Puzzle Finance Blog
Five things you should NOT tell a real estate agent when searching for a house
THE property market can be a delicate balancing act. The seller wants to get the highest sale price while the buyer wants to get the most competitive purchase price.
And in a booming property market, the scales tend to fall in favour of the seller. As a homebuyer, this makes it important to know the subtleties of how to play the real estate game.
In order to secure your dream property at your dream price, there is a fine line between what you should tell the selling real estate agent and what you should keep to yourself, according to Queensland-based buyers agent Meighan Hetherington, director of Property Pursuit Buyers’ Agents.
“Say too much and it might be used against you in a negotiation,” Ms Hetherington told news.com.au. “Say too little and you may end up missing out on your dream home.”
So here are five things a homebuyer should NOT tell the selling real estate agent when in the market for a new home.
Don’t reveal your budget
You might think keeping something as important as your price limit a secret is counter-productive. If the real estate agent doesn’t know exactly how much you can afford, how can they find you your perfect property? But being too specific about your budget can give the real estate agent too much power, Ms Hetherington warned.
“It is important to be careful with how you frame your answer to the question “what is your budget?”
“Under-pitch and the agent won’t tell you about higher priced properties. Over-pitch and they will use that information during negotiations.
But that doesn’t mean you shouldn’t give the selling agent anything to work with. The best way to handle the budget question is to give a healthy price range.
“Let’s say your budget is $1,600,000. The best response is to ask them to talk to you about all the properties that are in the mid to high $1 million range. That way you will get access to properties above and below your budget.”
Don’t be specific about timing
If you have a deadline to meet, such as the settlement of your own property, you should not reveal this to the agent during your search.
“It makes you a target for emotional pressure during negotiations,” Ms Hetherington told news.com.au.
“Instead, be prepared to rent if you don’t find the perfect home in the right time frame. That way, you won’t feel pressured to make a poor choice or pay too much just to solve what is a short-term problem.”
Don’t reveal too much personal information
Again, revealing too much personal information about yourself can make you a target for emotional pressure, Ms Hetherington has warned.
“A real estate agent needs to establish if you have the financial capacity to buy the property that they are selling, but they should not know too much about your family structure, what schools your children go to, who you work for or what you do.
“There may be a beneficial time to reveal some of these aspects during a negotiation, but not during your search.”
Don’t give price feedback
Ever walked around an open home with no price guide and commented on what you think the property is worth? That is a big no-no. Never, ever give offhand feedback about price.
“If you are too high, the agent will grab you with both hands and get every cent out of you. Too low and they won’t take you seriously,” Ms Hetherington said.
Instead, you should identify a couple of comparable sales and discuss the superior and inferior aspects with the agent.
“With this approach you are likely to get a lot more information from the agent about where they think the price range should be.”
Never tell an agent you are ‘not interested’ in a property if you are
The real estate game isn’t like the dating game, so don’t play hard to get. Feigning lack of interest could potentially mean you lose your dream home.
“I once heard a buyer blow up at an agent because a property sold prior to auction and the agent had not contacted the buyer to see if they wanted to buy it,” Ms Hetherington told news.com.au.
“Thinking they were outsmarting the agent, they had made the mistake of not returning the agent’s phone calls after their inspection of the property. They thought they would do all of their research and turn up on auction day to bid, without having to talk to the agent. Big mistake.” While the selling agent is working in the interests of the vendor, they aren’t your enemy. A big part of making the vendor happy is ensuring the buyer is the right person for the home — and that makes them hugely helpful to you too.
“How can you possibly be sure that you have uncovered all of the background information about the property if you haven’t spoken to the agent?” Ms Hetherington said.
“One way of informing the agent that you are interested without revealing your price position is to say that you are interested at the right price.”
Posted by Julia Corderoy - News Limited Network on 15th October, 2016 | Comments | Trackbacks | Permalink
Common misconceptions about property auctions
Many buyers don’t love auctions because they believe properties will always sell at a premium with competition.
Others head in armed with strategies; holding off on bidding until the last second or when the property is declared on the market.
