BUYING AT AUCTION IN A “BUYER’S MARKET”
The property market is now a buyers market – so what does this mean if you’re the buyer?
Despite the changing landscape, around 40 percent of properties in Auckland are still being listed for auction initially. Around the country that number is around 25 percent. This may change as more and more houses fail to sell, but for now, if the house you want is being sold by auction, here’s a few things to keep in mind.
PRE-AUCTION
- Try to understand the vendor’s position.
- A few months ago sellers were getting record prices for their houses, and so for a lot of vendors trying to sell now, their expectations might not have kept pace with the new reality – they’re still wanting those big returns.
- Ultimately, how much of a drop in price a vendor is willing to accept is related to how desperate they are to sell. If they’re just testing the market then they might hold off selling until the price is right, but if they’ve already bought somewhere else and they need the money from the house sale, you might be able to get more for less.
- At open homes, try to glean as much information as you can from the agent. Asking questions like, ‘Why are the vendors selling?’ or ‘How long is the settlement period?’ might reveal a little tidbit, such as the vendor’s are moving cities or they’re selling because of a relationship breakup. Some agents are guarded while others say too much, but the more you can find out, the better.
- Set your price
- If you decide to go to an auction, be very clear what your maximum price is. All houses are different. Check recent sales in the area, estimate out how much work you’ll need to do on the property, ask your mortgage broker to check their software for how much the house is valued. It’s a simple question: What are you prepared to pay for that specific property?
- Everyone is lower
- Don’t be despondent if your maximum limit is lower than what it was a few months ago. Just remember, with changes to lending regulations and increases to the cost of living and interest rates, everyone is in a trickier financial position when it comes to borrowing. The majority of fellow buyers will also have a lower maximum price.
AT THE AUCTION
The auction house is always a chaotic place, but in a buyers market, there’s a few extra things to know.
- Vendor bids
- If the bids are too low, some auction houses allow ‘vendor bids’. These are bids from the seller to try to get the bidding closer to the reserve.
- Not reaching reserve
- If you’re the top bidder (or only bidder) and the bidding fails to reach the reserve price, the auction will pause and the agent and auctioneer will go between you and the seller to find a middle ground sale price.
- This is where it’s good to know the vendor’s position. If the vendor isn’t super motivated to sell, don’t expect them to settle for below their reserve.
- If the middle ground is not found, then the property ‘passes in’ and the sale becomes ‘by negotiation’, with the sale now open to conditional offers from buyers, who, for example, might need to get finance approved or may need to sell their current property first. But don’t give up hope.
- ‘Passing in’
- If the middle ground is not found, then the property ‘passes in’ and the sale becomes ‘by negotiation’, with the sale now open to conditional offers from buyers, who, for example, might need to get finance approved or may need to sell their current property first. But don’t give up hope.
POST AUCTION
You’re still in a strong position. You’re the top (or only) person offering to buy the property unconditionally, which, if you know the vendors are desperate to sell quickly, makes you more valuable to them than the uncertainty of a conditional offer.
- Put it in writing
- While you’re at the auction house (or straight after the auction finishes online) tell the agent you want to put your offer on paper. Maybe even propose to make the settlement period shorter if you think it might help sway the vendors. Having your offer in writing for 12 or 24 hours forces them to at least think about it overnight. Sometimes they’ll realise they can’t afford to take a risk on conditional offers.
- The Agent
- It’s worth knowing that real estate agents need the house to sell at auction (or immediately after) more than you’d think. As much as they’re working to secure the sale for the vendor, they also need to secure the sale for themselves. If the house doesn’t sell at auction and becomes ‘price by negotiation’, the open homes and private viewings have to continue, plus other agents can now bring their clients through and potentially take the sale away from the original agents. In other words, the work load goes up for the same (or potentially less) commission.
- Maybe A Better House Is Around The Corner
- And if it all fails, as long as it continues to be a buyers market, try not to despair – there’ll be more houses to look at, and potential vendors will have had more time to adjust their expectations.
Working with a financial adviser should be more than just getting a mortgage. From helping you understand the property market, to demystifying all the financial lingo, the team at Float are with you every step of the way. If you’d like to chat, reach us on 0800 356 288 or at info@floatmortgages.co.nz
