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In a volatile market with uncertain price forecasts, it’s common to see more and more sellers opting to go to auction to be certain they’re getting the best price.
This has certainly been the case in 2021, with no signs that the booming auction trade is set to slow. According to Arjun Paliwal, founder and head of research of buyer’s agency InvestorKit, anyone looking to acquire their first or next property over the course of the next quarter should get comfortable with the idea of buying under the hammer.
“While buyers in Melbourne and Sydney tend to be familiar with auctions, the market heat in recent times has added more pressure, so they need to come armed with the latest market research and a strong strategy to understand comparable sales,” Mr Paliwal said.
“Meanwhile, those buying in markets like Brisbane, Adelaide and regional areas, where in the past haven’t been traditional auction markets, will see greater quantities of properties selling under the hammer due to improved vendor confidence,” he added.
In his view, there are eight moves buyers can make to increase their success at auction.
Auctions are fast-paced and can often be driven by emotions. It’s easy to get swept up in the action and pay more than initially planned for. To minimise this risk, Mr Paliwal advises buyers to create a backup plan of sorts by having a shortlist of several properties.
“Not having all your eggs in one basket will mean you’re less likely to make a regretful over-purchase,” he said. “You’re also less likely to start house hunting again from scratch,” he said.
Comparable sales will help you get an understanding of the value of a property, though Mr Paliwal said that in this current market, your data has to be very recent to give you an accurate indication of price.
“Many buyers are still taking the traditional approach of using the last three-to-six months of sales. In this hot market, using this approach will give you an inaccurate price guide that will be 3 to 10 per cent behind the correct market price,” he said.
Your price research should be ongoing right up until auction, and Mr Paliwal said this could include calling agents to get a guide on a recent sale or one under offer.
When doing your research, make sure you’re taking the full context of the properties you’re comparing into consideration. Factors that might be easy to miss – such as a bus stop parked directly in front of your prospective new property, or its risk of flooding or bushfires – can significantly impact price, and you want to be sure you’re armed with the best information.
Again, it all comes down to research. Attending open homes and auctions in the neighbourhood you’re interested in will serve you well when it comes time to make a play for your property.
“You’ll be better prepared and less surprised at the auction you plan to bid at,” Mr Paliwal said.
Staying up-to-date with the latest research from firms like CoreLogic and SQM Research will give you a sound knowledge of the property market and an understanding of recent trends on performance in various areas, suburbs and streets.
Mr Paliwal said the key thing to look at is comparing the guide for a property against what it ends up selling for on the day. The percentage difference will supply you with a more accurate price guide for the property you have your eye on.
Ahead of the auction you’re planning on taking part in, it’s wise to set yourself a range that determines what you’re willing to pay, rather than a maximum price. Mr Paliwal suggested setting up your range so the bottom is what you consider to be “fair value” and the top is your absolute non-negotiable limit.
“Think about this top price in your range as a reality check,” he advised. “If you pay anything above this, you will think it is overvalued and a purchase you will regret.”
“If you’re thinking of a starting bid and you’re willing to go up to say $1.5 million on a property – and based on your research, you think this could be the end price – consider making an opening bid of $1.25 million-plus to scare off competition. You’ll likely wipe out two-thirds of bidders who didn’t do their homework well,” Mr Paliwal said.
Remember, auctions are emotionally-driven. You may be able to gain an advantage over your competition with a show of confidence early on.
When you’re $200k to $50k out from your end price, you ideally want the auction to slow down so the price doesn’t rise as quickly. At this point, consider bidding in one-, five- or ten-thousand-dollar increments, or using odd numbers. This can force the auctioneer and bidders to slow down, giving everyone time to rethink.
An auction is a public event for the sale of assets and property to the highest bidder among a group of buyers.