Hi
For all those property investors out there. I just want to get a general idea of what starting price you start off with making an offer on residential property.
I’m a first time buyer, and I’ve been looking at a few properties that have been sitting on the market for a fair while. From my understanding, making an offer of 30% below listing price is not unreasonable. However, this seems like a really large discount. The potential problem is, I think we are in a buyers market, but a lot of vendors are holding onto the pre boom mentality and prices.
Which leads me to my second question. The general consensus is that there will be another rate rise in about two weeks, which should theoretically further deflate the market. At some point the market has to become reasonable in their expectations. Should I wait until after this next rise to begin.
My plan is to make lots of low offers, often, until I find the bargain. But 30% below market seems like a low number, and I’m looking for opinions as to what would be considered reasonable in the current market.
Thanks in advance
Hi Zopm,
I think it may be a little more complicated then just presenting x% below the listed price.I would suggest the following checklist:
1. Do you know the neighbourhood?
2. Have you assess what appears to be the correct value of the property based on recent sales?
3. Have you considered purchasing a residex report on the property? It will give you sales history, predictions, etc…You never know, the list price may be been poorly set and is already a bargain. If you go too low a more astute investor will pick it up.
Good luck and I hope this helps.
Mathew
http://www.arrttt.com
Custom Oil Portraitsmatthew can you please go into more detail with these resedex reports, this is the first I’ve heard of em.
I’ve sort of got the impression that the vendors reserve is always higher than the list price, usually by 10%? If the reserve is higher than the list, they’re not going to pay much attention to offers below the list price are they?
Rowan.
If your agent is prepared to put in the low offers, go ahead, but beware of two things –
1. Agents will get sick of wasting time on offers that they believe have no chance of being accepted.
2. Many vendors will be so annoyed at your lowball offer that they would probably sell to the devil rather than negotiate further with you.
I know of agents who refuse to write up a contract for offers that they know will not be accepted. I like to think my initial offer is a starting point, and I fully expect the vendor to make a counter-offer. Some vendors just refuse point blank to make a counter-offer if they are offended by a lowball offer. It is a risk.
If you are prepared to keep trying, you might hit the jackpot, but just be aware you might not be popular and your agent might not bother calling you with any listings because of your lowball tactics.
I have seen it first hand and a family member who used to be an agent has told many similar stories. People are funny creatures when it comes to money and the perceived value of their house.
Good luck.
Wylie
Hi Draconis,
If you go to http://www.residex.com.au they offer several reports. One report I purchase before I make an offer is their recent sales on the property report (cant remember the correct name).It gives you sales over the last x years, sales of other properties on the same street as well as a rough prediction of what the place is worth.
Its good data to back your rationale on the offer you make. I used it to make an offer on a place in NSW. It was $20k below ask. Vendor refused to accept and so it sat there for 2 months before the vendor realised they were not going to get anything better.
Your could possibly source this data elsewhere, but Im lazy and happy to pay a couple of hundred $$$ for the information!
Mathew
http://www.arrttt.com
Custom Oil PortraitsInteresting points are made. Real Estate agents always inflate asking prices to boost their commission and piss in the pocket of the vendor to increase their self esteem. People are very greedy and always have an over-inflated view, particularly those who have a deceasd estate.
From personal experience, agents tell vendors a figure $20K or 10% above their price. They then expect that the closing price is $10K below the asking price, which is actually $10K above what they thought the house could sell form.
If you watch asking prices and then check the sale price using Dept of Land reports, the gap is always around $10 to 15 K.
Those reports are worth their weight in gold!
To get a price down, always use the wet area as an excuse. Any wet area is around $15K to redo (kitchen, batchroom etc)I think you will find agents inflate the estimated price simply to “buy” the listing. It is nothing to do with their self-esteem. Many people will go with the agent who tells them their house is worth $600K if the other agents are saying $550K. The $50K difference is nothing to the agent.
Of course, once the vendor is signed up, they then start “crunching the vendor” by telling them the “feedback is that your house is only worth $550K”. I have seen this happen countless times via a family member who used to be an agent. I have quite a few stories about agents that make me squirm, some of which have happened to me.
It is the same mentality of buying the cheapest article – it is not always the best. There are many honest agents out there. If you find one, hold on to them because there are quite a few sharks out there too.
What these agents should realise is that word of mouth is THE most important tool they have. A happy vendor will tell two friends, etc etc. A cranky vendor will probably tell at least ten others.