Agents say there are several misconceptions about auctions, from the vendors’ reserve to the requirement of a 10 per cent deposit on the day.
A vendor’s reserve is not a price they’re ‘happy’ to sell it for
The role of the reserve price is a misconception from vendors and buyers, Nelson Alexander’s Arch Staver says.
Buyers believe it’s what the owners want, and vendors sometimes think it should be the price that gives them reason to celebrate – it’s actually not, he says.
The reserve price is often “the worst case scenario”, Mr Staver says, and what vendors are not prepared to sell their properties less than.
You don’t ‘need’ to pay a full 10 per cent deposit on auction day
Buyers will need to check with the agent or vendor before the auction if they can’t pay the full deposit on the day.
RT Edgar’s Joanne Royston says buyers may be able to do a small transfer on the day, with the balance transferred over the weekend or on Monday to make up that 10 per cent.
Buyers may also alternatively call their bank and organise a large transfer over the internet if they win the keys on the day.
Don’t count on buying on the scheduled auction date
It is possible vendors will accept a pre-auction offer, and several acceptable offers may trigger a boardroom auction a week or fortnight before its scheduled date.
Auctioneer Damien Cooley says more than 30 per cent of their listings are selling before auction.
“These things can all change; it all depends on the owner’s motivation to sell and the buyer’s motivation to try and secure the property,” he says.
Some agents are also more inclined to sell properties before auction, Mr Cooley adds.
Holding back from bidding does not guarantee you will buy it for cheaper
Some people hold back and don’t bid until later in the auction because they believe the price will be pushed higher if there are five people bidding it up early on, Drakos Real Estate’s Chris Kazonis says.
“But it doesn’t happen that way because a lot of people wait until it’s on the market – others don’t,” he says.
Mr Kazonis believes a good, strong bid can knock out several competitors.
Ultimately there is a reserve, he adds, and, if the property passes in, in many cases the vendor doesn’t have to sell.
You will always pay more at auctions
Buying a property privately as opposed to at an auction does not necessarily mean there is no competition.
“You may put an offer in to the agent and there still may be multiple buyers from a private sales perspective,” Ms Royston says.
“But it’s not transparent or out in the open, it’s not in the public forum for you to see the other buyer and see that participation and get a feel for it yourself.”
Some buyers may end up paying more than they like, but being the highest bidder also means you can negotiate at the vendor’s reserve.
Some people have a perception that there are dummy bidders in the crowd – there are not, no one would run that risk today, Biggin & Scott’s Russell Cambridge adds.
Posted by Christina Zhou - Domain (The Age) on 14th October, 2016 | Comments | Trackbacks | Permalink
First home buyers on what they wish they’d known before they bought
Saving for a deposit isn’t the only Herculean task involved in buying a home for the first time. From untangling red tape to deciphering loan documents, there are plenty of potential hazards to trip up rookie purchasers.
Domain asked 10 recent first-home buyers what they wish they’d known before they bought.
Tessa Kelman bought an apartment in the Sydney suburb of Rose Bay. She now knows more about property finance than she ever thought she would.
The complexities of fixed and variable loans can be a steep learning curve, while everything from bank fees to interest rates, loans, electricity prices and internet is negotiable.
“It was complex learning about fixed and variable loans and the fact you can mix the two together,” Kelman says. “We held off buying a little longer so we could save enough to avoid having to pay lender’s mortgage insurance. My advice would be to seek financial advice early so you’ve got a more realistic and refined target.”
When Dylan Malloch bought a house in the Queensland suburb of Griffin, he struggled to find information about dealing with the existing tenants.
“Information regarding what rights tenants have versus what rights purchasers have is difficult to find, particularly regarding bond, cleaning, repairs and exit dates,” Malloch says. “I advise purchasers to seek good legal advice prior to settlement to make sure they know their rights and what is reasonable to request.”
Melissa Davey bought an apartment in Brunswick West in Melbourne. She wasn’t prepared for the sexist attitudes she encountered from some agents.
