In a cooling real estate market, there is a glut of properties that nobody wants but agents and developers need to get rid of.
Some selling agents and property marketers are resorting to shady tactics to trap unsuspecting buyers using deals that sound “too good to be true”.
Miriam Sandkuhler, CEO of Property Mavens, revealed the dodgy strategies that buyers need to be aware of.
Buyers underestimate the complexity of buying property, making themselves an easy target for agents and developers who swoop in to take advantage of inexperienced buyers.
Sandkuhler said real estate agents will get creative with their tactics when they need to sell a poor performing property which they know is not going to see much capital growth or good income.
One of the smoke and mirror tricks agents use is talking up the depreciation benefits, stamp duty savings, the advantages of negative gearing or buying property in a super fund.
At auctions, the auctioneer might talk about growth potential, using highly emotive language to “suck people in.”
Project marketers and developers will lure in unsuspecting buyers with enticements.
“Developers might pay for your airfare to come and attend a ‘seminar’,” Sandkuhler said.
They might throw in gift cards, concert tickets and free weekends away to attend their “property presentation” or “education event” where they capitalise on a buyer’s emotions, who feel obliged to purchase something in return.
Sandkuhler said developers might lure you in with incentives built into property sales.
House and land packages, land or apartments that are struggling in a softer market might include a furniture package, marina berths, golf and gym memberships, frequent flyer points or stamp duty rebates to sweeten the deal.
“However, what a buyer needs to be aware of is they are the ones who are going to be paying for all of that.”
Developers might use phrases like “guaranteed lease and rental returns”, sometimes promising up to five years of a lease and returns.
“You need to remember that ultimately the buyer is paying for that, and probably when it comes to settling on the property and the valuation coming in, it may not stack up to contract price,” Sandkuhler warned.
Watch out for key terms such as wholesale prices, hotspots, award-winning design, scarce opportunity, depreciation and tax savings.
“They’re there to make money and they’re going to use every creative trick available for them to do that.
“It fundamentally may not be a great investment, that’s where they’re going to rely on the smoke and mirrors to convince people to buy,” Sandkuhler said.
How to spot the dirty tricks?
Pay attention and don’t be afraid to ask questions, Sandkuhler advises.
Anything that is added or included as a bonus is usually built into the purchase price, so be aware the buyer is ultimately paying for it.
Questions to ask real estate agents, developer and property marketers:
- How are you being paid? Is there a marketing fee built into the purchase price?
- What is the value of the incentives and are they included in the purchase price?
- What are the pros and cons of purchasing the property?
- How much commission do you receive from this sale?
- Have there been any secondary sales in the development and how much did they sell for?
Is it possible to get out of a dodgy property deal?
Try and approach the vendor to see if they will release you from the purchase, even if it is unlikely to happen.
Sandkuhler said buyers can ask their conveyancer to approach the developer or agent to see if they can get out of the deal.
If the property deal has been signed under an unconditional contract, it may be too late.
“They (the developer) are not legally obliged to let you out of it once you’ve signed the unconditional contract,” Sandkuhler said.