The three things that cause buyer heartbreak

From first home buyers to upgraders, down-sizers to investors, I see these mistakes made all the time. And they can be really devastating at times for some buyers.

The first relates to auction price quoting. Unfortunately our system in Victoria is based very much on quoting as low as possible, in an attempt to attract more buyers to the scent of a bargain. There is an old saying, “Quote it low and watch it go.” As much as it’s a seedy practise, underquoting is still very much alive and well, but for the agents and agencies who aren’t underquoting, it’s highly likely that their vendor’s reserve is still at the top of their quoted range. Unfortunately a lot of buyers fall prey to the quotes and attend auction with ill-founded optimism and an insufficient budget. I’ve seen plenty of buyers reach their bidding limits before the auction had even reached the vendor’s reserve price. Those who invest in building/pest inspections and legal reviews feel particularly aggrieved when this happens to them.

Navigating this issue is a decent challenge, but for buyers who are prepared to invest time and research into their property hunt, conducting their own “comparable sales analysis” will make a key difference.

Buyers can evaluate their own comparable properties. They may not realise this, but if they have been actively looking in their own market for a particular dwelling type, they will most likely have an accurate idea of their own micro-segment of the market in as much detail as a local listing agent, if not more so. Buyers sometimes neglect to recognise just how much local property knowledge they can accumulate throughout a dedicated property search. Unlike agents who generally don’t sway too far from their own company listings, an active buyer will benefit from a broader cross-section of properties in a given area than the average local agent. They will also get an opportunity to see a greater number of auctions, opposition buyers and auctioneer tactics.

They can become masters in their own area for a particular targeted dwelling type.

Their quest should begin with observation and research. Once buyers are familiar with a suburb and the various pockets on offer, they can start to build a repository of a few ‘comparable’ sales. That is; properties they feel are comparable that have sold in the last few months. If they can rank these in price order, and reconcile where they feel the subject property sits in price order, they are likely to be conducting a more sound analysis of the target property than the vast majority of buyers.

By adopting this process, buyers can set themselves apart from the crowd and avoid wasting emotional energy and money on properties that were always outside of their price range, to begin with.

The second mistake is auction avoidance. I am always keen to understand the specific reasons why buyers choose to avoid auction. This is generally broken down to three main reasons. The first is about managing risk; many buyers don’t like the idea of buying unconditionally. For some, their main fear is valuation shortfall risk. What do you do if the bank values the property at a lower price?

For others, their concern is more about immediate expenses being wasted, (such as building/pest inspections and contract reviews). The second fear relates to the perception that auction results run away and auction outcomes represent premium prices and overpayments. It’s fair to say that this is the case for many auctions, but counter to this, I’ve seen a large portion of bargain buys at auction too.

Just because the resultant price flew way beyond the auction quote range doesn’t mean that the buyer paid a premium price.

The other reason for auction avoidance is all about social discomfort. For some, it’s like public speaking. “Also known as Glossophobia, fear of public speaking is the world’s number one phobia, believed to affect about 75% of people across the globe. For some people, this fear might manifest as a slight feeling of nervousness at the thought of speaking publicly, while others experience full-on fear and panic.” (Source: Wikipedia).

How to get around this issue? Have a confident person bid for you with a sensible limit that you pre-determined with your comparable sales analysis research.

Avoiding auctions altogether is a huge mistake. This approach cuts out a lot of good property options.

The last significant mistake I often see relates to communication and understandings with the agent. In many cases, I note that the agent didn’t do anything wrong. Buyers who make offers without asking questions first can set themselves for disadvantage, and they don’t even know it.

We spend a lot of our negotiating time actually brokering how our client’s offers will be treated, and how the negotiation rules will be set. This is done prior to handing an agent a written offer on a contract. The reason for this is because an agent can determine the rules for how they will treat competing buyers when the property is not being sold by public auction.

Different agents, different offices and different franchises all have different rules.

Some will insist on giving all potentially interested buyers a chance to compete for the property within a given timeframe (for example, close of next business day). Others will quote a ‘buy-it-now’ price, and will advise everyone that the property will be sold to the first buyer who can offer that price. Where it gets interesting though, is when pre-auction offers occur.

Last week I received the dreaded sms from the agent to advise that another buyer had made a pre-auction offer, and that the property would no longer be running to auction. However, the agent was calling for ‘best and highest’ offers only, and he would not be coming back to anyone to give them a second chance.

The very buyer who triggered that process missed out on the property and we secured it with a thin margin.

Buyers who maintain clear dialogue with the agent about how they will manage the offer process are far more likely to be successful than those who don’t establish the agent’s ‘rules’.