O'meara Property

These days borrowers are likely to re-finance their home loan during its term – after all, personal circumstances change and there are always new loan products on the market. What does this mean for the average home owner?

Where their parents and grandparents were used to the ‘loan for life’ concept, today’s home owners are looking at loan terms have that have reduced even  since the 1990’s  from an average of seven years to an average of three to five years.

Switching loans is usually done because personal circumstances change and financial saving or gain can be made by doing so. Some people may want to consolidate debt from several sources, or access their equity to buy another property or asset. Some may simply be on the lookout for a better loan – always a possibility in today’s competitive market.

There are now hundreds of products on the market and product innovation is also a fact of life as savvy loan providers look to attract clients. There are many options already out there: 100 percent-plus loans for those who haven’t got the savings, professional packages for high earners, home equity loans for investors, reverse mortgages for retirees and even no-document or low-document loans for the self-employed.

At the same time, it should be noted that new products generally come at a cost which may eat into any advantages gained. After all, banks aren’t in it just for the fun of it. Every contract is different and the fine print of your current contract needs to be examined as well as the fine print in the new products on offer. Other fees and charges may include application fees for the new loan, approval fees or additional stamp duty costs. Are the long term benefits worth the cost?

There are many ‘if’s’ and ‘but’s’ when it comes to home loan products. Fixed or variable rates, for example. Which are better? When interest rates have been low for some time, many people start talking about fixing their interest rate, thinking rates will surely rise in the near future, rendering the cost of their loan more expensive and putting a strain on the family budget.

Whatever the question – fixed or variable, which of the hundreds of loan products on the market, or even whether to switch loans or financial institution at all – it pays to seek advice from a well-referenced accountant or financial adviser before making changes.

Property investment owners sometimes get dissatisfied with their investment, especially as an old year gives way to a new one and forward planning is on the agenda over the holiday break. At times like this they are tempted to be impatient, thinking the market is going up too slowly, or the rent isn’t as high as it should be or the current tenants are not as good as the last ones. They decide that selling their investment property is the answer. Is it?

It’s understandable that once the excitement of owning an investment property has settled, some investors  get sick of making sacrifices to pay the extra mortgage and start to think there must be a better way to spend their money. After all, many things in life that are started with enthusiasm turn out to be a harder slog when the novelty wears off. But investors who get itchy feet and  decide to move on have lost the sense of deferred gratification that led them to invest in property in the first place. They want the instant gratification they think selling will deliver.

In fact, selling too soon often delivers the opposite of what investors are hoping for. Firstly, every real estate sale incurs costs which eat into the profits, so selling too soon often  reduces the overall financial gain, especially if they sell before they have held the property long enough to see the market deliver its cyclical capital appreciation.

The most effective way investors can enjoy their increasing wealth is to practise good old-fashioned patience. If they really want to make things happen, they are better off borrowing more money and buying a second property than selling the one they own (provided they bought sensibly in the first place of course!). Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation and rising rents.

Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases).

It is true that some short-term self-sacrifice is involved in this strategy. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for  luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.

The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience – usually when the equity in their family home reaches a fairly high level and after consulting their accountant.

Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.

At this time of year, most of us who have been slowing down for the winter start to get moving again. Days are longer and we respond to that expansiveness with an expanding of our own awareness and activities, putting new ideas into practice and taking on new projects. The longer days have another benefit: extra daylight hours make it possible for many people to view a property for sale even at the end of the working day.

So it’s not surprising that many people decide to make a new start, putting their houses on the market and going out to look for another one to buy. After all, the garden too is expanding and putting out new growth and the house can be opened up to the fresh air, getting rid of any stale winter odours – what better time to attract purchasers than when the house is looking its best? The fact that you can start opening up the house to the fresh air means you can also quickly dry any paint jobs needed to present the house at its best – and dispel their odours.

Many people who have been thinking of selling take advantage of the fact that their house and garden are looking good and that purchasers are out in larger numbers by deciding to put their houses on the market. The general optimism and feel-good energy that seems to be commonplace during spring makes it one of the best times of the year to get the best sale outcomes.

When media reports start talking about static or falling home prices, many homebuyers think that it’s a good idea to watch the market and wait for it to reach the bottom. They feel that if they postpone their purchase long enough, they are likely to see prices fall further and snap up a ‘real bargain’.

While bargains do exist, of course, for people who are in the right place at the right time, there are often more people who miss out by using this strategy than gain.  Most homebuyers buy their family home and live in it for, on average, seven to ten years.  And when we’re looking at averages, the property market continues, in the big picture, to rise. Based on historical property cycles, property may undergo periods of static growth and periods of galloping growth, but on average, well-located, well-selected residential property doubles in value every ten years or so. Certainly, if we could always pick the lowest time to buy and the highest time to sell we would do very well indeed, but the only buyers who need worry about the immediate state of the market are the real estate speculators who wish to buy then sell again straight away, or those who are too highly geared or who have entered into unrealistic amounts of debt. For everyone else, the chances of strong long-term capital gain are virtually assured, provided they buy well-selected property in well-selected locations.

