How to find bargain properties
By Michael Laurence
August 4, 2009
Does the possibility of buying a four bedroom, two bathroom house at a 64% discount appeal to you? It's hard to get price-cutting much better than this.
The four-bedroom home in excellent condition and sitting on 3.3 hectares first came onto the market in October last year with an asking price of $3.3 million. It is now selling for $1.19 million with the mortgagee in possession.
If you are not looking for a rural retreat in Western Australia, what about a 60-year-old beach and lakefront home at Avoca Beach on the NSW Central Coast? Sure, this property needs plenty of work but the position is highly desirable and the asking price has been slashed by 45% since it came onto the market more than three years ago.
The Avoca property, which is on a huge block, was first listed at $3 million and is now on the market for $1.65 million; a staggering $1.35 million cut in its asking price. And who knows, the price could fall further as the owner attempts to snare a buyer.
These houses are known in the real estate industry as stale properties because of their time on the market. Without doubt, the identification of stale properties that are being sharply discounted is a great place for buyers to begin their bargain hunting.
A strong caveat exists, however. Heavily discounted stale properties do not necessarily equate to bargains.
A stale property is broadly defined as one that has been on the market for at least 60 days. And buyers face a smorgasbord of them.
Louis Christopher, managing director of property adviser and forecaster SQM Research, says that if a property has been on the market for a long time, "something has gone wrong with its marketing campaign". And Christopher believes that the fault generally involves the vendor asking too much money from the beginning of the campaign.
"No matter the quality of a property or location, it has a value," Christopher says emphatically. And he believes a buyer can be found if the property is correctly priced to the market.
"[But] often where vendors go wrong is that they put the price on their properties that they are hoping to achieve with no regard to the market fundamentals," he adds.
Christopher says that if properties are on the market too long, agents may lose interest in trying to sell them. While this lack of interest as a property turns stale is terrible news for vendors, it potentially creates excellent opportunities for astute buyers.
As a property becomes progressively staler, Christopher says, they can potentially be regarded as lemons - even if nothing is wrong with them.
"Vendors start reducing the price even below market value," he adds. "And if you track these properties, there is the potential to pickup a bargain."
"In my opinion, the best way to research a local market is to analyse the listings and see how the prices change. And then you could be ready to make an offer."
Christopher emphasises that painstaking research of the property market also reduces the probability of being ripped off.
Does the slashing of a property's asking price point to possible lemons or dud properties? Christopher thinks not: "Even if a property has termites, it still has value - even if it's down to land value."
Building reports and quotes for any repairs may give a would-be buyer leverage to negotiate the price down even further.
Christopher says some vendors always over-price their properties in both bull and bear markets. "The asking price is relative to the market at the time," he explains. "There are always over-priced properties."...
...there is nothing stopping intending buyers doing the research themselves instead of paying for the service. They could, perhaps, concentrate on their chosen suburbs, collect newspaper real estate sections, and closely follow properties coming onto the market.
Property consumer advocate Neil Jenman suggests anyone undertaking this research themselves begin by looking for the type of property that they want six to 12 months before they are ready to buy. "It's a satisfying feeling to do your own detective work," he says.
Jenman describes the identification of stale properties as one of the best ways to find bargain properties.
"Do not make the big mistake many buyers make; they think that ‘stale' means ‘bad'," writes Jenman on his website. "This is not a fruit market where the product goes rotten when it's on the shelf too long. This is the property market where the longer the property remains for sale, the riper it becomes for bargain hunters."
Jenman believes that once properties are on the market for two or three months without a sale, the owners tend to panic. And this leads to price-cutting.
Here are five strategies for your bargain-hunting:
1. Spot properties that have been on the market for at least 60 days
This is the first step in your whittling-down process to find a bargain using the stale-property approach. Of the 175,000 residential properties now listed on the Australian market, about 100,000 have been listed for more than two months.
But the task of identifying stale properties is not as overwhelming as it may at first seem, considering most buyers tend to focus on the few suburbs of their choice.
2. Look for properties with prices that have been repeatedly slashed
A pattern of repeated price-slashing suggests that you may be getting closer to your prize of picking up a bargain.
But take extreme care. Buyer's agent Melanie Dennis, managing director of Domain Property Advocates in Melbourne, warns that just because a property's price has been heavily cut, doesn't necessarily make it a bargain. Always make sure the property's price is not excessive, she advises.
3. Look for signs that the selling agent is losing interest in a stale property
Sometimes these signs are obvious. Jenman says perhaps photographs of the property in an agent's window are old and curling at the edges. Perhaps an agent is openly critical of a vendor to would-be buyers, saying things like: "We have a house that meets your description but the owner won't listen to reason." Some agents describe their clients to buyers as "greedy".
An agent may have passed on good offers to a vendor during the marketing campaign yet been continually criticised by the vendor in return. Jenman says an agent might have decided to concentrate on other properties with less-difficult vendors.
4. Negotiate even harder if you detect that a vendor is becoming despondent or desperate
Jenman says indications of vendor despondency about the prospects of a property ever being sold include the use in advertisements of what he calls the "killer words": ALL OFFERS CONSIDERED. "A pleading tone comes into the advertisements," he says.
Jenman says that vendors have sometimes been told everything negative about their properties by their agents in an effort to get the asking price or reserve as low as possible. In turn, this conditioning by an agent would add to a vendor's despondency if the property has so far failed to sell.
5. Think alternatively by also looking for properties that are under-priced when first listed
Melanie Dennis says that some properties are initially listed at prices that are too low for the market.
Dennis says the under-pricing of properties at the time of their listing can occur, for instance, where the vendors' real estate agents are from outside the local areas. She argues that buyers' agents are well-positioned to identify such properties.
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