Buying a property in Australia

[Guest]

Hi all,

Can anyone provide some info on buying a house as a permanent resident? Trying to get a better understanding of the real estate landscape.

Specifically:

• How does an auction work?

  • Is this held at the property in question or at an off-site location?

  • Do you have to register your interest or do you just show up?

  • What documents do you have to take with you?

  • Are the bids taken at face value, i.e. the highest bid wins, regardless of whether this is financed 95% or is 100% cash?

• What proof of income is required to secure a mortgage?

• What % deposit is generally required to secure a mortgage?

• The price listed on the advert: in SA this is a ‘wish list’ price, but in Aus it seems this is realistic, if not 20 to 30% less than what the property could sell for?

• What are the odds of being the highest bidder on a property? Very subjective question, but if some buyers in Sydney are bidding 30% higher than the suggested price, does this mean one will have to look for something substantially less in order to be the highest bidder? Or is it just luck of the draw at any point in time?

• The electrical/beetle/equivalent certificates: if you view a property on 1 March and the auction is on 4 March, how would you have time to secure these, or is the auction date always some time after the available inspection dates?

• Is the owner ever around during an inspection?

• What do you do at an inspection? Is it a superficial look or can you open and close drawers, test the taps, etc? Would you ever take some property professional with you?

• Are houses ever sold privately, to avoid commission? If so, how are these advertised?

• Finally, if you ship your stuff from SA in a container, then the container arrives and you have not yet bought a house, do you leave this stuff in storage? Or move it into your rented house?

Thanks!

[AFreshStart]

 

Hi KirstenT,

 

Answers below.

 

Is this held at the property in question or at an off-site location?

 

On site.

 

Do you have to register your interest or do you just show up?

 

Yes, you need to inspect the property beforehand, and register to do so.

 

What documents do you have to take with you?

 

For inspection? Nothing, you just have to complete certain forms for the inspections with the agents.

 

Are the bids taken at face value, i.e. the highest bid wins, regardless of whether this is financed 95% or is 100% cash?

 

Highest bidder wins, you have to be able to pay for it, finaced or cash.

 

What proof of income is required to secure a mortgage?

 

Payslips, 2-3 months worth and proof you're employed (letter of employment).

 

What % deposit is generally required to secure a mortgage?

 

Complicated, various factors involved. You can pay as little as 5%, but will have to pay LMI (Lenders Mortage Insurance).

 

The price listed on the advert: in SA this is a ‘wish list’ price, but in Aus it seems this is realistic, if not 20 to 30% less than what the property could sell for?

What are the odds of being the highest bidder on a property? Very subjective question, but if some buyers in Sydney are bidding 30% higher than the suggested price, does this mean one will have to look for something substantially less in order to be the highest bidder? Or is it just luck of the draw at any point in time?

 

The price you see is often the STARTING price, most in Sydney go for substanially more. Since January estate agents have to declare resonable values or face a fine, problem is the fine is far less than the profit or commison they could make by under quoting and building a frenzy.

 

The electrical/beetle/equivalent certificates: if you view a property on 1 March and the auction is on 4 March, how would you have time to secure these, or is the auction date always some time after the available inspection dates?

 

Is the property under STRATA or TORRENS TITLE? Either way you'd need to get that information BEFORE you bid, otherwise you buy the property and those issues are then yours.

 

Is the owner ever around during an inspection?

 

In my experience no, thats why they use an agent.

 

What do you do at an inspection? Is it a superficial look or can you open and close drawers, test the taps, etc? Would you ever take some property professional with you?

 

You inspect it over 15 minutes with 40-50 other people. You can take a property professional if you want, your choice.

 

Are houses ever sold privately, to avoid commission? If so, how are these advertised?

 

Most use an agent, but then they aren't going to auction, they are advertised as a sale with "an offer above" price. The thing is auction makes the seller and agent more money, so it's the prefered way of making a sale. Sometimes the seller is desperate to sell and you can ask the agent, and if you ahve enough cash they may pull the property from auction and settle directly, this is how we bought our home.

 

Finally, if you ship your stuff from SA in a container, then the container arrives and you have not yet bought a house, do you leave this stuff in storage? Or move it into your rented house?

