I have recently purchased an apartment and found it to be an incredibly stressful, time-consuming, and frustrating process. Across the board, many others have had similar experiences. No wonder first home buyers find the process daunting.
It made me wonder: why is it so hard for buyers to get the deal done?
It was a massive learning experience through which I would like to share.
There are some important steps you can take to plan ahead and make it a lot easier for yourself:
- Get your finances in order.
At a bare minimum, banks will ask for pay-slips, tax returns, and 6 months’ worth of credit card/bank account statements. If you are self-employed or have a non-salary income, they will ask for a lot more financial info.
Make sure all your tax returns are lodged.
Tighten up your spending as much as possible, at least 6 months before you expect to make your home purchase. Make sure there are no strange transactions on your account statements.
Pay off and cancel all of your existing credit facilities.
Start saving/accumulating your deposit into your account. For example, if your parents are giving you money towards your deposit, get it into your account 6 months early.
- Find a good mortgage broker
Mortgage brokers are a great source of advice about loans and property transactions.
They can give you a good idea of how much you can afford to borrow.
If you are a first home buyer, they can help you figure out all of the concessions you are entitled to.
You should also find a solicitor to help you with conveyancing. The broker can refer you to someone if you don’t know any. It can be useful to make contact with the solicitor before you make any decisions. They can explain the buying process to you and give you a quote for their fees.
- Set a budget for your target purchase price
The mortgage broker will tell you the maximum amount of money you can borrow and the amount of deposit you need, so that is a good starting point.
Make sure you include an allowance for stamp duty, legal fees, and any other cost you might incur. If you plan to buy an older property and would like to do some renovations, make sure you include that in your budget also.
There is always a chance that the loan amount will reduce or something else won’t go in your favour, so it pays to aim for something less than the maximum possible amount.
Once you have your target amount you can request pre-approval. You should try to stick to that number no matter what. Real Estate Agents have a theory that buyers will fall in love with a property and they’ll be willing to blow their budget in order to buy it. You need to stay strong in the face of their tactics.
- Look at what is available and try to narrow your choices
At any given point in time, there might be hundreds (or thousands) of properties available in your price range. You need to make a decision about the suburb, type of property, and other features to narrow your choices.
There are other criteria you can consider, perhaps an apartment with a balcony in a quiet area.
You will probably need to be flexible about those choices because, on a limited budget, you’d be hard pressed to find something that will tick all of the boxes.
Some things can be easily fixed. For example, it’s not difficult or expensive to replace the carpet and get air-conditioning installed.
Other things are not so easy to fix, like the lack of parking, train noise, and West-facing windows.
- Start Searching
It took me more than 3 months to find a place and successfully get the deal done. So you should start early and be prepared that you may face some set-backs.
I had a few friends suggest that I should go direct to real estate agents that I have a personal connection with. I was doubtful about whether old-school methods are still useful now that the real estate business has become a lot more fragmented.
Real Estate Apps are a much easier way to find a property. They all work differently so find one that suits your style and stick with it.
The first thing you will notice is that most of the properties listed do not display the prices or the prices they indicate are misleadingly low.
If you are a first-time buyer, then you should try to avoid auctions. It is a lot harder to predict the sale price and to successfully buy in an auction. The risk of something going wrong for the buyer is also much greater. A regular sale is usually less stressful and easier to determine what the final sale price will be.
- Go to Open Homes
The best way to get a feel for the market is to go to a lot of open inspections. I went to more than 40 open inspections and had 8 private viewings before I found a place that I liked. Most inspections are on Saturday mornings between 10 am to 1 pm so the maximum number you can see in a day is no more than 6. I’ve certainly found that it’s possible to go to 6 different viewings and find that they were all unsuitable.
Use what you learn from those inspections to constantly refine your criteria.
- Look at new Developments
The advantages of this category, are that First Home buyers are eligible for bigger stamp duty exemptions from buying a brand new apartment. Since developers are usually selling a lot of units, they are much easier to deal with than individual owners. Brand new apartments nearly all have ducted air-conditioning and should be in perfect condition so you won’t need to spend anything fixing them up.
