HOW TO SPOT GOOD DEALS IN A HOT MARKET

It can be hard to know what properties are worth if you don’t do your homework, writes

Knowing if a property is actually within your budget has become tricky.

Properties are regularly selling well above their price guides, leaving home seekers facing a conundrum: how do you know what a home is really worth? And how can you avoid competing for homes you stand little chance of securing?

Real Estate Buyers Agents Association president Cate Bakos said there was, unfortunately, no “magic formula” to help purchasers address the issue. The only solution was doing plenty of research.

“You must do your homework,” Ms Bakos said. “It perplexes me that people are willing to spend all this money on property but won’t pitch in a couple of hours work … Most people research their holidays more than properties.”

The majority of buyers who were outbid by thousands of dollars at auctions were vying for properties that were never within their price range to start with, she said.

Becoming wise in the ways of valuing properties and analysing sales meant understanding some key concepts.

HOW PRICE GUIDES ARE SET

Home seekers should view price guides with a heavy grain of salt, Ms Bakos said.

The primary reason was the boom market made it hard for agents to determine true “market value”. New benchmarks have been set every weekend and agents have reached the point where they cannot always predict what the market will be willing to pay.

This has been especially true during lockdown, when listing volumes in many suburbs have plummeted to record lows, while buyer demand has remained elevated.

University of Adelaide property program director Peter Koulizos said buyers were doing things “they wouldn’t normally do” to secure properties and this was adding a layer of volatility to sales. “There is such a shortage of supply, we have buyers who are getting very frustrated after missing out on property after property,” Mr Koulizos said. “They reach a point where they will basically pay whatever they can because they are tired of losing out and then watching prices go up the next week.”

Agent practices had compounded the problem – many sales offices tended to set price guides for auction listings well below the expected sale price, he said.

Mr Koulizos said agents usually lowered price guides in an effort to, ironically, get the home to sell for a higher price. “It’s economics 101,” he said. “The lower they quote, the more buyers they will attract to the property. And when demand goes up, the price goes up.”

He said many agents used the strategy in the hope buyers would visit a home and form an emotional connection. “It’s a way of attracting the bees to the honey. The sellers may want more than what the buyers were originally budgeting, but if they fall in love with the property they will find it hard to let go,” he said.

“In fact, they will move heaven and earth to be able to afford the property. They will go to the bank of mum and dad, they will try to get a better loan rate or any of the other ways to get extra money.”

HOW TO MEASURE VALUE

Buyer’s agent and director of Aus Property Professionals director Lloyd Edge said buyers should rely on comparable sales instead of price guides and expect to add a premium on top of recent sales.

“You can’t rely on sales from six to 12 months ago. You need to look at what has sold a week and two weeks ago because the prices are going up all the time,” he said. The buyer’s advocate recommended househunters phone multiple agents – not only those on the listings they liked – for a sense of what they would need to spend. “Ask generic questions,” Mr Edge said. “Tell them what you’re looking for and be specific. So let’s say it’s a three-bedroom house with a study in a certain part of the suburb, ask, ‘how much do I need to spend’.

“Agents will usually show you comparable sales, including what sold last week.”

Mr Koulizos said buyers could develop their list of comparable sales with a simple realestate.com.au search. “Click on sales, search your suburb, and then rank the results from newest to oldest. It’s that simple,” he said.

The tricky part of using recent sales to determine price was knowing which properties were actually comparable, Ms Bakos said.

For a comparable sale to be a reliable indicator of price, it needed to be a similar land size, condition and location, she said. “You need to be familiar with the premium streets and the not-so premium streets in the suburb,” Ms Bakos said. “You also need to factor in disadvantages, anything that could discount the property like proximity to a main road.”

Buyers who formed a good idea of value based on comparable sales needed to be prepared to add more to that amount in order to secure the property, Ms Bakos said. “We know the market is moving upwards, so you can’t secure something at last month’s price,” she said.