Wylie
I agree!
Its the seller who is the greedy one. They want to get the best price, however instead on understanding HOW to get the best price, they get estimates from the agent who is offering the best price/risk ratio to win the deal to sell. This has less to do with the actual price that the property would go for.
It wont improve becuase agents need sales for income and sellers pick agents who offer inflated estimates.
Well actually it would improve if there was a penalty clause the punishes the agent selling below estimate….
Mat
Mathew
http://www.arrttt.com
Custom Oil PortraitsI have to disagree that sellers are greedy. Would you not want the best price for your house?
I also disagree that sellers chose their agent simply because they give an inflated price estimate. I don’t think all people are that one-dimensional or so easily have the wool pulled over their eyes.
Unlike the bad old days, my understanding is that these days, agents actually have to back up their appraisals with evidence of previous sales. I know there are some naive sellers around, but I think you have to give people more credit to be able to see through some of the obvious “pick me” tactics that some agents use.
As for punishing the agent for selling below the estimate…. well the agent cannot sell below the estimate. The vendor signs the contract, not the agent. If you vendor doesn’t like the price, they simply don’t sign the contract.
Of course, I do know some sellers are unrealistic, but if that is the case, the agent will not try too hard. I have heard many stories (and seen for myself) about vendors who start with a really high price, and after a few months of slowing reducing the asking price, they decide the agent is no good. They choose another agent. By that time, they usually also realise their starting price was too high and they are more reasonable. The next agent they sign up lists the property for the more realistic price, sells it, and the vendor thinks the agent is fantastic because they actually sold the house.
If the house had been priced realistically, it would have sold with the first agent. This is very frustrating to an agent, but very common.
Wylie
i reckon 15% under is a pretty good spot to come in at. Don’t tell the agent what you are gonna offer. Go out to the car, sit and write an offer, go back in, give it to the agent along with ur card if u have one, and leave.
Give em the impression u know what u are doing, that u have good finance, that u are prepared to purchase if they are interested, but that u are just as happy to walk away. Be very subtle, and make sure you write the offer. That way u don’t waste the agents time.
Cabo Wabo
As mentioned above though the seller is usually the one who has the unrealistic expectations. I’ve seen it quite a few times where we have sat down to list a property and presented a realistic figure to the seller and then another agent says they can get 20, 50 or 100 thousand more and we simply don’t get the business. Next thing you know the property comes on at the higher figure only to be reduced several times and sell for the figure we have advised.
If you want to find out recent comparable sales in the area then why not just ask the agent?? He can quite easily print out a list of all the sales within a radius of the property. Most agencys in the country have access to http://www.rpdata.net.au which gives all the prices in a certain postcode or area.
One thing I would advise against is just low-balling every property as you’ll get a reputation as a time waster.
Hi,
This is a very common question but understanding the issues around it can become a turning point in the career of an investor.
I would like to touch on this point that you have made in your original post,
The potential problem is, I think we are in a buyers market, but a lot of vendors are holding onto the pre boom mentality and prices..
This is probably true but consider this quote by Robert Allen who is a pretty successful real estate guy.
Most neophyte investors become discouraged because they haven’t learned that 95% of sellers are not flexible. They need to be dealing with the 5 percent who are don’t wantersI had to look neophyte up – just means new.
Why is that important to understand. Well because you may misdirect your energy. Given that you have a limited amount of time to find deals trying to convince people that there price is unreasonable is inefficient.
Make your offer and walk away.
Right now is the time for you to cut your teeth in this game.
Investors can make money in real estate whether the maket is going up down or sideways (not sure who originally coined that phrase but I think there is a version of it in every book I have ever read on investing).
Steve is obviously still buying (0 to 260) and so are many other “investors”. In fact i would go as far as saying it is actually easier to make money now if you know what you are doing than it was two years ago.
I will be in OZ for a few weeks soon and I can’t wait to have a bit of a play again.
Off topic a bit but that happens when you start to type.
http://www.cashflowproperties.co.nz
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
You must WALK all the streets in the neighbouring area and compare the property to others.
Get an RP data report and work out the average.
Can you make money out of it eg; rental or renovation
When you buy it who will pay you more and why.
Do not make offers with out providing proof of your offer in writing.
How long has it been owned
Don’t blame the agent become a professional and get respect for it. treat it like a business and negotiate hard like a professional.