It’s famously difficult to pick the ‘bottom’ of the market. Often buyers who wait find themselves having little to choose from as listings get scarce – and a sudden flurry of competition for the few desirable properties actually on the market for sale often causes them to sell for higher prices than expected, even in a market described as a difficult one for sellers.  Buyers end up paying more than they bargained for if they  keep on watching and waiting;  because the ‘flurries’ they waited out were signalling an upturn in the market or the end of the halcyon days for buyers.

Purchasers who wait too long for a ‘bargain’ or the ‘lowest point of the market’ often only realise that the lowest point has already been reached once they can look back on it with the 20/20 vision of hindsight.

It takes a certain expertise to write a good property advertisement, but as a home owner, you know your house better than anyone else. So give some thought to the benefits of living in your particular corner of the world. Some of the attributes that could help sell your home might actually surprise even you.

Your agents (or their ad writers) might be able to write a better ad than you, the home owner, but they can’t write an ad that speaks to the hearts of potential buyers without the benefit of your intimate connection with the property.

What sort of things might the agent want to know?

If you are in an inner city home unit you might mention the  bus at the door that has lots of great cafe stops on its route, or the sun in the bedroom on a winter morning, or the fact that there is a laundry on every floor shared by only 4 units, many of whom have built laundries in their own bathrooms.

If you are in a suburban house it might be a back gate leading to a track to the local park where your kids can play without having to walk there by the road, or the number of bird attracting plants in your garden.

These are things your agent can’t be expected to know – so make sure you jot down these benefits as they occur to you and let the agent use it as a basis for writing the best ad. Don’t expect the agent to use all the material you give them – let them be the judge of which benefits will best appeal to local buyers, and when too much information is counter-productive.

When inspecting a home to buy it is always nice to walk into a property that is well-presented, with new paint finishes and everything spick and span. But sometimes it’s all too good to be true.

While most repairs and new paint represent the efforts of proud home owners paying attention to detail to maximise buyer interest, homebuyers should remember that recent renovations in properties for sale aren’t always what they seem.

Over time most houses will show evidence of the lifestyle of the people who have been living in them. Stains appear after friends have dropped in with a bottle of red, or under the debris left by teenagers cooking themselves dinner.  Most of these stains are normal wear and tear.

But some stains represent functional problems; a carpet stain might mean a leaky toilet or shower cubicle on the floor above or adjacent, or it might mean a crack in the foundations through which water is seeping; stains on paint or wallpaper near a window can indicate moisture problems caused by loose glass or fittings; stains in the middle of walls can indicate a (costly-to-repair) leaking internal pipe.

Home buyers should pay special attention to improvements that appear isolated or surfaces that seem touched up. New paintwork, especially where small areas such as one wall or one corner of a room, or back-to-back walls appear to have been done rather than the whole room should be carefully assessed to see if it hides mould or temporarily conceals cracks. Be suspicious when some areas are slick with new paint while other rooms seemingly in need have been bypassed. Even new latticework may be less than innocent; it can be used to hide termite or other infestations.

Prospective purchasers should inspect any recent workmanship carefully. Most work will be just as it seems: conscientious home sellers getting ready for the big event. Still, training yourself to look carefully during inspections so that you spot the repairs that are little more than bandaids for larger problems is likely to cost less time, money and stress in the long run.

Many homeowners are holding off from putting their property on the market as the media continue to report a market downtown and uncertain financial times. But the ‘best time to sell’ is often not what it seems.

Some people sell to retire and buy something smaller. This article does not refer to them. But the majority of sellers at any given time is trading up to a bigger property to house their growing family or reflect their increasing wealth. These home owners – who will pay more for their next home than they will get for the one they are selling – actually do better when the market is on the decline. The fact that they are spending more money second time round gives them an opportunity to make money on the transaction. If the reason they think it’s ‘not a good time to sell’ is because they ‘will not get a good enough price’ for their home, then the logical next step is to realise that if the market prevents them from getting the price they want, it will also affect the sellers of the property they are trading up to – with a net gain to the person who is trading up. If you get $603,000 for your home which has been valued at  $670,000, you may feel you are ‘losing’ $67,000 or around 10% of the value of your asset, but if you buy another home valued at $850,000 in the same market,  the owners of that home will also ‘lose’ 10%, as you will naturally not be paying more than the current declining market value. In paying 10% less you will pay $765,000, ‘saving’ $85,000 – thereby ‘making’ $18,000 on the transaction; in other words you ‘saved’ on the next transaction more than you ‘lost’ on the sale of your current home, so you are ahead by $18,000.

In fact, there are other advantages to trading up in a buyers’ market. Because prices are stable and properties often take longer to sell, once vendors have sold their original property there is no rush to buy. They can take their time choosing and negotiating their next purchase without having to watch the gap between the price they got for their original property and the price they have to pay for their next one increasing at an alarming rate.

