There are so many things to consider when buying property, not the least being when to take action. Property buyers are often faced with the dilemma of deciding when the best time to buy is: when to call it a day on their search and make an offer. The fundamental question they ask themselves is: how many houses or apartments should I look at before buying?
This is a serious issue (so bear with me here), particularly when there is a time pressure, such as in a market where prices are rising. How do you work out if the house you are looking at is as good as it gets or whether a better one will come onto the market – and if so, when? Because if you wait too much longer, you may not be able to afford the better home.
Have you ever heard the term “piss or get off the pot”?
I personally love it, though just in case people find that a little offensive, I looked for alternatives on quora.com and came up with these: “a little less conversation, a little more action”, “cook or get out of the kitchen” and “dollar waiting on a dime”. The idea here is that when you know enough, you need to take action.
On the flip side, some people act too quickly. They may simply be impatient, or not interested enough to do the necessary research, or be completely unaware of the risks associated with making the wrong decision. Either way, buying a property, whether it be to live in or as an investment, is a big deal. There is a long list of things to consider when buying property and most people struggle when it comes to deciding on the best time to buy.
The challenge is finding a balance between certainty and uncertainty.
For house hunters this means inspecting enough of what’s on the market to think that nothing better will come up. The critical point upon which to act is when there’s little benefit in waiting for more information.
At TedX Sydney1 this year I discovered that there is actually a name for this type of problem and its used by mathematicians, statisticians and decision theorists. It’s called an optimal stopping problem. Optimal stopping is “a rule which dictates whenever one ought to end information compilation in a study. It is based upon a design wherein extra information is expected to be of no additional use.”2 Interestingly, it also applies to finding your perfect match and choosing a restaurant for dinner.
How comforting to think that there’s some science behind working out when the best time to buy is! And it tells us that the optimal point to stop searching and start buying is after you have seen 37% of what’s available in the market. “The strategy: Look at a certain number of houses (about 37 percent to be precise) and wait–no matter how good they are. Then pick the next house better than all of the previous ones viewed.”3Don’t settle before you settle! The art & science of buying the right house. #DreamHome Click To Tweet
Magic! Here is the formula for success. The best way to ensure you have done the groundwork and enough research in order to make the right decision and determine the best time to buy. Here’s the kicker though: “This strategy will give about a 37 percent chance of working, regardless of the number of homes initially considered.”
Statistically, the best time to buy is after you’ve inspected 37% of available property, however the odds in favour of success are simply not good enough for me when we are talking about such a major decision and a large investment. We can’t lose sight of the fact that for most of us, buying a property is one of the most important decisions we will make in our lives. There are so many things to consider when buying property and you want to ensure you cover them without them bogging you down.
How then can we efficiently cover off the remaining 63% of the market and ensure that our clients make a better decision? Our input is to reduce uncertainty. The major benefit of paying for expert advice is filling in the knowledge gaps – giving you an insight into what the other 63% of the market is likely to hold. With experience comes the ability to better predict the upside or downside of waiting for a better house.How to decide when you’ve seen enough to stop looking & buy a home #DreamHome #BuyersAgent Click To Tweet
There are a number of key things to consider when buying property and, in particular, when deciding precisely what and when to buy. Not only finding property that is available to be bought, but understanding market conditions and your own personal drivers. For instance, buyers are particularly vulnerable at certain points in their search, such as when they have just missed out at auction and are about to buy the rebound house. Another time where buyers need to be extra careful is when they have just sold and want to avoid renting and a double move.
Buying a property now will be problematic if:
- It’s simply the wrong choice (ie: you’ve given up)
- You are jumping in too quickly (ie you’re panicking)
- It’s the peak of a cyclical market that’s about to turn
- Your relationship is on shaky ground
Whereas waiting won’t pay dividends if:
- You constantly compare everything to the one that got away
- Prices are rising
- Your partner changes their mind about buying anything at all
I always feel a bit sad when someone tells me that they ultimately bought a property because they decided “that’ll do”, they thought it was “good enough” because “they’ll never find anything better”. Even if they used the optimal stopping rule, it’s clear they didn’t feel like they stopped at the optimal time, because there is a sense of resignation to their decision. Compromises need to be made, that’s true. However with the right approach to a property search, these can be decided upon rather than given up on. You want to make sure that you have given due importance to all of the things to consider when buying property. Our goal is always to buy the right property and by being better informed, you can buy better. If you’d like to chat about your property search, call us now on 02 9555 5206.
2.What is OPTIMAL STOPPING RULE? definition of OPTIMAL STOPPING RULE (Psychology Dictionary)
Published 19 September, 2017
DISCLAIMER: 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.