“They would ask me questions like, ‘Is someone coming to help you at the auction?’ and expected me to refer my decisions to others,” Davey says. “I also wish I had prepared a better plan of attack for what to do if a property I bid on passed in. That happened with the apartment I bought, and I just had to wing it from there.”
Rachael Nesbitt, who bought an apartment in Ashfield, Sydney, says she should have decided on her must-haves from the outset.
“I’d never even thought about sunlight before but we eventually decided we wanted somewhere that got a lot of light and was close to public transport,” she says. Next time, she’ll also have more realistic about how long it can take to find the right place (hint: ages). “Lastly, everything is negotiable: from bank fees to interest rates, loans, electricity prices and internet. You just have to ask.”
After Penelope Collaros signed a contract to buy an apartment off the plan at Botanica in the Sydney suburb of Lidcombe, she switched from permanent employment to contract work.
“I’m told this could present challenges when it’s time to apply for a loan,” Collaros says. “There are also sometimes delays with off-the-plan projects and I probably didn’t pay enough attention to researching the growth potential of apartments versus houses.”
Lukas Szymanek says he wishes he had been more decisive during his year-long search, which ended when he bought a new house at Fairwater in Blacktown, western Sydney.
“During that year, property prices went up by 30 per cent,” Szymanek says. “If I had acted sooner, I could have saved a lot of money. Of course you should always look for a good deal and a bargain price, but you’re not always going to find one. If you keep waiting, you’re going to miss a lot of opportunities and waste a lot of time.”
After the disappointment of missing out on several properties at auction, Sarah Greenaway decided it would suit her better to limit her search to places for sale via private treaty. She ended up buying a townhouse which had passed in at auction in Botany, in Sydney’s east.
“If I had my time again, I wish I’d known that a lot of real estate agents will send you on a bum steer,” Greenaway says. “Several times we were lured to auction on the premise that we were virtually a ‘shoo-in’ and numbers would be limited, only to end up outbid in the end by up to $150,000.”
Riannon Nicolacopoulos decided to scrap her five-year plan to buy a property by herself when she found an off-the-plan terrace at Shell Cove in Shellharbour, on the NSW south coast, while house-hunting for her partner.
“I learnt the importance of being flexible in my plans and ready to act quickly,” she says. “I had saved enough to go halves in the deposit, and we don’t have to make any more repayments until the project is finished. With Frasers Property, it all fell into place fairly quickly and easily. I know that doesn’t always happen when people buy off the plan.”
Lauren Gallinar recently paid a deposit for an off-the-plan apartment in Wollongong, south of Sydney. The experience has taught her to be open to paying more if the right property presents itself.
“I went $20,000 over what I had originally estimated as my maximum,” Gallinar says. “I thought it was worth going over my limit for the beach view, and I’ll have at least an extra 2½ years before it’s completed to save.”
Swee Soo says she and her husband underestimated the amount of work it would take to renovate an old house in the outer Melbourne suburb of Vermont.
“We did not anticipate things to go wrong the way they did,” she says. “Delays, shoddy work, problems with tradies, discovery of asbestos in our kitchen, unexpected repair work – issues seemed to crop up one after another on an almost daily basis … It had to be the most stressful and frustrating experience in our lives.”
Posted by Elicia Murray - Domain (The Age) on 13th October, 2016 | Comments | Trackbacks | Permalink
The types of properties that the banks would prefer not to lend money for
No one wants to buy a real estate dud. And in the game of buying bricks and mortar, some properties are a safer bet than others.
To spot a property lemon, it’s a good idea to look at the attitudes of the people stumping up the money for them: the banks. It’s in a bank’s best interest to make sure an investment won’t go belly up.
“It’s not really you and me buying the property, it’s the bank,” Starr Partners chief executive Doug Driscoll says. “The bank buys a house and you pay them back over 30 years.”
But mortgage lending is a crucial part of how banks make money and homeowners are very important customers to keep and grow, according to AMP Capital chief economist Shane Oliver.
