Why locals pay less for some properties

Here is a little story about buyers from Brisbane and buyers from Melbourne trying to secure property in Sydney’s heady real estate market.

Just before Christmas one year we had a client come to us after finding a property they liked in Rozelle. These buyers had recently moved to Sydney from Brisbane and, although renting in the area, had yet to come up to speed with the local dynamics of this market.

This particular property had ample internal accommodation, double parking and city views, so it was easy to see why it appealed to our clients. HOWEVER, it was on a busy corner, lacked privacy, had limited usable outdoor space and was neither contemporary nor period in style. In short, this was a property that would be difficult to sell in a “normal” property market, particularly as it was a style that generally does not appeal to Balmain/Rozelle locals.

After evaluating the property, we advised our client that $1.7M was “top dollar”. It had, in fact, just passed in at auction with a vendor bid at that very figure (and two other offers of that amount had apparently been rejected), however,  the vendors were hoping to achieve $1.8M. The agent reported to me that the vendors would accept $1.785M and I expect there would have been further room for negotiation if our clients were prepared to pay over $1.7M. However, they wisely decided to let the property go and subsequently purchased a lovely double-fronted weatherboard in Rozelle. Precisely the sort of property that will be easy for them to sell to a Balmain/Rozelle local when it comes to their turn to put it on the market.

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Christmas came and went, then suddenly we heard that the original property had sold for $1.8M! A little investigation revealed that the purchasers had a very similar profile to my clients: they were of a similar age, recently moved from Melbourne and also renting in the area. The difference? Our clients had expert advice and avoided paying too much for a property that does not appeal to local buyers. If the Melbourne people had engaged us, they would have saved a minimum $15K – and probably more.

Some people may ask why does this matter? So what if they bought a house they love and paid a bit more than they should have? I can tell these people that it may not matter now but it will matter when they go to sell. Property that appeals to a lot of local buyers will attract competition and sell for a premium. On the flipside, houses with a limited market will not sell so easily and this is reflected in the respective capital growth rates. Property with loads of appeal will grow above the median growth rate for the suburb, those with limited appeal will underperform – so the longer you own it, the further you fall behind the rest of the market.

Further reading

Buying a property in Sydney, when is the best time?

How to Choose a low risk investment property

 

Published:-  14 July 2016

Please note:

Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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