It appears that the market is coming to a halt with agents reporting new listings are dwindling due to vendors who don’t need to sell staying put. That could mean there will be a Mexican standoff or maybe things will swing momentarily in the favour of financed buyers. Beware though, for there are 7 mistakes that will cost YOU in a buyers market.
The biggest risk is the hidden danger of overpaying for a house. Yes it’s true. Property buyers often think they have the upper hand in a buyers market but it’s not always the case and this is especially true during COVID-19 conditions.
You see, now is the time of smoke & mirrors where agents can’t rely on open homes and auctions to provide social proof that there is activity and interest from other buyers. As open homes are now being conducted strictly by appointment (one-on-one) and auctions have moved online, the buyer loses the transparency they once had. Agents will need to manufacture urgency through such means as clever dialogue and buyers inevitably fall victim to it.
Regardless of market conditions, you need to remember that when negotiating for a property you are up against someone who does this for a living. Buyers are more driven by emotion than they want to believe while the sales agent probably isn’t. There are many pitfalls and here are the most common home buyer mistakes.
This is a big issue for some buyers, particularly when they feel that they are the ones in power. They could have overconfidence in their ability to negotiate and in their ability to recognise a good property in the first place. This heightened optimism puts buyers in danger of overpaying for a house or otherwise wait too long for the illusive “bargain” to appear.
#2 Buying before auction
At times, buying before auction can be a good idea but if it’s because the agent has suggested you do so, be careful, as this is one of THE most common home buyer mistakes. Particularly now, a lot of agents are convincing buyers to make pre-auction offers when they have only one real buyer. Buyers often feel like this is their opportunity to avoid the unknown of an online auction, but what they are really doing is negotiating with blinkers on. The danger of overpaying for a house is never greater than when you’re shadow-boxing buyers who don’t even exist.
Recently we were engaged by a couple to help them negotiate on a property prior to auction. They’d been encouraged by an agent to make an offer in the last days of the auction campaign because “another buyer was about to buy it”. They then called us as they immediately realised that they were out of depth. There was no other buyer and we bought it on the night of auction, after it passed in, for less than the offer they had made before they engaged us.
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#3 Missed opportunities
One universal truth is that pretty much all of us we want more than we can afford. A recent client was worried that they couldn’t afford our fee because their budget was already stretched. Oddly enough, before meeting us, they’d stopped bidding before buying a number of properties that they could have afforded. When we debriefed with them, we could see that they weren’t looking where they really wanted to buy because they thought they were out-priced. Ultimately, they were on a path to buy the wrong property in the wrong suburb – all due to an incomplete picture of the possibilities available to them. Within 3 weeks we had snapped up a gorgeous cottage for them in a blue chip suburb. They’d never thought that was possible.
One reason it was possible was because the agent had been over quoting the property. Yes, it does happen. They got the price wrong. We paid LESS than the quoted price. Here’s another situation that creates a danger of overpaying for a house – automatically assuming a property is worth 10% more than the agent is quoting. We bought this property for $1.275M. It had been quoted at $1.3M. You do the math…
#4 Fear of missing out
If you’ve found a property you love, it’s normal to be nervous about other buyers. Fear of missing out (often referred to as FOMO) starts when we have this little voice in the back of our heads telling us that someone else with more money could come and snatch away our dream home. Even in a buyers market, FOMO causes buyers to overpay. One of the benefits of engaging a buyers agent is having a voice of reason to protect you from the danger of overpaying for a house.
#5 Confused by inconsistencies
There’s a lot of inconsistencies in a buyers market. Some properties sell for unexpectedly high prices while others languish. How does a layperson know how to read this? How do you work out what to do?
Many buyers under these circumstances do nothing, which is a real shame because they often let good opportunities pass. Floundering around doesn’t cost buyers in a soft market as much as it does in a hot market, however a lack of direction and focus might. Because when the market turns again, as it will at some point, there’ll be little warning that you’ve hit the bottom. Prices will go up in a rush, like they have done before. All of a sudden everybody will take action rather than sitting on their hands. Then there will be a very real danger of overpaying for a house!
#6 Stock shortage panic
Here’s something about a buyers market that really irritates me: in the areas in which we buy there is less property on the market. Not only that, but less quality property. You see, when owners feel that they won’t get their price, they simply won’t list. In much the same way that buyers are waiting for prices to fall, vendors are waiting for them to take off again.
So buyers who aren’t in the market year in and year out won’t necessarily recognise the lack of quality and face the danger of overpaying for a B-grade house.
#7 Shunning advice
It’s true that a lot of people think they should be able to buy a property without advice. And it’s true that a lot do. They might think they know it all, or they think that what they don’t know won’t hurt them. But it can.
Let’s put it another way. What do you do for a job? Have you put in years to study for a qualification? Have you developed your skills over years of hands-on experience? Have you been taught by the best in the business? Can a weekend-warrior do it as well as you? It’s important to recognise that you could be inadvertently making mistakes and are very much in danger of overpaying for a house.
Awareness is the first step. Email me if you’d like to take the second step.
First Published: 16 May 2018
Updated: 17 April 2020
DISCLAIMER: Good Deeds blog/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.