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Monthly Archives: July 2016

Misconceptions about Property Auctions

Many buyers don’t love auctions because they believe properties will always sell at a premium with competition.

Others head in armed with strategies; holding off on bidding until the last second or when the property is declared on the market.

Agents say there are several misconceptions about auctions, from the vendors’ reserve to the requirement of a 10 per cent deposit on the day.

A vendor’s reserve is not a price they’re ‘happy’ to sell it for

The role of the reserve price is a misconception from vendors and buyers, Nelson Alexander’s Arch Staver says.

Buyers believe it’s what the owners want, and vendors sometimes think it should be the price that gives them reason to celebrate – it’s actually not, he says.

The reserve price is often “the worst case scenario”, Mr Staver says, and what vendors are not prepared to sell their properties less than.

You don’t ‘need’ to pay a full 10 per cent deposit on auction day

Buyers will need to check with the agent or vendor before the auction if they can’t pay the full deposit on the day.

RT Edgar’s Joanne Royston says buyers may be able to do a small transfer on the day, with the balance transferred over the weekend or on Monday to make up that 10 per cent.

Buyers may also alternatively call their bank and organise a large transfer over the internet if they win the keys on the day.

Don’t count on buying on the scheduled auction date

It is possible vendors will accept a pre-auction offer, and several acceptable offers may trigger a boardroom auction a week or fortnight before its scheduled date.

Auctioneer Damien Cooley says more than 30 per cent of their listings are selling before auction.

“These things can all change; it all depends on the owner’s motivation to sell and the buyer’s motivation to try and secure the property,” he says.

Some agents are also more inclined to sell properties before auction, Mr Cooley adds.

Holding back from bidding does not guarantee you will buy it for cheaper

Some people hold back and don’t bid until later in the auction because they believe the price will be pushed higher if there are five people bidding it up early on, Drakos Real Estate’s Chris Kazonis says.

“But it doesn’t happen that way because a lot of people wait until it’s on the market – others don’t,” he says.

Mr Kazonis believes a good, strong bid can knock out several competitors.

Ultimately there is a reserve, he adds, and, if the property passes in, in many cases the vendor doesn’t have to sell.

You will always pay more at auctions

Buying a property privately as opposed to at an auction does not necessarily mean there is no competition.

“You may put an offer in to the agent and there still may be multiple buyers from a private sales perspective,” Ms Royston says.

“But it’s not transparent or out in the open, it’s not in the public forum for you to see the other buyer and see that participation and get a feel for it yourself.”

Some buyers may end up paying more than they like, but being the highest bidder also means you can negotiate at the vendor’s reserve.

Things You Didn’t Know about Buying a House

Individuals are just excessively eager, making it impossible to give house-seekers guidance. To ensure it’s the right guidance, address specialists and let them “bust” a portion of the basic myths connected with purchasing property.

Myth 1. Try not to purchase the main house you begin to look all starry eyed at.

Sydney inward city land operator and LJ Hooker executive Brigitte Blackman says many individuals pass up a major opportunity for the property they could have “cherished best”, trusting they haven’t looked.

“Because it’s the first you’ve seen, doesn’t mean there will be numerous progressively that are generally as dazzling and may even be less expensive,” she says.

“As a rule, individuals will kick themselves for passing up a great opportunity for that first property they truly cherished.”

Myth 2. Give your feelings a chance to lead the way.

WoledgeHatt chief, purchasers’ backer and engineer Adam Woledge says home purchasers can be sucked in by favor furniture and inside detail.

“Try not to take a lot of notice of the savvy styling and present day furniture, as this is regularly procured,” he says.

“Top of the line apparatuses in the kitchen can be utilized to draw a purchaser’s eye far from the modest and frightful joinery and a design that is not utilitarian.

“Try not to be tricked by “goodness, for example, gimmicky plan; cumbersome room extents; aberrant stream (walking through a space instead of nearby it, by means of a corridor).”

Rather, hold your feelings in line and look somewhat nearer, he says. For instance, a property may have stopping for autos, however you may need to drive down a slender laneway to get to it.

Myth 3. Presentation is paramount.

Woledge advises people to see the wood through the trees and recognise a home’s potential. “If the structure is sound, the house could be improved by a few low-cost cosmetic touches,” he says. “Many buyers are put off by nasty smells in unrenovated homes (particularly tobacco odours), yet this can be resolved if carpets and blinds are removed and internal surfaces repainted.”

Myth 4. You should sell before you buy.

Hocking Stuart South Yarra director Peter Perrignon says you don’t have to sell before you buy. “It hasn’t been the case in Melbourne for the past two years because it’s such a strong market. People are confident they will sell their home, but want to make sure they secure their new home first. They are scared if they wait to sell their home before they buy, they won’t find a house they really like, and with prices rising so fast, the market could run away from you in six months.

