’t got their pre-approval in time.
Do your research
Rolling up your sleeves and get through as many properties as you can. Set up an excel and track sales that are comparables to what you are trying to buy – land size, bedrooms, bathrooms, garage. That’s the boring stuff that you actually have to do, it takes hours and hours and sometimes months, it can’t happen overnight or by short cuts.
Rising sea levels and climate risk
Where can buyers get good information about current climate change risks associated with their property in question?
Risk – flooding and fire, depending on what the risk is, you need to do some leg work and get a key understanding of what overlays are affecting you and zoning.
- Online insurance quote
- Call to local planning department at council
- 100 year flood maps
- Call to the water authority if worried about flooding
- Understanding the bushfire zoning and the implications of building – BAL and FZ – important to distinguish between the two
In north Queensland, it’s almost impossible to ensure against cyclones. Ask your insurance broker what would the premium be for this property and for these events.
Do two insurance quotes on two properties, if there is a huge difference in premium, it will show that there is some sort of underlying issue with the property.
If new homes have high foundations, you can tell that you are in a flood zone.