“Housing has been an important source of growth for the banks in recent years, particularly as the property markets in Sydney and Melbourne took off,” Dr Oliver says.
“There would have to be a good reason for a bank to turn a customer away … Whilst they want to continue to grow their businesss, they don’t want to do so in a way that involves a lot of risk.”
Perhaps the best red flag, then, is if a mortgage application — otherwise all in order — gets stamped with a big fat rejection.
So what properties are more heavily scrutinised by lenders and mortgage insurers? Is there a real estate blacklist?
We asked the banks — and most said they look at each mortgage application on a case by case basis.
But these are the things property pundits say have Australia’s lenders breaking out in a cold sweat.
1. An apartment smaller than 40 square metres
The exact square-meterage is up for debate, but most property advisors say a very small apartment will have the banks concerned.
“Each bank varies, but 40 square metres can be a cut off for many,” Greville Pabst, head of property advisory WBP Property Group, says.
“Because they’re really small, therefore their marketability is challenged in the future and banks don’t like that. In the situation where they might have to take possession, they want to be able to get their money back.”
Bessie Hassan, money expert at finder.com.au, agrees: “The more attractive the property is to the market and the greater demand there is for that property type in the area, the more likely they will be to finance the property,” she says.
“Generally, the apartment needs to be at least 45 or 50 square metres, excluding the balcony and any car spaces, in order to qualify for a loan. If [you] want to invest in a studio apartment smaller than this, accessing finance may be difficult.”
Empower Wealth director Ben Kingsley says the minimum is about 40 square metres and also believed studio apartments — accommodation without separate sleeping quarters from the main living area — were on the hit list.
Size matters particularly for Melbourne buyers, given the Victorian state government recently decided to not to introduce minimum dwelling sizes.
But Jellis Craig chief executive Nick Dowling says banks generally won’t go below a 40-square-metre internal floor plan, even in Melbourne.
“That’s for standalone clients, if it’s mixed into a bigger portfolio, it’s not so much of an issue,” Mr Dowling said.
2. A student apartment or serviced apartment
Mr Pabst says the banks will view properties attached to a business element, such as student accommodation or serviced apartments, as more risky.
“Because in the event that the business has any financial problems, that impacts on the accommodation as well,” he says.
“So, for example, if the government changes their policy on migration or the number of students allowed in to the country, that’s something the banks don’t have control of, and then that will affect their security.”
Serviced apartments are often leased through a business operator, he says, which the banks also don’t have control over. Many commonly include furniture packages in the purchase price, which banks don’t like to lend on, he says.
3. A property in a ‘bad’ or ‘risky’ neighbourhood
A property within a high crime or high unemployment area, or ones that pose a greater credit risk, may raise a red flag to a lender, Ms Hassan says.
“For example, last year NAB identified postcodes where it will restrict loan-to-value ratios due to concerns that homeowners may default and due to limited sellability potential,” she says.
At the time NAB said certain postcodes, from inner-Sydney Glebe to Cabramatta in the south west of Sydney, were areas “where significant deterioration in credit risk has been observed”.
“Some individual banks do have overexposure to a particular areas,” Mr Dowling said. “They need ensure they have the right balance between owner occupier loans and investor loans in areas.”
Mr Kingsley added mining towns as a possible concern. “Exposure to one-industry economies and the subsequent economic shocks these towns do go through, leave banks exposed.”
4. Cookie-cutter apartments in oversupplied suburbs
“The main reason for nervousness on behalf of the banks is the ongoing increase in supply of apartments,” Dr Oliver says. “The banks are particularly wary of postcodes where there’s a lot of cranes and a lot of new supply coming down the pipeline.”
Those areas are mainly inner ring suburbs, he says. “Their concern there is buyers might find themselves vulnerable if the property market does eventually turn down.”
Buyers considering investing in apartments or units should first consider the scarcity of what they’re buying, according to Mr Pabst.
“With cookie-cutter apartments, there’s no scarcity, they’re homogenous and that’s why they don’t perform,” he said.
