First home buyer how to: Buying a property below market value

First home buyer how to: Buying a property below market value
First home buyer how to: Buying a property below market value

When it comes to purchasing a home, everybody wants a bargain - especially first home buyers.

If your "dream suburb" is now a dot on the horizon and you can't tighten your belt any further, it might be time to get creative.

The term "below market value" has a pretty stretchy definition and depends entirely on what people think a property should be worth - whether that person is a valuer, a lender, the vendor, or you. If you're hoping to buy a property "below market value", you're probably actually just after a home than what's expected for a property of that quality in that area, or for a lower price than you might have gotten it earlier.

Under certain circumstances neither of those situations is desirable. If you're getting a property cheaper than any other on the street because it's falling apart, or because a new set of apartments is about to go up next door, you might be in for a dud. Similarly, if prices have fallen in a suburb over the past year, it might be because demand is falling away and unlikely to recover in the future.

Investors, owner occupiers and buyer's agents all have their own tricks for buying a property below what you would expect. They might keep an eye out for discounted homes, mortgagee sales, or off-market opportunities.  But before you snap up the next house in receivership you see online, or convince yourself that the dilapidated shack for sale is a below market value bargain, beware: sometimes it can be hard telling a bargain from a lemon.

If you want to buy a property "below market value", make sure it's still good value. Here are some strategies used to get a home for less than you'd expect.

  1. Mortgagee sales

    A mortgagee sale occurs when a property is possessed by a lender after the borrower can't repay their debts. If you head to a mortgagee auction, chances are you're buying a property that the bank wants off it's hands. However, that's no guarantee that you'll get a bargain basement price for the property. While the lender would probably prefer not to hold the property, they're also attempting to recover the money owned to them during the sale, and have an obligation to the defaulting borrower to sell their property at a fair value.

    However, a mortgagee sale can still sometimes provide good opportunity for bargain hunters. As Brad Caldwell-Eyles writes, most mortgagees will steer clear of fancy marketing strategies when selling a property, opting instead for straight shooting listing information - which might just mean it gets passed over by your competitors.

  2. Distressed sellers and deceased estates

    A "distressed seller" is exactly what it sounds like - a seller that has some sort of extra motivation to sell due to life circumstances. They could be ill, in financial trouble or leaving the country, and willing to sell their property at a loss, which is good news for you. For distressed sellers, time usually has a high dollar value, which you can use to your advantage. Sellers are under no obligation to advertised that they are "distressed", so if they are, it may mean they are particularly desperate to get rid of a property.

    Similarly, some executors are more interested in getting a property out of their hair than making money. Perhaps they can't afford ongoing advertising fees, or would just like to move on with their lives. Some websites, such as National Mortgagee and Deceased Estate Data, list only properties that are on the market from mortgagees, distressed sellers or housing authorities.

    Beware "discount" homes that have been languishing on the market. While you might find a property that's had its price cut by 70% since listing and has stood on the market for three years, it could be because the agent isn't doing their job and you've spotted an under-marketed gem. Or you could be getting sucked in by a property with an initial listing price triple what it deserves, that nobody else is touching because it's a dud investment. Proceed with caution.

  3. Spot the faults

    While searching for a home, you should always be on the lookout for any flaws or faults. Not only will it save you for buying a dud, but it could help you bring down the overall cost of the property. If you can get to the negotiation phase of a sale armed with a builder's inspection or a pest inspection document that shows the property is less than ideal, you could use those flaws to your advantage.

    This is also your opportunity to get creative. If there's a pile of rubbish on the property that the elderly seller has promised to get rid of before the settlement date, you could agree to take the property with the rubbish, with the cost of labour cut out of the sales price. Your elderly seller might have just saved themselves the trouble of organising labourers, and you've just exchanged some money for an afternoon of your time.

    Of course, it almost goes without saying - don't romanticise property problems. If you think you can use the leaky roof to negotiate down the sales price of your purchase, think first: do you really want a house with a leaky roof? Fixing problems down the line can often be more expensive than you anticipate at first, so only purchase if you're sure you can handle making improvements.

  4. Negotiate your terms

    There are two major aspects to a sale - the price and the agreed terms. If you make the terms good enough for your vendor, they may just be willing to move on the cost. For example, if you know your vendor is under time constraints and just wants to get rid of the property, getting in before the auction date and cutting the settlement time or waiving your cooling off period could be very valuable.
    Not only do such moves help your hurried vendor, but they also signal to the agent that you're confident and ready to make a purchase. To some, a first home buyer in the hand is worth more than 10 at auction next month.

Buying any first home is difficult, but buying a decent investment for a cheap price is even harder. Remember, a sale isn't all about you - it's about the seller, too. Keep them in mind and you could be securing a great home for less than you expect.

First Home Buyers

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