Bargain Buying: What Category Does The Bargain Fit Into?
The key behind bargain buying is identifying when it's a great opportunity, vs a compromised property with a price tag to reflect.
Recognising when it’s a great opportunity, vs a compromised property with a price tag to reflect.
In any market correction, opportunistic buyers will recognise the conditions and prepare to strike when they feel the iron is hot. Observing sales in their areas of interest, paying attention to days on market, and taking note of the auction clearance rates are all hallmarks of a savvy buyer.
But when is a bargain a good bargain, and what can deem a bargain buy a mistake?
There are two categories of bargains. One is situational and the other relates to buyer appetite for compromise.
Situational bargains arise when the vendor’s or agent’s existing conditions change in favour of the buyer. While a change can result from changed market conditions (i.e. “supply and demand”), or a required settlement date that is tighter than most buyers can comfortably manage, it can also result from elements that are outside the control of the vendor. Examples include:
- A difficult tenant who either chooses to block access or present the property poorly enough to negatively impact the number of interested buyers,
- Rough/rowdy neighbours who make it obvious to prospective buyers that every night is party-night,
- Court orders, VCAT orders, bank repossessions that dictate restrictive buyer terms,
- Buildings with surprise, expensive short-term levies struck,
- A badly run campaign with an agent who hasn’t provided the vendor with accurate/honest/good selling advice,
- A campaign date that isn’t as suitable for the sale of that particular property (i.e. a long weekend when most buyers are away on holiday),
- A poorly advertised or inappropriately priced property,
- A clashing campaign for a similar property that attracts (and dilutes) the buyer pool of the vendor’s property.
Under such conditions, the buyer can experience advantageous buying conditions that have resulted from reduced competing buyer competition. Provided the property is A-grade, (located well, orientated appealingly, surrounded by other attractive properties, and not exhibiting any nasty surprises that the buyer was unaware of), the buyer could find themselves nabbing one of the best buys in town.
However, the other type of bargain can be a nightmare in disguise if the buyer hasn’t considered what it is that has led to the bargain-conditions. A compromised bargain relates to one that has limited buyer interest due to fundamental flaws that are either impossible to change (location-based), challenging to change, or expensive to change. Examples of location-based compromise include:
- Main roads/train lines,
- Compulsory acquisition locations (or properties that are border new infrastructure projects such as freeways with barriers etc),
- Properties with covenants, zoning, overlays or restrictions which limit the typical use of the land,
- Title types or floorplans that banks refuse or heavily scrutinise,
- Loud locations.
The problem with compromised bargains flares up when market conditions change. During the Seller’s Market highs of 2017 in Melbourne and Sydney, buyer behaviour exhibited desperation in many suburbs. Many buyers had felt the bitter upset of a missed auction or a fly-away sale result and sadly turned to the mantra of “just get SOMETHING” in an attempt to secure a home in what felt like a market place that was about to fly away from their reach. When buyers should have been focusing on quality and key criterion, we witnessed a lot of “FOMO” (fear of missing out), and this fear was illustrated by purchasers who opted for the easier-buys. They bought compromised property in an effort to avoid tough buyer competition.
If we fast-forward the clock to our current Seller’s market, we now have a fussier buyer contingent who not only scrutinise property in a much harsher assessment, but they know that they have the luxury of time to select a high- scoring property for themselves.
The compromised bargains are sitting on the market with extended sale periods, tougher discounting and limited buyer interest. What once felt opportunistic is now a gloomy tale; many spelling losses.
Before buying a bargain, buyers need to ask themselves if it’s situational or compromised. If it is the latter, an old saying may be useful:
“You buy a bargain, you sell a bargain.""