Think carefully before using hard-earned equity from family home to fund a holiday home.
Getting to grips with comparable value
Thrill-seeking types apart, the path to striking a mutually acceptable price on a residential property is invariably a psychological trial for both buyer and vendor alike. For buyers, it is easy to be exhausted by opposing impulses. On one hand, there is the hope of securing that dream home or investment for a reasonable price (and perhaps even a bargain); on the other, the buyer fears being the fool who overpays or whose over-crafty low-ball offer sees them miss out. The vendor faces a mirror image of these concerns, and each party will often spend more time than is healthy trying to second guess the mind and stratagems of the other.
The battle of wits and nerves is an ageless part of negotiation. Some people are innately more suited to it whilst others learn through experience. Now vendors have estate agents to help them with negotiations and buyers may use their own advocate, but these relationships are partnerships and the client will still make the final call on making or accepting offers.
The most important action a participant can undertake to buttress their negotiation position is to have a clear sense of the market value of the property in question, built on contemporary evidence. Knowledge is truly power. Typically that involves gathering the results of recently sold similar or comparable properties. Naturally, adjustments are made to account for differences in the properties – such as location, aspect and quality of improvements – and time elapsed since the date of the comparable transaction.
The process is as much art as science and is of course never definitive. It is harder still when a market is on the move – be it up and down. In periods of strong growth or contraction, it is as vital to understand the rate of change of prices as the prices themselves.
The ideal approach is to have closely watched the target market for several months, as the price trend usually emerges. To calibrate value and where it’s flowing, nothing beats tracking the ebb and flow of supply and demand by recording new listings and sales, attending open for inspections and auctions and assessing property features, the size and mood of the crowds and the disposition of agents. Remember, this exercise is focused work – you’re not interested in the outlook for a city or a town, just the micro-climate forecast of perhaps a few contiguous blocks or similar streets in adjacent suburbs.
Although all this involves substantial time on the road, those trying to divine prices are now fortunate enough to have access to quality – and free – tools online to make the intelligence-gathering campaign easier. On Domain.com.au, one can download the latest weekend’s auction results or, better still, subscribe to a weekly newsletter. Punch in your area of choice in the ‘Sold’ section of the site and you’ll receive several months of recent sales including prices and the estate agent’s original listing replete with photographs and floor plans. This is a useful device to assess trends in prices over time as well as determining how differences in features between properties can affect value.
Another handy – and only relatively recently made free – feature of Domain is its Home Price Guide. I’m not concerned with the estimated price range that you’ll see when you type in an address as this tends to be very broad. Of more interest is the associated historic sale and rental prices. It’s a helpful way to benchmark whether a property has a history of performance in terms of capital growth and – if it was owned by investors – delivering an appropriate rental yield. More importantly, this page allows you to look at comparable properties that haven’t been on the market for a few years.
Of course, care must be used with all these online instruments. Data can be skewed by an unknown factor such as an above or below fair value transaction between family members or an expensive value-adding renovation flattering growth numbers. Nevertheless, an intelligent use of desktop data in combination with pavement pounding will set you up to negotiate well.
Useful online tools:
Auction Results: domain.com.au/auction-results
Sold listings: domain.com.au/?mode=sold
Home Price Guide: domain.com.au/property-profileRichard Wakelin