Leave emotion at the door when buying property

Emotion can be a very destructive force particularly when it starts to dictate our financial pathways. One of the first things Forex traders learn before stepping onto the trading floor is how to harness their emotions.  Without doing so, they risk making costly mistakes that can gradually undermine belief in their own abilities and prevent them acting when they need to.  Fear is possibly the most destructive emotion of all.  Although it can be our best friend allowing us to kick into “fight or flight” mode when facing real danger, it can also become an enemy when it leads us to make irrational decisions for fear of losing something we’ve created an attachment to.

It’s well known that home buyers are particularly prone to heightened emotions when purchasing property.  By the time they have identified a property that fits their requirements, they’ve created an attachment to the home to the extent of imagining their lifestyle, belongings, and future prospects as owners of the house.  The disappointment that eventuates when buyers miss out on a property because someone had deeper pockets can be so bitter, it can deter them from focusing on the next opportunity, or subsequently paying too much and suffering buyer’s remorse.

There’s nothing like the street theatre of a good auction with four or five willing participants and a never ending flow of tit-for-tat bidding to give a feeling somewhat akin to the suspense built up on an episode of Who Wants To Be A Millionaire.  However, in our current market – just heading into the milder weather of spring – it’s still a rare event, as this weekend’s mundane 55% clearance rate in Melbourne demonstrated.  This scenario usually indicates excellent buying conditions for purchasers.  However, if The Block was going to teach us anything, it demonstrated that when a property passes in to later be negotiated, an above-average price can still be achieved, belying the impression some may have of an ever falling market.  In other words, although not a lot is happening in full view of the buying public, there’s plenty happening behind the scenes – and the purchasers are not necessarily coming out winners.

Too many people are basing their perception of the market on whether a home sells under the hammer, when – only a few days later – we all too often witness a sale that outperforms expectations.  This was exactly what happened to the houses on The Block and a wonderful example why home buyers – more than ever before – need to be savvy negotiators and in control of their emotions.

It’s true that Watercress productions didn’t make a profit on the houses, but then they never intended to.  Had they wanted a profit they would have built the original plans for 16 units with undercover parking. However, don’t be fooled – they are the true winners of this game show.  They obviously made a fortune in ratings and also the lingering advantage of dominating the papers by simply playing on the public’s never-ending love affair with property.  On top of this, they bagged a great sale!  The homes were worth a little less than their reserves – and yet three out of the four sold well above their reserves!  What a wonderful result – and how was it achieved?  By playing on home buyers’ emotions.  Who lost?  Arguably the ones who paid above market value in what’s widely perceived a buyer’s market.

Becoming an expert in property is not an overnight process. It takes time, plenty of leg work and ample experience.  Walking through open for inspections, following auction campaigns and monitoring sale prices are just a small part of the process.  A good sales agent knows all the tricks needed to play on buyer’s emotional sensibilities to achieve a top result.  However buyers often think they can walk into the market with little or no experience and come out winning.  The results from The Block aptly proved this is not the case and even in a down market, with good negotiation skills, houses can and will sell above market value.

So if you really want to win the game as a property buyer – and take advantage of our current purchasing conditions - take a bit of advice.

• Change your buying psychology and ignore the price quotes. The only way to educate yourself on price is leg work!  Get to know what the property is really worth, not what the selling agent’s asking.
• Start research early – start when you’re thinking about buying and in the process of getting your finances organised, not when you’re in a position to impulse buy on a whim without market knowledge and risk paying too much.
• Walk through open for inspections, follow auction campaigns, and start educating yourself on real market results – not those spruiked in the papers.
• Know your limitations and more importantly, know when to walk away.
• Finally – if you can see the value of using a tax accountant to achieve a good return at tax time and save money, employ the same strategy with property and pay an independent expert to help you do the same.