Depends, a move here in Sydney from one place to the next for a 3-bedroom home costs around $800+ To rent a storage unit with Kennards to house the same sized contents (7-9m2) is $550 a month, you then STILL need to get it to your home.

Cheers

Matt

 

[Guest]

Hi @AFreshStart

 

Thanks Matt. This is very useful.

 

Just to understand what you said about your apartment: did you offer the seller more cash (as in: a higher cash deposit), or are you saying that you offered the seller a better overall financed deal? I assume the latter, as you said it doesn't matter, so long as the offer is better than the next chap.

 

Please can you look at these links for recently sold properties:

 

http://www.realestate.com.au/sold/in-leichhardt,+nsw+2040/list-1

 

So the ones that sold for $1,180,000, $1,020,000 and $1,065,000 on the first page: it's just that I can't imagine these houses being listed for $700, 000 or $800, 000, as it seems too little. Is there a way to check what they were originally listed for?  The ones that look the equivalent (currently being advertised) for two beds, one bath, all look as if they're in the $1, 200, 000 range, and that's the advertised price, not the sold price. I fully understand that these might be apples and oranges, and the three I mentioned above might be very different to the ones currently for sale. I will keep an eye on these current ones to see what they do.

 

Then here:

 

http://www.realestate.com.au/sold/in-surry+hills%2c+nsw+2010%3b+/list-1?source=location-search

 

This shoebox for $1,320,000: would you say perhaps that was listed for $1, 000, 000? I would somehow think much higher.

 

I am trying to get an idea of what is achievable. given this margin between list price and sale price. It must be very disappointing to go to auction after auction only to be outbidded at every turn.

[ottg]

Not sure exactly what you are asking and for the links because you didnt give an address by the time we looked a few other properties has been added.

Let me assume: you try to determine what is a realistic value for an area

- First you need to understand it depends on where you are in the economic clock as all property values are cyclic and depending on demand and supply

So assume you referred to:21 Marlborough Street, Leichhardt, NSW 2040 recently sold for $1,180,000 

If you go to this website and filter on the street you get old listings http://www.oldlistings.com.au/real-estate/NSW/Leichhardt/2040/buy/1/MARLBOROUGH

There you see some in the same area. Many arent given. To get a more comprehensive list you need RPdata but it is subscription based and state based.

Often you can buy a report for the area, suburb, post code and street for a fee.

https://www.propertyvalue.com.au/property/21-marlborough-street-leichhardt-nsw-2040/3673272

All serius investors going to an auction know exactly their entry price and exit price. They KNOW from market research and using reputable paid web services their cost/sqm

Hope it helps!

 

[AFreshStart]

Quote

I am trying to get an idea of what is achievable. given this margin between list price and sale price. It must be very disappointing to go to auction after auction only to be outbidded at every turn.

 

Welcome to Sydney!

 

Brace yourself and expect to be outbid at every turn.

 

The key as OTTG shared is knowing your entry and exit prices and that is only going to be determined by your income/funds and through additional insight through subscription based reporting like Residex etc. This aggregates data based on things not found in listings, and even then it's approximate, but still gives you the best insight into things.

 

We looked at 100+ properties over 7 suburbs, narrowed it down to 30, then 10, was outbid on 2 and won our 3rd over a course of 3-4 months. This is the reality of Sydney property, there is more demand than there is supply currently, particularity in the two areas you mentioned, which we know well having lived in Surry Hills for almost 6-months on arrival.

 

The only limit on these properties is what you're willing to pay for it, you can't cap it, and the fact is there are a lot of cashed up buyers out there.

 

Towards the end of last year when the bank clamped down on investor loans and with the talk of bubbles etc the clearance rates started to slow down, but this past weekend it was back up to 76% and in the inner city suburbs there was 100% clearance rates.

 

RE prices. Our apartment was listed as X, our Y was 20% over that suggested price. To answer your question about offering more than the next seller, no, in our case it was an issue of liquidity. We were pre-appoved for a loan and had a 20% cash deposit, enough to not need LMI and basically could buy the property the same day.

 

The agent had higher offers, but we were the only ones with the liquidity to act immediately, which is what the sellers wanted/needed because they needed the cash for a property that they in turn put a bid on.

 

This is a rarity though, most homes go to auction. The adjacent unit, which is the mirror image of ours did go to auction a week later and the new owners paid 5% more than we did and a 4 months later another unit sold for more than 25% than what we paid.

