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Buying a new home or property can be an amazing experience for you and/or your family. It’s an exciting process, but before you get wrapped up in the hype, it’s imperative you understand some costly errors others have made before, during and after real estate auctions.
Here are some of the most common:
1. Not doing Research.
Research is crucial. This is the only way you’ll be able to understand the property’s market value. This will help you during the negotiation process. Select around 3-5 suburbs and visit as many properties as you can manage in a six to twelve week time frame (as prices can fluctuate).
It’s a good idea to shoot close to around a 100 different properties within that time.
2. Trusting selling agents too much.
The fact of the matter is that selling agents really don’t have you in their best interest. They work for the seller. They don’t work for any of the several bidders wandering around.
Selling agents will tell you what you want to hear and might leave out issues. If their job is to sell the house, why would they remind you of potential problems? They’re trained to sway your opinion, nothing more. Use them for fundamental details. Rely on your own research for the more specific things.
These are some good questions to ask a selling agent:
- Can you show me any sales recently on the street the home is located on or the surrounding area that are comparable in price?
- What were the factors that led to the final price?
- How long has the property been on the market?
- What are the offers on the table so far?
These questions will help you get the type of information you need to establish the property value.
3. Searching without proper financial approval.
A common mistake I see is people searching for a home without the proper financial approval.
The last thing you want is to watch your dream home slip by while someone else is exchanging contracts, especially while you’re trying to schedule an appointment with your local bank or mortgage broker. It can be a heartbreaking experience for you and anyone else involved. Go ahead and find out just how much you can borrow before you begin the actual search.
4. Going well beyond your means.
Unfortunately, we’re all aware of the recent disaster countries went through during the great recession.
Don’t make similar mistakes by spending beyond your means.
Make certain your repayments aren’t higher than 25% of the total household income. Another suggestion: don’t borrow over 80% of the property’s value. If there is a problem in the marketplace, this will help you avoid paying mortgage insurance and gives you equity in the property.
Currently, you can get loans for up to 100% of the overall purchase price. You have to think if this is really the kind of pressure you want to put on you or your family.
A good rule to go by, is if you can’t make a 20% deposit, then you probably can’t afford the estate.Think of it like this, it’ll be easier to spend the night in a small home, than worrying about the bank selling the home right from under you.
5. Forgoing inspections.
This always gets me, but for some reason, only around 30-40% of people get all of the appropriate inspections done.
Mediocre renovations, termites, wiring problems etc… There could be a lot wrong with a home. So, you might as well get the necessary inspections done.
6. Not factoring in ongoing costs.
Once again, research is very important. The final price you pay for your home/investment property is only the first of several expenses. Research the additional costs and be sure you can really manage it all!
7. Getting influenced by rental guarantees.
A good property often doesn’t need a rental guarantee.
Oftentimes, properties marketed with rental guarantees won’t reach the rental figure that is being guaranteed. Additionally, the inflated figure pushes the ROI up against the yield and allows the seller to put a higher price on the property. It will still maintain a yield of around 5%. This kind of guarantee is a different form of insurance and you always pay the premium.
8. Buying property without actually seeing it (really).
Purchasing property without seeing it in-person can be a recipe for disaster.
Photos, virtual reality tours and descriptions can only go so far. All of these things can be manipulated as well. There’s no reason to not inspect the home yourself for safety.
9. Not broadening your options.
People who don’t want to bother with the auction experience are seriously reducing the number of homes they can choose from and removing some potentially great deals.
If you can’t trust yourself to stay reasonable or comfortable during the auction, you have options. Bring an expert or a friend to bid for you.
10. Taking in too many opinions.
You’ll suddenly learn that many people consider themselves experts when it comes to real-estate. Friends, family, co-workers – they will all offer you their advice. But, the only way you’ll know if you’re going after a good property is if you’ve put in the time and research.
(Bonus) Tips to Make a Winning Bid
- Ask the auctioneer solid questions
- Bid with confidence
- Don’t get caught up in the auction hype
- Be sure to be in the auctioneer’s line of sight
- Have a clear bidding limit. Set the limit and stick to it
- Walk away if the bidding exceeds your maximum
If a property doesn’t reach the reserve, don’t walk away like the other bidders. It’s okay to find the vendor once it’s over.
Be cordial, but it’s okay to see if he’s open to negotiating with you…
Bidding on real estate can be fun and even profitable. But, it can also be a poor experience for someone going in blindly. There are too many resources out there (including this one) for you not to take advantage of them all.
Do your research and make sure you’re making great decisions!