FOMO is out, FOOP is in: How to avoid paying too much when buying your new home

By
Nicole Frost
May 3, 2018
The agency faces Federal Court action. Photo: Glenn Hunt

As the Sydney market slows down and Melbourne comes off the boil, house hunters are finding themselves on a more level playing field.

But with more stock coming onto the market and the investor ranks thinning, buyers are no longer forced to the very top of their budget.

Several experts have reported a “fear of overpaying” (or FOOP) replacing the fear of missing out. So how can a buyer avoid paying too much for a home in a cooling market?

Work out what a property is really worth

Buyers agent Michelle May cited the fear of overpaying as a major cause of anxiety. “The buyers out there are actually missing out on good properties because they don’t know what to pay,” she said. “They’re scared to pay too much.”

She said the key to overcoming insecurity around pricing was extensive research of the local market and the target property.

“Ask [the agent] what their comparable sales are,” she said. “Look at how relevant they are to the house or apartment that they’re trying to buy.”

The size of the block, the width of the frontage and the quality of the street are all factors to consider when comparing nearby properties, she said.

Attending multiple open homes and auctions in the area they were looking at could give house hunters a better idea of the value of their target property than the selling agent, according to Wakelin Property Advisory director Paul Nugent.

“You’re looking at all the properties in a given area, you’ve assembling all the data in your mind – it’s very specialised,” he explained. “Selling agents usually have a variety of properties and they aren’t going to be specialising in the kind of property you want to buy.”

While properties can vary in condition, estimating the land value can provide a basis for comparison, according to Mayfield Property Buyers director John Carew.

“You have to look at what you’re paying per square metre and be quite scientific about how you approach it,” he said.

Physically inspecting several comparable properties would help buyers analyse the market and the variables that affect the price, he explained.

“See what they actually sell for and how long it takes them to sell,” he said.

“It’s part art, part science. The science is the per-square-metres. The art – how much is a view worth?”

Avoid making a pre-auction offer

Mr Nugent said making an offer prior to auction was one way buyers could end up paying an unnecessary premium.

“An agent is only going to sell before auction if there’s weak interest in the property, and there’s only maybe one person head and shoulders above the others,” he said.

“If you remove the auction, the power rests with the selling agent, and you don’t know what’s going on,” he said, explaining a lack of transparency generally worked in the vendor’s favour.

Mr Carew said buyers should be cautious when agents encourage pre-auction offers.

“They are working for the vendor, not for the buyer,” he said. “Agents know if they’ve only got a couple of interested parties and one pulls out, they don’t have an auction.”

Ms May said that in certain situations, a pre-auction offer could work.

“It’s all about pricing – if you know that the property is worth more than they are asking, then buy,” she said.

“But for the average buyer, if you think the agent is perhaps over-quoting, or the vendor has unrealistic expectations, then don’t help the agent condition the vendor. Absolutely wait until auction.”

Don’t get too emotional

Mr Carew said buyers often made the mistake of “going straight from locating it to negotiating it” without  undertaking adequate research.

This behaviour could be due to buyers becoming too emotionally invested in the property, or fatigued by the house-hunting process.

“They imagine themselves in the house, and that clouds people’s judgment,” he said. “They do and say things to the agent that weakens their negotiation position.”

Ms May said buyers were often too caught up in following the market, rather than simply buying the right house.

“The real question is – is this the right property? Will this property still have demand in the long term? Buy the best possible house for your budget, hold onto it and get on with your life.”

Take advantage of a more ‘balanced’ market

Mr Nugent said lower clearance rates were indicative of the market reaching an equilibrium, and this would continue until something major changed the dynamic, such as an interest rate rise.

“There are opportunities across the board, from one-bedroom older apartments to multimillion-dollar family homes,” he said.

But he warned buyers against being fooled into thinking they were guaranteed to pick up a bargain.

“You stand every chance of getting something you want,” he said. “But keep your feet on the ground, be realistic.”

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