 

All this to say, a safe bet would be to say that a property in a popular area in Sydney is going to be going for 20-30% more than the suggested price, particular in the two suburbs your listed.

 

The median price in Surry Hills for a 2-bedroom unit is now $999,500 and a 2-bedroom house is $1,270,000. In Leichardt a 2-bedroom unit is now $910,500 and a 2-bedroom house is $1,120,000.

 

Kind regards

 

Matt

[CTtoAus]

@KirstenT We are clearly spending our free time in the same manner at the moment.

 

@AFreshStart Thanks so much for taking the time for such a detailed response. That said, I am now feeling thoroughly depressed thinking of how we are going to afford 20% on top of the already eye watering prices!

[Jordy]

Just to add my two cents worth on an auction:

We were very interested recently on a house that was up for auction. The agent informed us of two things which prevented us from going this route:

1. We needed finance and although we had loan approval in principal *pre-approval) we had to come up with price in 5 working days. On discussing this with our loan broker, he said it was impossible to accomplish this in that time frame even with pre-approval done. For this reason the standard on an offer is 28 days to get finance. So basically we would have to have cash to buy an auction house. 

2. A house sold on auction is "as is" whereas a normal offer and acceptance is conditional and gives the buyer some recourse. So basically if you go the auction route you must do all your checks and builders inspections etc You could do all the inspections (builders, plumbers, electical, white ant etc) but at $300-$500 each it could be money wasted if you dont win the auction. 

 

How accurate all this is I dont know but it is what the agent told us so we decided against buying an auction house. 

[Guest]

“Eish”.

 

Thank you all for your considered responses.

 

I am almost positive that we wouldn’t be looking for an apartment, but rather something freestanding (2 beds, one bath, and a cupboard in which to store the future children).

 

It seems very much that everything is in the seller’s favour: a seller’s market, but even more than that, things work very differently over there, e.g. obtain the certificates yourself. Is there any buyer’s recourse whatsoever for structural, damp or safety issues of any kind, or is everything at auction sold voetstoots?

 

@CTtoAus I sincerely enjoy it!

 

@ottg thank you very much for these excellent links. Yes, I was hoping to find some indication of what those houses from the links were advertised for originally, in order to see whether it's perhaps less than 30% above asking, or whatever the case may have been per house, just to get a general understanding of the trend. I think it's a waste of time going to look at a house that's clearly outside of one's price range, and if I know upfront that an advertised price is nowhere near the selling price, then I of course would go down a notch and try from there.

 

@Jordy given the love for auctions, do you plan on trying to secure a house privately, or how will you work out securing a property?

 

 

[rozellem]

Kirsten, dont despair too much, it will work out in the end, maybe just not as soon as you'd wish. In Sydney, things have calmed down a teeny bit from the crazy days of the last few years. There are of course still red-hot spots, but in general it is less frantic. I particulary dislike estate agents/used car sellers and the like, and am so glad to be shot of them for the most part. We were looking to buy, in Sydney, exactly this time, 3 years ago. We paid 11% more than the asking price, in private sale (like you are used to in RSA). The asking price was set low by the agents, to draw as many buyers as possible and then string them along. It was a deceased estate and the daughters were selling their 92 year old fathers house, built in 1962. It is a very, very ugly 3 bed one bath, in a great area.  There is hope, not all people are set to squeeze you dry, as the daughters liked us so much on paper ( my best angle!), that they went with us, although we were the third highest offer. A lesser house sold 3 months later accross the road for $50k more and then a lady at my playgroup paid $250k more for a lesser house around the corner, 18months later. 

 

I dont have the b@lls for auctions and was glad our house wasn't one. The normal private sales requires all parties to do their own property searches before making a offer on the house. 

 

[elleneo]

Ok hold the phone....if they have listed a price it will be ( according to new law) within 10% of the agreed minimum sale price on the contract between the estate agent and the vendor.

 

we have been actively househunting since November, of the 2 auctions we bid at we were outbid once but both times the property passed in, the second auction we were the highest bidder by far, but the vendor obviously set a ridiculous reserve price. It is still on the market 2 weeks after auction with an asking price of $200 000 higher than our bid!