Offer them 50% of the price and work up, some where they will start to talk.
D
Thankyou all for your posts and advice. There’s certainly a lot to think about.
I’d like to maintain good relationships with the realestate agents in the area, and there seems to be some good advice that I shouldnt regularly go round making ridiculous offers…lest I get a “reputation” That said, armed with research and information, it feel pretty confident that I can push the price into what I deem a more reasonable figure based on the current market conditions for certain properties.
weallthforlife(my apologies, I don’t know your name), how do real estate agents react when you offer 50%!!!!
Would still love to continue hearing more opinions and advice too.
Thanks
Hi zopm,
I like your style and good luck with your first purchase!Building relationships will certainly help you in the long term.
Mat
Mathew
http://www.arrttt.com
Custom Oil PortraitsHi
When i make an offer on a property i say to the agent that i’m offering (what ever the % is)under the asking price and the reason. I find saying it this way it sounds not as much as saying the amount
eg
house price $420,000.00 10% under is $42,000
still means the same just a different way i find to work better than saying i’m offering $42 000 under the asking price.Thanks Rob
Cabo Wabo
Established Forum Contributor [178 posts]
Posted 27/10/2006, 16:14:16i reckon 15% under is a pretty good spot to come in at. Don’t tell the agent what you are gonna offer. Go out to the car, sit and write an offer, go back in, give it to the agent along with ur card if u have one, and leave.
Give em the impression u know what u are doing, that u have good finance, that u are prepared to purchase if they are interested, but that u are just as happy to walk away. Be very subtle, and make sure you write the offer. That way u don’t waste the agents time.
Cabo Wabo
Hi,
Very interesting forum this one. Just a quick question. When you mentioned writing offers. Do you write the offer on any peice of paper and sign it? Or does it have to be on a specific piece of paper/document?
Also, is their a website you can provide for the Dep. of Land that tells you the asking prices of particular areas and the actual selling price? Someone said that most properties sell 15% below asking price?
Cheers
Paul[suave2]
In my experience, when you find a market thats ready to invest in (house price well below replacement value with local expansions ready to hit in the next 6 – 12 months and job vacancy on the rise) then have a good look around. Markets that have been flat or going backwards for a number of years are perfect.
Find the average price, learn what rents out and what doesn’t. Sort your finances out so you can go in with cash unconditional offers with short settlements. Then go shopping. Go shopping hard. What you are after is the bargins and the desperate vendors. I am constantly suprised at what people will take for their property when the old $$$ is placed in front of them with a short settlement. You will have to put quite a few offers in but be patient one will come up trumps. We sometimes work on half the asking price!! 30% is a good starting point, but make sure your $$$’s are ready and that you are prepared to go in unconditionally, and last but not least don’t counter offer…you’ll soon train your agent.
Sorry if this sounds a bit forward and rude, but we have been operating like this for about 8 years now in quite a few markets, believe me it works.
Cheers
Mikey.Hi Guys,
I have been involved in property investing over the last ten years, and generally have offered between 10-15% off the list price, which i thought i was doing quite well, until i read some of the other strategies used. I assume if you were to be successful by being able to purchase properties at 30-50% below the list price, you would have instant equity and it would take no time to build quite a large property portfolio.
It was only until this year that i jumped on the other side of the fence, and instead of buying only, i began selling properties as a real estate agent. It seemed a natural progression, as it involved property, something that i was passionate about and enjoyed. I also mistakenly believed that being employed in the industry, that i would have first access to any good deals before others.
Often as agents we appraise properties for vendors, and base our apprasial on previous sales evidence from Valuer Generals records and current listings, only to lose the listing to another agent because they were prepared to appraise the property at a higher price, or the vendor expects a lot more than the property is worth. The property most often sits there with no prospective buyers looking through it, or vendor is then pursuaded by agent to reduce listing price.
As an agent we represent the vendor, and all offers should be presented to thge vendor, regardless how low they may seem to the agent. But if an agent has a potential buyer that continually places low offers below what properties are worth, the buyer/investor soon realise why they have not been contacted when good opportunities arise.
Wylie is on the money with agents.
What these agents should realise is that word of mouth is THE most important tool they have. A happy vendor will tell two friends, etc etc. A cranky vendor will probably tell at least ten others.[/By the way i have not purchased a single property through the agency that i work at.
Regards
Wayne10539
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