Bargain priced property, here's how
All investors want to pick up a good property for a bargain price. For those who manage it, this is usually less a matter of luck than it is strategic buying and negotiating.
Finding your vendor
Generally, the vendor who is willing to negotiate on a lower price will be driven by a certain set of financial circumstances. These are known as ‘distressed sales’.
Identifying the right vendor in the right market is the key to negotiating a deal under market value, wHeregroup director Todd Hunter says.
“There are multiple situations where vendors will find themselves under pressure to sell,” Mr Hunter says.
“The biggest ones I find are either job loss, mortgage stress due to high interest rates and poor serviceability or divorce, which is a huge one,” he says.
Finding a distressed sale requires just as much due diligence as locating a property hotspot and investors should take the time to research the market for potential opportunities.
Using the internet and keeping track of which properties have been on the market for a while is a good place to start, Mr Hunter says.
“I keep a spreadsheet of addresses of properties that I keep my eye on,” he says.
“If you are looking at a particular suburb you need to get to know the local agents, especially the active ones who dominate that market.”
Once you have decided on the particular location or suburb in which you want to buy, take the time to hunt around and really get to know the best agents in the local area.
After all, they are the key to making this work.
“Get to know them and make sure that they know you are there to buy,” Mr Hunter says.
“By letting the agents know you are an active purchaser, they will be calling you as soon is there is an adjustment in price,” he says.
As a leading buyers agent, Mr Hunter regularly visits up to 20 properties a day on behalf of his clients and had developed some of the most resilient tactics when it comes to negotiation.
“Out of the 18 to 20 properties I might visit in a day, I will then go and put a low offers in on the whole lot,” he says.
“What will then happen is the vendor will come back to me and say ‘yes, I’m willing to negotiate’ or just give you a straight up ‘no’, but it’s the ones who are willing to negotiate that you want to keep hold of.”
Investors should not be disheartened or put off by a low offer being refused by a vendor.
“You must remember that the vendor has had a real estate agent come into their home, tell them that it is worth X and you go and offer them Y,” Mr Hunter says, “and it’s almost an insult to a lot of people.”
You will always come up against vendors who take low-ball offers personally, especially if they are house-proud and believe their property is worth more than you are offering for it.
But the fact remains that making that initial low offer is the fastest way to identify a vendor who is willing to talk turkey.
There are two things an investor will use to their advantage when buying under market value: a distressed vendor and a trough.
A trough occurs once a market has bottomed out after a downturn, where stock levels are high but buyer confidence and hence demand is low due to uncertainty around when the market will pick up again and property prices begin to edge upwards.
“It’s all based on the market cycle,” Mr Hunter says.
“You will rarely find an undervalued property in a rising, heated market because the agent will protect them,” Mr Hunter says.
“They know they can get a higher price,” he says.
“But when a market is in a trough and real estate agents are not selling and they are not earning commissions, they start pushing for that sale.”
If you are the only purchaser in a particular market, or one of few, the ball is effectively in your court when it comes to negotiating on price.
If a market has been down for some time and you make it clear to an agent that you are an interested buyer, they will be looking to you for their next meal, Mr Hunter says.
“They will be looking at you for everything, and a vendor will grab that one last potential purchaser who is there because they may not have had one in a while,” he says.
“They will talk to you for sure.”
Understanding property cycles and knowing when to buy are essential tools for any investor.
Negotiating tips
If you really want to secure a sizeable discount on your next investment, it’s going to require some tact.
First off, let’s assume you have put in a number of low offers to a variety of vendors. Some have been rejected and a few have indicated that they are willing to play ball.
"Now, the key is to start low, slow and let the vendor counter offer,” Right Property Group’s Victor Kumar says.
“You need to get the agent on your side, which comes with multiple dealings,” Mr Kumar says.
“The agent has to be the one to go in and bat for you, which is why it is so important in the initial stages to make it known that you are a serious buyer and not a time waster,” he says.
“This is why many investors use a buyer’s agent as we are talking to real estate agents on a daily basis and therefore have a working relationship with them.”
There are many advantages of using a buyer’s agent to negotiate a deal for you. Like everything, there is a cost involved, but you might find you save more in the long run if the right property can be secured well under market value.
One of the myths of negotiating deals of this nature is that mortgagee sales are restricted to buyer’s agents or those ‘in the know’, which is simply not the case, according to Mr Hunter.
“Mortgagee sales are made public, they have to be as the banks must be seen to be making an effort for selling the property for market value,” Mr Hunter says.
The majority or mortgagee sales are auctioned, which can be a direct advantage for investors.
“You can find out if it is a mortgagee by looking at the contract of sale, in which case the vendor will be a bank or financier,” Mr Hunter says.
“When I go along to these sales I quite often find that I am the only registered bidder, which then immediately means I will put in a low offer on the property,” he says.
“What then happens is the real estate agent, the bank and myself will have a three-way conversation after the auction and either put the deal together or not, which will depend on how much is owed on the property and whether the banks are willing to release it.”