 

so the house will not necessarily sell for what dream amount the vendors are asking. What I have found to be happening a lot is agents phoning me for an offer in the first week of marketing, DONT, just give your opinion on price ( I always quote low!) and wait for auction or at least 2 weeks in, as they are just using you to gauge the market.

 

also, some owners are just greedy. We have put in 3 offers on a house ( 2 were higher than asking price) and they are still going to auction! This doesn't guarantee them a higher payday, time and again I hear of people getting the property for less at auction than they originally offered. So make your price and stand your ground.

 

also a warning, auction is not subject to finance, so ,are sure you don't over pay ( bank doesn't value at selling price then big trouble!) and that you have pre-approval and your cash deposit so u can bid with confidence.

 

also, if you buy a property that is listed for auction prior auction agents will push you for an unconditional offer...be careful and decide whether you are willing to risk this for a "bargain".

 

hope this helps!

[Jordy]

2 hours ago, elleneo said:

 

also, some owners are just greedy. We have put in 3 offers on a house ( 2 were higher than asking price) and they are still going to auction! This doesn't guarantee them a higher payday, time and again I hear of people getting the property for less at auction than they originally offered. So make your price and stand your ground.

 

I wonder if owners are greedy or just in denial about the current prices going. We just bought a house and after doing a little internet google cache searching know that the price we paid is 10% lower than what was asked by the owner 2 years ago when he advertised it for sale in 2014. the reality is many owners have paid too much and the selling price is now lower than what they paid. So they are being stubborn and understandably, are not accepting prices lower than than what they paid. Who would? But if they want to sell, they will have to take the loss. 

[Shellfish]

1 hour ago, Jordy said:

 

I wonder if owners are greedy or just in denial about the current prices going. We just bought a house and after doing a little internet google cache searching know that the price we paid is 10% lower than what was asked by the owner 2 years ago when he advertised it for sale in 2014. the reality is many owners have paid too much and the selling price is now lower than what they paid. So they are being stubborn and understandably, are not accepting prices lower than than what they paid. Who would? But if they want to sell, they will have to take the loss. 

in WA, yes but it's a whole different ball game in the eastern states (Melbourne and Sydney specifically). 

[Mara]

@shellfish I say ditto to that comment! 

[elleneo]

Yes I wouldn't sell for less than I paid, that being said, I'm not going to overpay for a property because the previous owner overpaid and bought at the top of the market.

 

the truth is its a long hard slog to find the right property in your price range, feeling the house hunters fatigue for sure!

[Sunnyskies]

A few comments having bought once in Melbourne and once in Brisbane :

- the 10% rule only applies to the lowest price that the agent believes the house will sell for at the start of the campaign.  Melbourne has had the 10% rule for quite some time but the price was still 20-30% more than the guide.  We had to readjust our expectations and buy smaller.  In Brisbane the price is generally the price but you could possibly get for less.  We paid less for our Brisbane house than the owner wanted - he wasn't happy but I had a price limit.

- banks will lend based on the value they place on the house.  When buying on auction they say that the price paid reflects market and so provided you don't pay way over the odds you should be fine.  In Melbourne we bought with preapproval on the loan amount but not the house and it was fine.  But it was in 2013 with a rising market.  When we bought in Brisbane I used my bank a lot more to check that the house had the value we needed for the loan.  The bank has access to a specific application that gives values on a house that the bank will use for working out what you can lend.  It works great as long as there have been comparative sales close by fairly recently.  If there haven't been they send in a valuer.  When we bought in Brisbane I was quite concerned about the value of the house and my bank sent in a valuer before the auction to value the house.  We had peace of mind that we could finance the house before we went to auction.

- not all auctions happen on site.  In Melbourne it is common but in Brisbane a lot of auctions occur in a boardroom somewhere else.

- in Melbourne you don't have to register for an auction and in one of the auctions that we missed out on we had a guy pull up in his car and start bidding.  In Brisbane you can't bid unless you are registered and you get a paddle with a number.

- owners will be inside during an auction and the agent usually takesa break when the auction starts running out of steam to go and talk to the owner to check that the house is "on the market" if they haven't yet reached the reserve price.  Once you have the hammer brought down on your last bid you go inside to sign the contract, shake haands with the owner and hand a cheque to the agent for 10% of the purchase price (doesn't apply in Brisbane as you can't get a blank cheque from the bank - in Melbourne you get a cheque drawn to your account but blank as to amount which you fill in at the end of the auction and you ensure you have funds available, but in Brisbane you get about 24 to 48 hours to transfer the funds to the estate agent's trust account).

