The stories that I have heard from buyers in their pursuit of property although unique and individual in their own way, its uncanny how similar they all actually are. Many buyers do not understand the market. The size of the purchase and all the moving parts involved mean that most people in the lifetimes will only go through a couple of purchases in their lifetime hardly much practice to understand the nut and bolts of what really goes on. Those who are sophisticated buyers have had enough experience to navigate through the same pitfalls that most buyers fall into time and time again.
These pitfalls ultimately boil down to human nature. It’s natural to want more than what you can afford. Most buyers are at the absolute limit in terms of what they can afford with little leeway. Due to the sheer size of the purchase, they want the absolute best that their money can buy. They understand the costs involved in any purchase but fail to account or perhaps underestimate the cost of time over their search period. They do not understand that what their money can buy today, they won’t be able to afford tomorrow.
Let’s begin the journey from the first week and continue at every ‘first’ milestone.
Buyers are very excited that they are finally taking the plunge to buy a property. They have their preapproval ready to go, Domain and Realestate.com.au apps installed on their phone. At this early point most buyers are still in ‘hopeland’ and do not understand the true competitive nature of the market. They are hoping to get lucky by finding a ‘bargain’ to be able to afford a property that usually sells for 20 per cent above their maximum budget.
By the first month, buyers may have found a property that they are excited about. They go through all required checks and balances to ensure all due diligence is ready before the auction. They have done their own research will all comparable properties and have an idea of the ‘value’ of the property and they know the price that they want to pay at auction. Saturday comes, and very quickly they realise that they have been outbid by the very first bid and confused as to how or why. After the auction, buyers usually tell themselves, “we never really wanted it anyway” as the bathroom didn’t have the tiles that they liked and weren’t willing to pay that much for the property.
Within three months buyers have now seen many of properties and missed out on a few. They realise that the guides offer no reflection of actual sale prices. Auction after auction they find that the properties that need a renovation were selling for almost the same price as renovated properties. The buyers found a property that they really liked and within a conceivable budget. However they didn’t like the kitchen or the carpet and have factored in the cost of a full kitchen renovation and carpet removal and floorboard buffer and polish from the price that they were willing to pay from their maximum budget. At auction they missed out, even though the final sale price was within their overall budget. Just but not the budget they had conceived with all the require works for this particular property.
Buyers- Lesson learnt
They have missed on properties outside of the regular auction process where properties were sold prior to the auction while they were conducting their due diligence and wasting money on another contract review. Buyers now understand the need for speed. The ability to access these properties before anyone else is key to ensure that do not miss out on another property in vain.
In the first 6 months, buyers have should have realised that the market has moved since the beginning of their search. Without the ability of borrowing more money, they have accepted a smaller property in order to stay in the same location. They do not trust anyone. They don’t want to go to auctions. Their modus operandi is to inspect pre-market properties and then give a lowball offer and hope the vendor will accept.
Most buyers have worked out that they are completely priced out of the market that they were originally searching in. They are disillusioned and desperate. From here two things happen. The first is they give up on the entire endeavour all together, they go back to the dirty four-letter word and continue to ‘rent.’ The second, is they move location completely, and settle for something that they never would have considered twelve months ago, often overpaying just to get their foot onto the property ladder.
Buyers – Lesson Learnt
Most buyers have more than likely experienced at least two of these scenarios illustrated in this article to some degree. When read out loud I hope readers can see the mistakes made. Despite this depiction, and even if every buyer reads this article, I know the same mistakes will reoccur. In his book Thinking, Fast and Slow, Daniel Kahneman mentions that is easier to recognise other people’s mistakes than our own. When you see someone make a mistake normally you judge it on what you see. It’s quick and easy. But if yourself makes a mistake, there is a prolonged and persuasive monologue that justifies your bad decisions and adds important context that other people don’t see.
Instead of summing up by advising you to avoid these mistakes. Instead you should consider these guidelines when starting your property search
Never base life decisions and major purchases on luck and hope. It good to hope for the best but always plan for the worst.
If property was cheaper yesterday, the best price it will ever be is today and it will be more expensive tomorrow. (in hindsight over the long term)