In the coming weeks, savvy investors should be prepared, as at this time of year there are always plenty of opportunities to get a Christmas bargain.
During the silly season, most years see a sharp drop in activity and registrations, with the industry going on a semi-hiatus until the end of January.
In light of the unusual time we have just experienced, however, this year may look a little different and serious real estate investors might be advised to reconsider their vacation plans.
A good time to buy
During a regular cycle, the seasonal demand drops dramatically at the end of December. Real estate listings start to decline from mid-November and transactions drop at Christmas. Most sellers want to sell their home so they can leave and enjoy their vacation.
For real estate investors, this represents an opportunity.
As Christmas approaches, sellers are faced with the decision to try to sell quickly now or wait until next year to launch their campaign. If a homeowner has had their property listed for a long time, they might even start to feel hopeless as the vacation season approaches.
While demand typically declines during the Christmas season, it should be noted that each property market follows its own path. Some markets are growing, some are slowing and some are booming. Current examples include the Brisbane market, which is now booming, while Sydney and Melbourne are clearly struggling.
Beware of the seller's market
In a sellers market, there are more buyers than sellers. These are booming or booming markets. A prime example of this type of market is Brisbane, where many treechangers and seachangers are currently looking to relocate.
A growing number of Sydneysiders and Melbourians are heading north with their sights on buying or renting in and around Brisbane. We hear that two out of three shoppers in Brisbane right now are from across the border, and many of these interstate migrants are even happy to make unseen deals.
The low listings combined with a lot of interest results in the emergence of a strong sellers market. As Christmas approaches, we expect to see a further reduction in registrations, which will only add extra fuel to the fire.
As investors, we don't want to play a game where the seller has a balance of power. We want to have leverage on our side to be able to negotiate. We want to be able to bid and go, not fight multiple bidders.
Buying well in a buyer's market
In a buyer's market there are more sellers than buyers, a great combination for real estate investors. We are currently seeing buyer's markets in parts of Sydney and Melbourne and even a few areas of Perth. These are the types of markets where we can stretch our legs and celebrate Christmas.
As real estate investors we have to appeal to the psychology of those sellers who 'just want to sell the place'. These are the types of sellers who want an offer signed so they can go on vacation.
To get an exceptional offer, we still need to spread multiple offers across multiple properties and avoid getting hung up on a given property. It has to be about numbers and using the time of year to our advantage. Fortunately, there are some rules of thumb that we can use to gauge what kind of offer a vendor would be willing to accept. The key here is to understand both the motivation of the seller and how the market perceives the property.
To determine the motivation of a seller, we need to ask ourselves questions like "did they go from an auction to a fixed price and then lower that price?" If so, it may indicate that the seller wants to sell and is quickly lowering their expectations. As a general rule, the longer a property has been on the market, the more it is likely to be hopeless, especially before Christmas.
There are also other factors you can take into account when seeing a property for sale. Perhaps the property is currently rented, making it difficult for the sales agent to access and show interested parties. Even issues like poor presentation can negatively impact a sales campaign.
For an agent, closing a sale quickly at the end of the year makes their job much easier. If the property has been on the market for a while, we will often see real estate agents lose interest and move on to the next property. Typically, an agent's commission will cover approximately 30 days of work on a property. After this initial phase, the properties are open 'by appointment', which is a sign that the property hasn't generated a lot of interest, and it's something you could use to your advantage.
Your goal as an investor is to know your numbers and come up with good deals to try and land the 'let's just sell the place' type of seller. A salesperson eager to sell and move on.
Negotiate like a pro
Ultimately the best way to make money out of buying is to stack all the odds in your favor and then negotiate hard.
Always do a building and pest inspection and renegotiate anything you find based on the final report. You can save $ 1,500 to $ 6,000 to $ 7,000 off the original contract price through a second round of negotiation. This is something that most investors don't do or know they should be doing.
The psychology behind selling a home from the seller's point of view is that it is a done deal once the offer is accepted. Negotiating for the second time is when you can get a bigger discount because they aren't partying and just want the deal to be finalized.
The Story of Two Christmases
As COVID held back transactions this year, in 2019, the uncertainty surrounding the federal election weighed heavily on the real estate market.
Last year, following the election result, we saw a spike in buyer activity that continued right into Christmas.
Interestingly, as sellers get more and more motivated to sell as Christmas approaches, at Ripehouse we've made some of our best deals in the last few weeks of 2019.
With the lifting of COVID restrictions and the return of confidence in the markets, we expect this year to be the same.
However, it is essential to understand that while there are many opportunities during this time, you need to treat each type of market differently and be prepared to bargain hard if you want to get a good deal.
Jacob Field
Managing Director | Ripehouse Group
Jacob Field has been investing in real estate since the early 2000s and founded Ripehouse Group in 2011. Since then, Jacob has helped thousands of investors buy their first or fortieth property. Jacob is one of Australia's leading real estate researchers and experts.