Some (less professional) agents have strong motivation to quote high when assessing the value of a house for sale – they want the listing. In fact, the more professional agents don’t do this because it wastes everyone’s time and often leads to a no-sale stalemate. Sadly, the more unrealistic vendors are about their own property and the less informed they are about the market and real estate in general, the more likely it is that agents will feel the need to up the potential selling price. But there are things you can do to encourage frank dealings and make sure they don’t overquote to get the listing. What are they?

Firstly, don’t put words into their mouth. Don’t tell agents you’re after a certain figure and that you won’t sell for less. Unless your house is seriously unusual, agents can ‘guess’ very accurately to within a few percent of what a property will sell for and you want them to tell you what they think, not parrot back your own wishful thinking. Of course they’re not really guessing –their assessment is based on years and years of selling similar properties under various market conditions – and they have statistical data bases at their fingertips.

Secondly, listen carefully to their lowest figure and don’t try to push them up; it stands to reason they will go as high as they can because they know they’re in competition with other agents for the listing. If you’ve done your homework and you are truly objective you will know in your heart that they are right.  Resist the temptation to place a dollar value on the emotional attachment you have to that deciduous tree in full autumn glory (because you planted it 10 years ago and watched it grow and don’t want to leave it behind, especially since the family cat is also buried there) or those paved areas (because you laid them with the help of your father who died recently) while at the same time overlooking the inconvenience of the steep driveway (you put up with it all these years) or the laundry that’s out the back.

Most home owners don’t realise the emotional weight they expect their home to translate into dollar terms, just as they think they’re own children are the most beautiful, the smartest, the best at sport. But they need to remember that if they appear emotional and unrealistic, agents will simply reflect back to them what they want to hear. It’s a bizarre irony that when the reality check of buyer indifference comes along, many home owners ultimately blame agents for overpricing their homes when they themselves created the competitive environment that caused the asking price to be set so high.

Most purchasers have to undertake some form of negotiation when they buy a property. How much or how little they can afford to negotiate depends on the market; negotiating too hard in a sellers’ market is never worth it as there will be many other buyers keen to pay more just to secure a property. It is worth considering the strategy of negotiating from the asking price to an acceptable selling price – and realising that there are many things that inexperienced buyers say in the stress of the moment that might make them miss out.

Many so-called experts say that buyers should hide their interest in a property.  While it is foolish to tell a selling agent that you are so keen that you will do whatever it takes to secure the home, it is equally foolish to denigrate the home to try and hide your growing attachment to it. Most agents can tell stories of vendors who have chosen to take less for a property in order to sell to someone they think will love it and look after it, and will turn down purchasers who appear not to be ‘suitable’ – especially if they have two sets of purchasers willing to pay the same price. After all, if you have lived in your home for ten years, planted the garden and painstakingly renovated  the house yourself, who would you rather sell to? A nice young married couple who have admired your garden layout and want somewhere for their toddler to play and have made a realistic offer, or a brash investor who has come up with a list of faults in order to justify a low offer?

Furthermore, comments such as ‘I’ve seen other properties that are better than yours and cheaper’ rarely work. Sellers are human too and some will even cut off their nose to spite their face if they are riled by comments made by purchasers they think a mercenary or insensitive. Business is business, but it is carried out by human beings who are often motivated as much by their emotions as by logic – and if there are more buyers that houses for sale, vendors can afford to indulge their spleen and not lose any sales dollars over it.

Ultimatums also rarely work. A buyer who says: “That’s my final offer.’ will very rarely get a vendor to reduce the price while a buyer who nibbles away, going up a little at a time will often bring a vendor down lower than they initially planned to go.

The strategy behind selling a property by Public Auction is to put several people who all want the same thing in the same place and make them compete for it – or miss out.

It’s not uncommon for purchasers to want to make an offer before the auction and certainly many hope to buy for a better price by getting rid of the competition. So surely it’s not worth listening to a purchaser wanting to cut out the competition by avoiding the Auction marketplace?

Selling before Auction is not common but it is sometimes the way to get the highest price, especially if it appears – as the marketing programme unfolds – that the market isn’t strong enough to deliver sufficient buyers to create competition on the day.

Sometimes a buyer who sees the property during the auction marketing period is unable or unwilling to go to the auction. This buyer – lets call her Mrs B – may be prepared to pay serious money just to secure the property before auction, yet might insist she will not go to the auction on the day, let alone make a bid.  Perhaps Mrs B is simply going to be unavailable at the time of the auction and does not want to let someone else bid on her behalf; perhaps she is auction-phobic. In these circumstances, if the agent’s feedback tells them that there is no other buyer serious enough to match Mrs B’s offer at the auction itself, the agent may suggest that selling to Mrs B before auction is the best way to get the highest price. In these circumstances, the agent should insist on exchanged contracts (just as binding as on the auction day itself) as the only justification for the extreme measure of calling off the auction; selling before auction may look like a private treaty sale on the surface, but a vendor needs a legally binding arrangement to justify going with one purchaser and putting any other bidders out of the running