When an attractive, sunny property comes on the market, the competition is usually intense. If you are out there trying to secure your new home it is highly likely you will have to compete to buy it.
Before you talk yourself out of offering, thinking you don’t stand a chance, remember that it is a very good idea to buy a home that other people want too. It shows you have good taste!
When it comes time to sell again later in life there is a good chance that the same thing will happen again as one rule in real estate that always holds true in my experience is… “Good houses sell well in any market”. The popular ones in our area will have at least a few of the following features: Good sun, indoor/outdoor flow, flat section space, a garage, street appeal, reasonable access, a light feeling inside and good presentation.
So when there is no price indication given (aside from the RV), how are you meant to know what you should offer? The fear of paying too much can be intense. Nobody wants to pay more than they have to. Here are 6 tips to help you decide your price.
1. Let go of your desire to “pick up a bargain”.
As Kiwis we are all desperate to score ourselves a good deal. We have grown up brainwashed by Warehouse TV adverts and entertainment books. The idea of paying too much for something makes us sick to our stomachs. Eating out when it’s not “2 for 1 night” makes us feel guilty for weeks. We aren’t big on haggling but will drive halfway across town to save a few cents a litre on our fuel bill.
When you are trying to buy a popular home you have to accept the fact that you are highly unlikely to pick it up for a song. Remind yourself that buying a good home for a fair market price is a heck of a lot better than buying a bad home for a bargain price. You will thank me later when you still love your home in 5 years time and the price you pay will always look like a bargain in the future at some point as long as you hold onto the property long enough.
2. Trust your gut instinct.
Imagine the property you are considering is marketed with a price, think of a number and ponder – does this feel low or high to you? Would you pay that much? The truth is, once you have seen a few houses in an area and figured out that things are going for you are starting to learn the market and you know value better than you think you do.
From my experience, I can tell you this- if a property is advertised with a price, and that price is even $10k or $20k too high, open homes suddenly become quieter than a nursing home. Interest dries up instantly and properties can sit on the market for months on end. If the general buying public are this sensitive to an overpriced home then it must be fair to assume that they can judge value fairly well.
3. Comparison sales are a lot more valuable than RV’s.
What other houses have you seen in this area and what did they sell for? How did they compare to this one? It’s always hard to find exact comparisons but it’s easier if you have something to work off. Even if you didn’t like the other house down the road you can still use its final sale price as information to help you make a more informed decision.
Take notes on houses you visit and record what they sell for. If you don’t know what the other houses actually sold for, ask your agent as they should be able to find out. Recent sales of nearby properties should be available at every home. If you visit one where they are not – tell the salesperson to get with the program! Comparison shopping is the best way to decide on the price you feel comfortable paying.
4. Look at average sale price compared to RV.
The RV (Rateable Value) should be taken with a grain of salt but can still be useful information. Real estate salespeople should be able to provide stats showing the average in their area. Ask the salesperson for the last 30 sales in the area (preferably of similar sized homes) to get an up to date, accurate guide.
Note: An RV is sometimes called a ‘CV’ or ‘Council Valuation’.
5. You need to find your walk away price.
If you are in competition there usually isn’t much point making an offer and ‘leaving 5 or 10k’ in reserve in case the owners come back to you. If you are not the highest offer you are unlikely to have this opportunity anyway and wouldn’t you be disappointed if they accepted an offer 5k higher than yours? Your walk away price is the highest price you are prepared to pay – the price at which another buyer could buy it for 1k more and you would say ‘good luck to them!’. The price at which you could walk away and say ‘we gave it our best shot…’
6. Look at the big picture.
How long are you planning to stay in this home? When you are deciding what to offer, every thousand dollars seems like a big decision. For most people who have already bought – if you ask them whether they would have paid 5k more or felt better if it was 5k less, most of the time they really do not care. Whether you buy the house for $450k, $455k, or $445k, the main thing is that you are in there, enjoying the home, you have a major asset to call your own and you are building towards your future.
Borrowing an extra 5k will cost you $5.80 per week at 6%, whereas a 1% rise in interest rates on a $400k mortgage will add an extra $77 dollars to your weekly interest bill (ouch!). The reason I bring this up is to show you how interest rates have a much larger effect on your mortgage than relatively small changes in the amount you borrow. The moral of the story is – pay as much as you can off your mortgage while interest rates are so low!
The buyers who are the best judge of price are usually the ones who have missed out on other houses previously. They have learnt these lessons the hard way. Get ahead of the curve and learn the market by studying recent sales and give yourself a jump on your competition.
Thanks for reading, stay safe out there