Home Real Estate How to buy and sell property in a falling market

How to buy and sell property in a falling market

What to do and not to do.

Jack Derwin

Digital Journalist, Your Money

Whether you’re a homeowner, a property investor or someone looking to get into the market, it’s important you’re getting value for money no matter where prices are going.

However, as capital cities like Sydney and Melbourne continue to come off their record highs, and prices continue to slump, buyers and sellers still need to be cautious.

Buyers

For buyers, it’s about protecting your equity.

“You need to make sure you’re not eating into that equity and it’s especially important during a falling market,” property investment adviser Margaret Lomas of Destiny Financial Solutions told Your Money Live.

While it’s easy to get value in a rising market because the price will likely increase after you settle, it’s not so at the moment.

You might not be able to stop a falling market but there are some things you can do to “future-proof” your property, according to Lomas.

Buy a property with potential

If you’re going to realise a profit on a property in a real estate slump, there’s got to be potential for an investor to add some value to it.

“If you buy a property that you can change the shape or size of, perhaps by adding a bedroom, then you might even improve the value after you buy it,” Lomas said.

“[Or] buying a property with potential to subdivide so that you end up with a cheap block of land,” she suggested.

Buy next to a cheap suburb

As different suburbs fluctuate, so too do their neighbours.

By positioning yourself in cheaper areas near suburbs with potential upside, there’s a window for a flow-on effect when the market turns.

“Often there’s a ripple to those adjacent suburbs after the more desirable one becomes too expensive so you might actually see more demand in those close-by suburbs.”

Negotiate

No matter the market dynamics, strong negotiating skills are going to put you in good stead.

In a falling market however it can make all the difference, Lomas said.

“Negotiation skills go a long way to helping you get a better price as a buyer and if you have a good handle on market value then you can work towards securing a property below that value.

Traps for buyers

Equally, there are also things to avoid.

“First of all be careful you don’t have FOMO – which is the fear of missing out,” Lomas said. “You become a worse negotiator and you tend to outbid even yourself with offers and you tend to make decisions based on emotion only.”

Australians might love to talk about real estate, but that passion doesn’t necessarily translate to expertise and it certainly doesn’t to fortune-telling.

“If you’re waiting for that bottom to come, it might come and go before you realise it and you could end up paying more for the property than you’d hoped,” Lomas said.

“Then there buy a property just because it looks like a bargain without doing the research into whether it really is,” she added.

That could mean buying without the local demographic in mind.

“Buying a property which doesn’t suit the people who are going to live in it. For example, buying a two-bedroom apartment when renters are families who want houses with backyards,” Lomas explained.

“[Or] paying for things not needed in a rental. This means that you become attracted by the fancy fixtures that don’t give you any more rent but cost you more to buy.”

Sellers

But how about if you’re looking to sell?

On one hand, if you’ve been looking to sell there’s a temptation to get out before the market sinks lower. On the other, you don’t want to sell knowing that prices could go up again after you settle.

“You can certainly understand that if you’re in a situation when you have to sell and the market has turned already it can be really soul-destroying having your place sit on the market forever when all you want to do is get rid of it,”  Lomas said. 

It pays then, to be aware of the traps you can fall into.

Wily agents

That situation can open the door for crafty real estate agents to pressure you into selling.

After all, a lower price impacts the vendor much more than the salesman.

“A property selling for $600,000 with a 2 per cent commission means the agent gets $12,000 for it, while one selling for $550,0000 has a commission of $11,000,” Lomas said.

“They don’t mind that lower price as much as you mind.”

If you don’t know the current market value of your house then you’re stuck taking the agent’s word.

Conditioning

One particular strategy real estate agents employ is called ‘conditioning’.

“They tell you a great price just to get your listing then they keep telling you the bad news so that you keep lowering your price. If you know the market value you can stick to your guns,” Lomas said.

Poor presentation

That doesn’t mean, however, that vendors don’t have a responsibility.

“Take the time to present your property well by doing some of those easy cosmetic fix-ups and then have professional photos done,” Lomas said.

Over-improvement

But don’t go overboard.

“On the other hand you can go too far and you can over improve and in a falling market you won’t get that money back by an improved price,” Lomas said.

First offer fears

When the market is rising it can be easy to sit back and let prospective buyers jostle with competing bids for your property.

You simply don’t have that luxury however if prices are on the slide.

“That first offer in a falling market is very often the best one you’re going to get,” Lomas explained.

Watch the full segment above.

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