We hear a lot about buying under market value amongst property pundits, don’t we?
We learn that it’s the holy grail of property investment success, which must be achieved – somehow.
The problem, of course, is that it’s a strategy that is literally easier said than done.
Some novices think buying under market value simply involves knocking down the asking price.
They might see a property that is listed for $600,000 and use a “non-strategy” of offering 20 per cent below that figure straight off the bat to the agent.
They probably think they’re playing hardball but what they’re actually doing is being offensive – which is very unlikely to go their way – especially if there are multiple offers that are far more reasonable.
So, to save you mistaking a low-ball offer with the opportunity to buy under market value, here are six secrets that it pays to understand.
1. The power of networks
Buyer’s agencies are able to secure the very best properties for their clients because they have created long-term relationships and networks with other agents.
We have an extensive and established network of agents that allows us to seek out qualified properties off market, but what does this mean in real life?
It means that we are always on the radar of selling agents in the locations that we buy in for our clients, which results in them contacting us with properties before they’re listed for sale.
Why would an agent sell off market?
Well, sometimes, their vendor wants to sell quickly or quietly rather than go through the rigmarole of open homes or an auction and they know we represent qualified buyers who can make that happen for them.
And if a property is not going on the open market that means we can usually negotiate under market value prices because there are no competing offers.
2. Recognising value where others don’t
A bit like my original example, buying under market value means more than just paying less than you were originally prepared to.
One of the secrets that advanced investors understand is that they recognise value where others don’t.
Perhaps they want to subdivide the property, build a granny flat, or even demolish and build a duplex because of a new zoning change.
They understand that the price they’ll pay is under the market value of what the property will eventually be worth once they’ve completed a property development on the site.
So, in this instance, it’s a win-win because the vendor gets a good price, but the new buyer gets to make money because of the underlying value of the property that no one else has recognised.
3. Knowing more than the agent
This secret is the same but slightly different to the previous one because this time it is about knowing more than the agent rather than just the seller.
Now, most regular homebuyers or investors will probably never understand as much about real estate as the people who work in the profession, but sometimes an agent is appointed to sell a property in a location they don’t know much about themselves.
Perhaps they are a family friend, or they are a cut-price agent whose selling strategy resembles little more than a tick and flick because they’re not making much of a commission.
They’re probably not aware of recent sales in the area, zoning changes or even if the property can be subdivided, and that means investors and buyer’s agents can often profit from their lack of knowledge.
4. Understanding seller motivation
Professional buyer’s agents do much more than just find a property that is suitable for their client’s investment strategy.
They also find out as much as they can about the seller to potentially use during negotiations.
Now I’m not talking about who the seller is personally but rather what is their motivation to sell.
People sell properties for a variety of reasons, and sometimes it’s because of financial difficulties or a change of circumstances such as job loss or relationship breakdown.
In those instances, time is usually of the essence, which means that we can offer under market value, but balance the scales with the fact that we have qualified buyers who are ready to sign a contract straight away.
It’s vital to understand that we’re not preying on the vulnerable, though, we are offering a good price under the conditions they want, which is usually a quick, stress-free sale.
5. Buying with the “end game” in mind
Most people only buy one or two properties in their lifetimes and they’re usually emotional purchases because it’s where they will ultimately live.
Strategic investors, on the other hand, never buy “on the fly” even if it is their home.
Often they have a team of professionals working with them, like buyer’s agents, who they have developed a long-term strategy with that they stick to like property glue.
They understand the eventual strategy for each property they add to their portfolio – such as subdivision, renovation or perhaps a knock down and rebuild in the future – and that means they can remain unemotional during negotiations.
They understand the numbers they need to achieve at the beginning for a successful result at the end, which often starts with buying under market value.
If they’re not able to achieve the best buying price, they simply walk away because they know another opportunity will soon present itself.
6. How buyers’ agents save you money… and your sanity
And that brings me to the sixth secret, which is about saving you money as well as your sanity!
As I’ve outlined above, buying under market value involves networks, strategy as well as negotiation tactics.
While there are more savvy investors in Australia today than in years gone by, they probably still have only ever bought a handful of properties.
Professional buyer’s agents, on the other hand, have been involved in hundreds of transactions either personally or professionally – and that means they know more tricks of the trade than the average punter.
They know who to contact to secure the best deals and they know how to uncover information that will put their buyer in the strongest negotiation position.
And then they use everything in their tool-kits to secure properties for under market value – while quarantining their clients from the usual stresses involved in real estate transactions.