“It’s also easier now to buy before you sell because bridging finance isn’t as expensive as it once was.”

However, selling before you buy a property carries risk. NAB head of mortgages product management Robin Lim says: “Bridging finance is a term used by the lenders to effectively bridge the debt that you may have if you are selling your home versus buying your new home.

“Generally they’ll require two pieces of documentation: documentation in relation to the sale of the property, as well as the documentation associated with the purchase of the new property. Make sure you have these when you go to see your lender.

“Regardless of whether you buy or sell first, you need to examine your circumstances in both scenarios. For example, if you buy first, you want to make sure you have an accurate valuation of your existing home and you can afford the bridging finance.

“Seek professional advice from your banker or your broker.”

Myth 5. You need a deposit of 20 per cent.

Lim says it is possible to obtain a loan with a smaller deposit.

“If you borrow more than 80 per cent of the property’s value, you may be required to take out lenders’ mortgage insurance [LMI]. It must be remembered that LMI isn’t actually insurance for you as the borrower. It’s a fee paid by you on behalf of the lender for loans that are generally larger than 80 per cent loan-to-value ratio.”

How much do you really need for a deposit? Photo: Stocksy

FOUR THINGS BUYERS WON’T KNOW:

1. Buyer beware.

You buy a house in the condition in which it is sold. If you find faults (such as structural damage) after you’ve signed the contract, you can’t get a refund or compensation.

2. Extra costs associated with the transaction.

It is important to find out how much you will have to pay in stamp duty and other taxes, solicitors’ fees and insurances.

3. The bank owns your home.

The lender will hold a security interest on your property until you have discharged the mortgage.

4. Costs associated with owning a home.

As the owner, you are responsible with outgoings such as council rates, water rates and other levies as well as the utility bills.

Buy a Second Property

We ask the specialists – a budgetary organizer, a bank and a few speculators – what they think and this is what they say.

Confirmed money related organizer and individual from the Financial Planners Association Chris Yena trusts the “opportune time” to buy a venture property depends fundamentally on the position of the speculator.

“On the off chance that you locate a second property that meets every one of your criteria and is accessible at a sensible value, then it’s a decent time,” he says.

Matthew Ricker, NAB retail broad chief for Victoria West and Tasmania, concurs with Yena.

“Financing costs – especially settled rates – are at record lows. On the off chance that you have enough wage to make the reimbursements, this speaks to a standout amongst the most reasonable acquiring times we’ve ever found in Australia. Simply ensure you’ve gotten a word of wisdom to empower you to make pay winning resources from the additional obligation,” says Ricker.

Melbourne couple Christos and Rosa Ganino took out their first speculation property contract in 1990, when Rosa’s mom passed away and she and her sister acquired the family home in St Kilda.

“My sister needed to offer the house, so Christos and I chose to apply for a line of credit to get her share. Our then twenty-something little girl and her companions moved into the house and we utilized their lease to pay off the home loan. We were reaching the end of our vocations so we had more extra cash; the venture was budgetary getting ready for retirement,” says Rosa Ganino.

The Ganinos then established enough equity to buy more properties, which they have nearly paid off. However, in the 1990s, the cost of buying a house was much less, relative to the average household income, than it is today.

How is buying your second home different from the first? 

Yena says: “Historically investors have benefited from very high [capital] growth rates on properties, which have helped them cover their mortgages when they sell. Going forward, growth rates may not be the same – they could be lower or higher.

“Investors should consider how to secure the debt against their property. Ideally, they can use the equity in their existing home to secure the loans on the investment property and their current home, which alleviates the need for mortgage insurances and additional costs that come with high loan-to-value ratio mortgages.”

He says the structure of the loan is also important – making a loan interest-only and deductible may be the best and most affordable strategy.

Melbourne surgeon Rani Malhotra bought her first investment property six years ago. Since then she has invested in three more properties, each with a separate mortgage. She says the principal consideration is to ensure you can meet the repayments.

“Consider how much the mortgage repayments will be each month, what other foreseen and unforeseen costs might arise, the costs of owning and maintaining an investment property such as capital works and land tax, and the likely rental income you will receive,” she says.

Malhotra says it’s critical to find a property with the highest and safest returns. “Ask yourself whether your money could be put to better use,” she says.

“Selecting a property can be speculative and comes down to a range of factors, such as size, location, quality, age, and how much development is likely to happen in the area,” she says.

If you’re planning on renting out the property, it’s important to maintain it well and find the right tenants.

“Personally I want to keep my tenants happy so I gladly pay for their repairs and even reduce their rent from time to time,” says Malhotra.

Ultimately the decision to invest in a second property will depend on your own circumstances and you may wish to obtain financial advice to determine whether it is right for you.