Puzzle Finance Blog


Discover the sale formula


Research and patience are vital when it's time to get a bigger and better home.

Mortgage broker Stephanie Cook says the most complicated transaction she has to deal with regularly is one where the client is selling a home and upgrading to a bigger one. Clients have to decide whether to sell or buy first, consider keeping the first home as an investment property and sort out their finances so they can move from their old mortgage to a new one without incurring extra cost.

''Buying the first home is relatively straightforward,'' says Cook, who owns a Mortgage Choice franchise in Sydney's Lane Cove. ''People get a shock when they realise how complicated things can get when they are selling to trade up.''

Other issues that can complicate the sale include setting the right price, deciding whether to put the house to auction, and sorting out the best agreement with a real-estate agent.

Australia's residential property market has made modest gains in the past year, after a two-year decline that saw values fall by an average of about 7 per cent. Industry analyst BIS Shrapnel says the major capital-city market will continue to grow during the next three years.

The growth trend has encouraged a modest pick-up in home-loan sales, along with residential property investment activity and turnover of family homes. However, selling a home can be a tricky business and industry experts warn sellers to do their homework first and have a plan.

Cook says a typical situation is where a couple has owned a house or unit for four or five years and has outgrown it.

She says few people consider keeping the property as a rental investment. ''We help them analyse whether they have enough equity and cash flow to service two loans.'' She says the biggest mistake people make is starting with a plan to sell their property first, so they know what they can afford to buy, but then seeing something they like and buying it.

''Emotion gets in the way and their plan goes out the window,'' Cook says. ''That can have an impact on the price they get on their sale, if they are forced to sell more quickly than they otherwise would, and on their choice of finance options,'' Cook says.

''This is less of a problem when the seller is downsizing. Moving from a higher-value property to one of lower value means there should not be much of an issue with debt.''

The head of lending at Centric Wealth, Sheyne Walsh, agrees upgrading is the property transaction that can cause problems. Walsh says: ''In January, a client told me he was buying a larger property for his young family. He had a three-month settlement and was under pressure to sell his current home. He ended up taking a bath on his sale and financing his new property with a high loan-to-valuation [LVR] ratio.

''Banks don't like lending on LVRs above 80 per cent when the amount of the loan is more than $1 million. In the end, we had to lean on the credit department to get the loan approved and the client ended up with some additional conditions. The portion above 80 per cent has to be repaid within five years. The client … didn't have a plan.''

Walsh says self-employed people who were able to get low-documentation loans at competitive rates before the financial crisis may find it harder to get finance now. ''Lenders want more detailed conformation of income, and interest rates tend to be higher,'' he says.

RP Data research director Tim Lawless warns that properties can become stale if they stay on the market too long. This usually happens because the asking price is too high or the marketing strategy is wrong.

On the question of price, Lawless says there is plenty of data available that will gives sellers an understanding of market conditions in their suburb.

Lawless says: ''They need to know what has been going on in their area - get an understanding of what has happened to similar properties. A property report from myrpdata.com or local agents will give them that information. Those reports will also tell them the average time to sell.''

When it comes to marketing, Lawless says a lot of sellers think the only place to advertise a property is online. ''You need print plus online,'' he says.

And when it comes to dealing with an agent, the Real Estate Institute of Australia (REIA) says every agent should provide a seller with a written quote, setting out a predicted selling price and the agent's fee.

The REIA's consumer fact sheet says: ''Remember to ask for exactly what the commission buys you. Some agents will offer newspaper advertising only, while others may organise open-house inspections, letterbox drops and other effective forms of promotion. For this reason, the agent with the lowest commission fee is not necessarily the wisest option.''

Former real estate agent Neil Jenman says sellers should avoid signing long agency agreements; he recommends no more than seven weeks. ''The longer the agent has your home, the more chance that you will be pressured to lower your price,'' he says.

Lawless says the decision to go to auction or sell by private treaty comes down to the house. ''If the house is pretty standard for the area, in terms of land area, number of rooms and condition, then it will be easy for buyers to compare it to other sales.

''Private treaty works well for that type of house and is a cheaper way to sell. But if the house has characteristics such as a view, proximity to water, a large block or historical value, comparisons are not easy … Put it to auction and leave it to the market.''

Posted by John Kavanagh - The Age on 17th July, 2013 | Comments | Trackbacks
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