Mr Dowling said the issue was with bigger projects, not smaller suburban boutique projects, which were very healthy.
5. Properties with unusual titles
The property experts flagged stratum titles, company share titles and tenants in commons titles as presenting a risk to lenders, because they may take longer to sell later.
“Banks are certainly more wary and cautious of those forms of ownership,” Mr Pabst says. “Because quite often the bank won’t have first right of priority.”
6. Properties with structural issues
Ms Hassan says people should avoid buying properties sight unseen because they may not be able to vouch for its structural integrity.
“This could get you in hot water when it comes to getting approved for a loan,” she says. “If the property has structural or other issues, such as if it doesn’t comply with building code or if it contains asbestos, lenders may be hesitant about offering finance as this minimises the saleability of the asset.”
7. A property with geological issues
Mr Driscoll says that banks will increasingly look at certain geological risks with properties, such as those built on marshland or on the coast. For example, he said, Sydney’s northern beaches experienced damaging storms earlier this year that left properties in ruin.
“A bank [lending] there to someone with a 10 per cent deposit, who is buying a $2 million or $3 million property, will think, ‘geez, only a few months ago that place got absolutely decimated’,” he says. “Their lending criteria is built on risk assessments, so if there’s a history of [natural disasters], they’d have to factor that in.” What the banks said…
Domain contacted the four major banks — Commonwealth, ANZ, NAB and Westpac — as well as ME Bank.
A ME Bank spokeswoman says buyers looking at properties with commercial usage (for example, aged housing or serviced apartments) and apartments smaller than 40 square metres may be declined a home loan, however, sometimes lending policies could accommodate an exception.
“Banks need to ensure they can sell properties easily and at a similar value in the event a customer can no longer repay their loan,” the spokeswoman said.
A Commonwealth Bank spokesman says: “We constantly review and monitor our home loan portfolio to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs. We assess every home loan application on a case-by-case basis.”
A spokeswoman for NAB said: “As a responsible lender, we adopt a range of strategies that seek to reduce the risk to our customers and our business, and consider applications for lending based on a range of factors, including the value, type and use of a property, and local market conditions.”
We received no response from Westpac or the ANZ.
Posted by Kirsten Robb - Domain (The Age) on 12th October, 2016 | Comments | Trackbacks | Permalink
Life-long renters face financial stress in retirement, new report says
If you do not own a home by the time you are in your late 40s, you will probably never own one — and you will probably be significantly poorer than those who do.
That is according to a paper released on Monday by Swinburne University, which found more Australians are renting in retirement and facing financial stress.
The study’s authors have called for the axing of the capital gains tax concession and the reinstatement of death duties, or a small inheritance tax, to reduce what they see as the widening wealth gap between homeowners and non-homeowners.
If you don’t own a property by about 49 years old, chances are you never will, new research says.
“Housing is a probably the key way of generating wealth, but people who are unable to purchase or fall out of home ownership will find that they don’t have as much wealth in retirement,” research author Andrea Sharam said.
The paper showed if you had not purchased property by mid life (45-49 years old), there was a strong likelihood you would not purchase thereafter.
Financial experts have previously advised “generation rent” — the growing cohort of young people priced out of the property market — would find it difficult to retire as wealthy as a property owner, largely because Australia’s retirement income system is predicated on owning a home outright in retirement.
Older Australians are increasingly renting in retirement and facing financial stress.
But the study, from Swinburne’s Institute for Social Research, shows an increasing number of older renters are already experiencing housing insecurity and impoverishment.
There are close to 426,000 Australians over the age of 50 years living alone or with a partner in private rentals, but population projections suggest there would be 832,319 by 2050.
“That will put a lot of pressure on the pension system and even more pressure on the rental market, which does not cater to older people on low incomes as it is,” said National Shelter executive officer Adrian Pisarski said.
It’s not just ‘Generation Rent’ that is facing housing stress in retirement.
For Leigh Evans, 41, purchasing a property has never been an option. She is currently house sitting in Coburg, in Melbourne’s north, but sees her housing future as insecure.