The downsides are that there probably won’t be many brand new developments available in your area of choice and brand new apartments can be significantly overpriced (e.g. $100k more expensive than an older apartment nearby).
It doesn’t make sense to save $30k in stamp duty, only to lose a larger amount in capital depreciation.
- Due Diligence
Making sure that everything is ok with the property is an important and difficult step. Buying property is a large commitment and can be risky.
It’s very common for people to find out about special levies and other problems after they have already moved in. Some of that is unavoidable but it’s better to know as much as possible in advance.
Some real estate agents will readily provide the contract and strata report to interested buyers. Others do not.
The contract will tell you if there is any unusual problem with the property. For example, before I went to an open home for an older unit in Annandale, I had downloaded the contract from the agent’s website. I noticed that it alluded to a peculiar arrangement with the unit’s designated parking spot.
I asked the agent about it and the next thing I knew, half the people there were roaming the garage with me, checking out the parking situation.
The strata report will tell you about special levies and the financial position of the body corporate. You might think that low levies are a good thing, until you find out that the strata scheme has terrible finances and is surviving paycheck to paycheck.
- Make an offer
I made it a rule to always have a second inspection before making a decision. Sometimes you’ll notice that the property has flaws you didn’t see the first time through.
The kind of offer you need to make depends on the property, the sale process, and how much competition you have from others. In addition to the offer price you will also need to negotiate an extension to the cooling off period if you are buying with a mortgage. The standard cooling off period is 5 working days. My loan took 6 business days to be formally approved and apparently that was fast. There might be other aspects of the contract that you want to negotiate and it’s best to do that before you make a formal offer.
A few months ago when the market was quiet, there were properties that had gone unsold for a while. Owners were dropping their prices and they still had no interested buyers. In those conditions, it is possible to make a low-ball offer and have it accepted.
We probably aren’t in that scenario anymore, and most likely the kind of place you want will have other buyers looking at it too.
So when you find something you like, you need to act fast. I missed out on the first property I fancied because someone else made a lower offer than what I was willing to pay and had it accepted before I had a chance to do anything.
I learned my lesson. I signed the purchase contract for my place, 5 days after the first open house.
Some sellers are patient and willing to wait until they get a great offer, but others want it done as quickly as possible, as was the case in my scenario.
I was in an unofficial sealed bid auction. This is where each interested buyer is asked to submit their best offer, without knowing what other buyers are offering, and with a short deadline until the sale decision is made. There is a lot of strategy involved in this process.
You need to weigh up:
- The price guide given by the real estate agent;
- What you think a fair market price is;
- How many other buyers there are;
- How much you like the property;
- How it compares to your next best option and similar properties nearby;
- If that price is within the limit of what you can afford.
It definitely helps to talk to someone with experience buying and selling property in getting to this decision. Don’t let the agent rush you unnecessarily.
My brother was a huge help to me. He told me that most people are a little bit OCD and make offers rounded to the nearest $10,000. From the sellers perspective, a round figure isn’t important since the amount they receive will have agent’s commission deducted plus other adjustments. Therefore the final number will always look ugly and they’re just going to take the highest bid no matter what.
If you’ve been to enough open inspections, you should have a good idea of a fair price. If there are few buyers inspecting, then you might be able to get away with a low price, but if there are numerous potential buyers, then you will need to pay more. For me, I settled on an amount slightly above the middle of the price range given by the agent.
I compared the other next best options of properties available and decided that I needed to add $10k to the amount I settled on. Given that there were multiple other buyers, I added another $1,500 on to get to my final price.
After I made my offer, the agent called me and said they were waiting for another offer and asked if I wanted to increase it. Given how precise it was, I felt confident in saying that was my best offer.
Lo and behold I get a call later that day, informing me that I was the winning bidder! I was instructed to come over and sign the contract the next day.
Upon meeting the selling agent to sign the contract, I was in a bad mood. The whole process felt incredibly rushed and left me with the impression that I had offered too much.
He then told me that one of the reasons they were rushing, was because my offer was only $1,500 higher than the second-highest bidder.
My mood immediately brightened, knowing that my strategy worked perfectly. I offered almost exactly the right amount and I couldn’t sign that contract fast enough.