 

Advice:

- do your homework 

- know the sales in the area for the past 6 months so you can see if the market is rising. Use that as your guide to establish actual value. 

- know your finance limits

- set your price beforeyou go to the auction and stick to it.  Once your limit is reached back out.  If you are being constantly outbid then reconsider how you have valued the property - you may need to adjust your thinking.  We had that problem in Melbourne - it was disheartening and a tough learning curve.

 

[elleneo]

Also, you can get permission for a 5% deposit at auction. We got 2 blank cheques from our bank. You can get a "bond cheque" which will form part of your loan so u can bid at auction...I think it costs $1000 but just investigate that, that's if u don't have a 10% deposit but are pre approved and want to buy on auction.

[Shellfish]

Sorry if I'm repeating (I haven't read all the posts) but when we bought our first place (about 11 years ago) we didn't have a 20% deposit, the bank required that we take out mortgage insurance - just an FYI

[Sunnyskies]

16 hours ago, Shellfish said:

Sorry if I'm repeating (I haven't read all the posts) but when we bought our first place (about 11 years ago) we didn't have a 20% deposit, the bank required that we take out mortgage insurance - just an FYI

Friends of our in Sydney recently bought and they didn't have 20%.  I asked if they had had to get mortgage insurance and they said no, but I think they had a mortgage broker that helped navigate that, and they are both earning well, so possibly had it waived on the basis that the risk of non-payment was low.

 

Also remember, mortgage insurance is insurance for the bank not you.  If you don't pay it covers the equity portion of the loan that you should have paid in, but you are still liable for the full amount of the loan.

 

I've never been a fan of mortgage insurance, but I spoke to someone who deals with a lot of investment properties and he said that a lot of investors have to pay mortgage insurance.  When I questioned the wisdom of that he said that it in a rising market it was not a bit issue, as the rise in the capital value quickly compensated for the amount of mortgage insurance that had to be paid.  It is a different mindset to be an investor....

 

Also, I wanted to explain what I meant when I said earlier that the 10% related to the lowest price at the start of the campaign.  What happens is that the agent will come and look at the house, and based on market data make an assessment of the price range for the house.  The house is then advertised with a price guide 10% lower than the lowest price the agent thought the house could sell for - not his realistic estimate of what the house will sell for.  Then the agent starts having people viewing the house, and every person that inspects they ask what they think the house is worth.   One of the reasons they use a lower price guide is to increase foot traffic through the house.  The more people who walk through and the more excitement they can generate of the interest in the house, the higher the probability of selling the house for more than the reserve.  The trick as a buyer is to never tell the agent what you think the house is worth, but agent's are tricky characters and they will usually give you an indicator of what "others are saying" to see if you agree or not.  Generally they then give you a price that is higher than the price guide, to try and get you to stretch yourself to a higher price bracket.   So as people give a price indicator they inadvertently push the price of the house up, and so the reserve goes up, but the agent doesn't change the price guide from what was originally given.  Then as a newbie house buyer you arrive all ready to pay what the price guide says and suddenly you find that the market is far richer than you. 

 

Fortunately the market in Brisbane is a lot more transparent and the same games are not played, but here they don't give price guides on any house being auctioned (they are not allowed to) so it takes quite a lot of work to get the agent to tell you what they "expect" to get for the house if it is being sold on auction. 

 

Edited March 29, 2016 by Sunnyskies

[Heather]

The only time they can get exempt from Mortgage insurance if they are borrowing over 80% is if they form part of the medico offer (Doctors, specialists etc) or Chartered accountant, Quantity Surveyors, lawyers etc, if they are on the list and are earning above $150 000 then they will get exempt from mortgage insurance but only with certain lenders, not all lenders offer this.  The rest of the time they have to pay mortgage insurance no matter what and it is not based on the risk of non-payment but purely based on what the banks offer to certain professionals. The maximum for the exemption is up to 90% with no mortgage insurance.

 

[Guest]

Thanks all for your helpful replies. Much appreciated!