In the current property market, prices are dropping, houses are taking longer to sell and buyers are increasingly making conditional offers. Doing the wrong thing can end up costing vendors and buyers dearly, so OneRoof asked experts for their top tips for buying and selling in a slowdown.
1. Listen to the experts
Umbrella Group mortgage adviser Sara Hartigan recently had a client who was asking their dad for property advice. Hartigan asked the client what the father’s property experience was. The client replied that their father had sold his own house 15 years ago.
Hartigan said it was not an unusual for people to want to take advice from friends and family who often have no expertise in the area, but in her opinion it was something people should avoid. “Speak to an expert, look at your own personal budget – don't speak to friends or family because everyone’s budget is different,” she said.
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ICLAW managing partner and property lawyer Aasha Foley said vendors should have a trustworthy list of advisers lined up and ready to go. “A mistake a lot of people make is they don’t know who their lawyer is, they don’t know a contact for a builder, they don’t have a contact for an agent. They are often going in blind. They need to sort their ducks in a row quite quickly because they are often are up against a time limit.”
She advised people to choose a lawyer that had experience of a falling property market as some of the younger solicitors who had joined the profession in the last 10 years only new how to act in a rising market.
2. Ensure the contract is water tight
In a falling market, where people are increasingly likely to try and pull out of deals, it is more important than ever to ensure contract terms are watertight.
Foley said people needed to make sure they received at least a 10% deposit when a deal went unconditional, check that it had been transferred to the real estate agent and was being held in the right trust account.
3. Choose the method of sale carefully
In a softening market, meeting the market is important – but whether putting a price on the property, putting it to tender, by negotiation or to auction is the right thing is less clear.
“Consider your method of sale every day of the week. In this market, depending on the property, I would probably be considering tender options over an auction,” Foley said.
“In a property market where everything is falling like it is or where finance is hard to come by... people need time and they are less likely to be able to make an unconditional offer unless they are cashed up and ready to go and don’t really care what they are buying. “
But Bayleys Canterbury general manager of sales Rachel Dovey disagreed selling by negotiation was the way to go because buyers would be looking for guidance on what the property was worth.
Selling by negotiation or putting a price on a property that exceeded buyers’ expectations could result in a good property taking longer to sell, she said.
“Campaigns with an end-date such as an auction provide a deadline for buyers to do their due diligence with finance or building reports and the salespeople can provide good guidance on sales in the area.”
4. Make sure the house it well presented and well marketed
When there are plenty of properties for sale, sellers need to make sure their house looks as good as it can and that there’s a good plan in place.
Dovey said sellers needed to be prepared to follow their agent’s advice and get organised as decluttering, staging and getting good photos could all take a few weeks to organise, but all helped a property stand out from other properties for sale in the neighbourhood.
Good marketing including using social media and property portals was also important for getting people to notice the property and increase the buyer pool.
“You can’t sell a secret it is important that you have marketing in all the right places to reach your target market.”
Mortgage Lab founder Rupert Gough: “You’re never going to know the bottom of the market until it’s passed.” Photo / Fiona Goodall
Her other tips for marketing a property well included making sure to do open home so it was easy for buyers to view it and putting up a sign outside the house to attract passive buyers.
“They may drive past your house every day or walk the dog, they may know of friends or family looking to get into the area.”
Dovey said people shouldn’t wait for spring – which was traditionally when more properties went to market - because people bought properties all year round and winter was often a good time of showcasing if a home was warm and dry.
5. Don’t guess the bottom of the market
Buying in a falling market can be a less daunting experience than buying in a frenzied one, like many endured last year. But buyers can make mistakes even when the market is in favour. One of the biggest errors they can make is trying to time the bottom, especially when interest rates are rising.
CoreLogic chief economist Kelvin Davidson said while they might get a cheaper price or better property for same money in three to six months’ time, the mortgage rates could be higher too.
“Everyone needs to do their own sums and see how that balance comes out for them,” he said.
A slowing market could also be a good time for owner occupiers to trade up. “Don’t forget that if your property has gone down, probably most others have too.”
Mortgage Lab founder Rupert Gough agreed that if a person found a house for the price they liked then they shouldn’t try and wait six months and do it then. “You’re never going to know the bottom of the market until it’s passed. Search out the good deals.”
6. Don’t underestimate how long financing can take
Financing is taking some clients between six to eight weeks to organise so lawyers and brokers are advising a minimum 15 to 20 days finance clause to get everything in order before the sale goes unconditional.
Foley said banks were drip-feeding requests so the longer time-frame meant there was time for buyers to organise a registered valuation if required, as well as a building report and any other information it may need.
With registered valuations becoming the norm, Gough recommends setting money aside for these.
7. Don’t go unconditional if you don’t have the finance
Foley is surprised by the number of people who have committed to buying a house before they have sold their existing property. In a market slump, houses are taking longer to sell and when deals fall through, the fallout can be expensive.
One of Foley’s clients was now under pressure from the bank to sell one of their houses in a hurry because they had gone unconditional on a second property without selling first.
CoreLogic chief economist Kelvin Davidson: “If your property has gone down, probably most others have too.” Photo / Peter Meecham
“Don’t go unconditional before you sell your home unless you’ve got the net worth or the network to be able to deal with the outcome of not potentially selling either at all or for the value that you need it to sell for,” she said.
Hartigan had a similar experience and had to quickly arrange interim finance for a client who had bought before selling.
Because the bank wouldn’t lend them anymore, their only choice was to use second tier lending, which meant they were now paying 10% interest on the loan instead of 5.5% through a bank. Hartigan said that while the loan was probably only needed for about six months the 10% rate would end up cost her clients an additional $40,000 in fees.
“In this changing market, with the banks changing their policies every couple of weeks, you could potentially end up owning both houses and not being able to settle,” Hartigan said.
8. Think carefully when fixing interest rates
With warnings of a recession, Hartigan recommended people fix their interest rates for two to three years. “Don’t lump sum fix, spread your risk and break it up over a couple of other interest rate terms,” she said.
Foley added that people shouldn’t rely on interest rates staying the same.
“It looks pretty likely that we are skirting a recession... I imagine for some period of time banks will be changing their stance on lending, tightening up on lending and possibly calling in people’s mortgages if their equity position is not great.”
