It was only last August that we released an episode advising how to assess a property’s value in a rising market.
Melbourne’s property market was entering the Spring period and undergoing frenzied demand and surging prices.
It really was a year like no other. According to ABS figures:
- Nationally, residential property prices reached their strongest annual growth on record last year, rising 23.7%
- Melbourne – at 20.0% – had its largest annual rise since the June quarter of 2010
After the skyrocketing prices – a new peak was reached – and the market has now moved into the adjustment phase.
Further expected interest rate rises are certainly impacting buyer confidence levels, as well as the number of purchasers able to facilitate a transaction.
The adjustment phase provides buyers an opportunity to seek value without the same level of fear of missing out (FOMO) that dominated markets last year. Thus allowing for a greater focus on value, rather than the competition.
So let’s look at some of the key factors to consider when buying in a rebalancing market.
Asset selection remains key when considering property purchasing opportunities – regardless of market activity.
Don’t divert from the major purpose of asset selection, and become sidetracked by a property that may present as a great deal, but doesn’t meet the key brief.
Don’t go in with the bargain blinkers on. Properties are often cheap for reasons other than the supply and demand dynamic – some of which could involve costly repairs or diminished capital growth.
Sourcing a property in a rebalancing market often requires a fair degree of patience.
While everyone wants to buy in a cooling market – no one really wants to sell in these same conditions.
Discretionary vendors are likely to hold off putting their property on the market, so the level of choice from a buyer’s perspective wanes.
Keeping close relations with agents in times of limited supply, helps ensure off-market properties and upcoming listings aren’t missed.
Let go of the FOMO, which many buyers felt amidst the surging market last year. Don’t feel compelled to jump at the first property. The market is far less likely to run away from buyers as it did in 2021.
But, don’t become pedantic or complacent. In a slowing market many buyers get caught over-finessing property purchases and miss out on valuable opportunities as a result.
Assessing the value of a potential property is a critical and multi-step process, giving buyers important insight into the home’s investment potential.
- Assessing the technical value of a property involves analysing key property characteristics – including location, position, proximity, as well as land size, and orientation. Building size, style and condition are also critical. And for apartments and terrace homes, car parking can be a major factor.
- Assessing comparable sales within the area provides a key value barometer, guiding expectations and any future offers. In a moving market – rising and cooling alike – the most recent sales provide the greatest accuracy.
- Judging market sentiment is vital in a moving market, as opposed to a more stable market, where sentiment is less influential. Have similar recent listings seen greater demand or supply? How many bidders are attending auctions for similar properties? Are they bidding strongly, or are properties regularly passing in?
- It’s also important to realise that some property types may be bucking the trend – particularly if vendors are holding off and there has been limited similar supply. In that case the property may defy broader market conditions, and attract significant buyer competition.
Entering auctions and negotiations armed with the right knowledge puts buyers on the front foot, but it’s also important to set realistic expectations.
Even in a softer market, good quality property still attracts strong levels of demand. Buyers need to be prepared to set a realistic budget and not over-finesse price assessments – or risk continually missing out.
When buying at auction, it’s important to understand the rules of an auction.
Recognise particular nuances of an auctioneer, especially around the bidding process. Some agents prefer to take bids in sizable increments, while others – particularly if there is limited demand – allow smaller increases.
An auctioneer who takes a high initial vendor bid compared to the quote range, quite often indicates limited interest in the property.
Buyers must ensure they hold the highest bid if a property is passed in, which puts them in the box seat when it comes to post-auction negotiations.
Negotiating with a trained real estate professional can be daunting.
The auctioneer will want to invite the highest bidder into the property to negotiate. It’s best to politely decline, and conduct the negotiations from outside.
This keeps the discussions on neutral ground and enables a buyer to assess the true competition. The merely curious will either head back to neighbouring properties or drive away. Serious competition is much more likely to remain.
This is where comparable sales knowledge can be valuable – particularly those at the lower end, which can be used to justify a reduced offer.
Likewise, if a building inspection has been conducted, faults and issues with the property can be used as leverage.
Often a reserve price is inflated – buyers should try and knock that figure down, before increasing theirs.
Be prepared to walk away from a property if negotiations reach an impasse. Such a threat may lead to a change of heart from the vendor. But it’s a high risk move that may mean losing the property.
While trends and predictions are useful, the market remains hard to pinpoint – whether it’s rising or cooling.
Each purchase and asset should be judged on its own merits. That’s because solid investment decisions will always outlast market fluctuations.