“I grew up poor, both my parents never owned a home when I was younger … so I never had that expectation,” the business analyst and author said.
Ms Evans said the research made her retirement situation appear bleak.
“I look forward to dying early,” she laughed. “It’s gallows humour but the situation is real — it’s homelessness.
“I think that it’s well beyond time that Australia stopped keeping alive this delusion that the quarter acre block dream still exists for many people.”
The study also showed that in the older age brackets, 65 to 69 year olds, the wealthiest segments were those who owned both their own home and other properties. Yet the net wealth of such owners slipped between 2003 and 2013, likely because they had taken on more debt relating to the leveraging of those other properties, Ms Sharam said.
Several policy recommendations have come out of the analysis, including increased investment in social housing, as well as tax policies that discouraged people buying property for capital gains.
“Because that’s just creating house price inflation, which makes it hard for people to enter into home ownership in the first place,” Ms Sharam said. “These people have been given a lot of public money in effect [from tax breaks], so its entirety reasonable that they could give some of it back at the point in time where it does not hurt them and their heris, and it goes into social housing.”
But the Victorian Property Council executive director Sally Capp said removing the capital gains concession would be counterproductive and would result in less investment in residential property construction.
While the council had no formal position on reintroducing death duties, Ms Capp said, the Victorian government did not need to introduce new taxes to fund its affordable housing ambitions.
Posted by Kirsten Robb - Domain (The Age) on 10th October, 2016 | Comments | Trackbacks | Permalink
A functional floor plan key to getting a good price for a house
Every homeowner knows the driving factor that fuels real estate prices is location. But in today’s market a handy position near transport and amenities is no longer enough. A good floor plan is also essential if a property is to spark strong competition and achieve a high selling price.
Houses and apartments that have a functional floor plan – what architects call “good front-to-back flow” – are far more likely to achieve above-market sales results.
James Buyer Advocates’ Mal James says houses with convoluted floor plans that require major changes can struggle to pull in buyers and often sell at a discount. He warns against purchasing properties that have a “disconnect” between the living and kitchen areas and the bedrooms.
Houses and apartments that have a functional floor plan are far more likely to achieve above-market sales results.
So, what precisely is good flow? “It’s having a direct path from the front to the back of the home that is not interrupting other room spaces,” says architect and buyers’ advocate Adam Woledge. “You shouldn’t have to walk through these rooms to get to the rear of the property. Rooms need to coexist harmoniously.”
There are other golden rules. It is bad form (not to mention unhygienic) to have the bathroom coming off the kitchen. Bedrooms that open onto living spaces don’t work well, either.
Another no-no is for homeowners to be compelled to walk diagonally across the living room to reach the kitchen. Similarly, bathrooms, laundries, walk-in wardrobes and pantries shouldn’t enjoy the finest outlook to the garden or to the north light. And flats and units almost always do better in the market if they have an entrance hall or foyer.
People are okay with having a small back yard, but one thing they’re not compromising on is bedroom sizes.
Buyers are taking greater notice of floor plans. As families forget the big backyard and make trade-offs on block sizes to be close to the city and transport hubs, they are demanding space-smart living. It’s little wonder that when a property sits on real estate marketing websites for a long time, it is typically because the bedrooms are too small or there is some other flow issue.
Woledge, of Melbourne-based Woledge Hatt, urges house-buyers to go for wide hallways and to make sure they can walk to the informal areas without twisting and turning.
“The house should be well zoned: the bedrooms need to be in a logical position, not next to informal areas, and there should be no bathrooms off living spaces,” he says. “People are okay with having a small backyard, but one thing they’re not compromising on is bedroom sizes. Three-metre-by-three-metre rooms are seen as too small.”
Many would-be buyers also don’t consider how their furniture will fit.
“Sellers often put double beds in instead of queen-size beds, so it’s really important to step away from a floor plan and maybe take your own measurements and visualise the property with your own furniture.”
Posted by Chris Tolhurst - Domain (The Age) on 9th October, 2016 | Comments | Trackbacks | Permalink