While Christmas might be a period when the real estate industry takes a well-earned holiday break, savvy property investors should view this time as an opportunity to hunt for a Christmas bargain.
During the silly season, most years see a sharp drop in activity and listings, with the industry going on semi-hiatus until the end of January.
In light of the unusual period we have just experienced, however, this year may look a little different, and serious property investors could be wise to reconsider their holiday plans.
A great time to buy
During a regular cycle, seasonal demand reduces significantly in late December. Real estate listings begin to taper off from mid-November, and transactions plummet over Christmas. Most vendors want to get their house sold, so they can move on and enjoy their holidays.
For property investors, this spells opportunity.
With Christmas fast approaching, vendors face the decision of trying to sell quickly now or wait until next year to kick start their campaign. If an owner has had their property listed for a long time, they might even begin to feel desperate as the holiday period approaches.
While generally, demand falls away over the Christmas period, it's worth noting that each property market is on its own trajectory. Some markets are in a growth phase, some are slowing down, and some are booming.
Current cases in point include the Brisbane market, which is now booming, while the Sydney and Melbourne markets are clearly struggling.
Beware of a seller's market
In a seller's market, there are more buyers than sellers. These are heated markets that are booming or in an upswing. An excellent example of this type of market is Brisbane, where many treechangers and seachangers are presently looking to relocate.
An increasing number of Sydneysiders and Melbournians are heading north with their sights set on buying or renting in and around Brisbane. We hear that two out of three buyers in Brisbane right now are from across the border, with many of these interstate migrants even happy to make offers sight unseen.
Low listings combined with lots of interest are culminating in the emergence of a strong seller's market.
As we head into Christmas, we expect to see a further reduction in listings, which will only add additional fuel to the fire.
As investors, we don't want to be playing a game where the seller has the balance of power. We want to have leverage on our side so we can negotiate. We want to be able to make an offer and walk away, not fight against multiple bidders.
Buying well in a buyer's market
In a buyer’s market, there are more sellers than buyers, an excellent combination for property investors.
We're currently seeing buyer’s markets in parts of Sydney and Melbourne and even a few select areas in Perth. These are the types of markets where we can stretch our legs and grab some Christmas cheer.
As property investors, we have to appeal to the psychology of those vendors who 'just want to sell the place.' These are the types of sellers who want an offer signed so that they can go on holiday.
To get an exceptional deal, we still need to spread multiple offers across several properties and avoid getting hung up on a given property. It has to be about the numbers and using the time of year to our advantage.
Fortunately, we can use some rules of thumb to gauge what sort of offer a vendor might be willing to accept. The key here is to understand both the vendor’s motivation and how the market views the property.
To determine a seller's motivation, we need to be asking questions such as, ‘have they gone from an auction to a fixed price, then discounted that price?’
If this is the case, it might signal that the vendor wants to sell and is quickly lowering their expectations. Typically, the longer a property has been on the market, the more desperate they are likely to be, especially ahead of Christmas.
There are also other factors you can take into account when you see a property for sale. Perhaps the property is currently tenanted, making it difficult for the selling agent to access and show interested parties.
Even issues such as poor presentation might be negatively impacting a sales campaign.
For an agent, wrapping up a sale quickly at the end of the year makes their job a lot easier. If the property has been on the market for a while, we will often see real estate agents losing interest and moving on to the next hot property.
Generally speaking, an agent's commission will cover around 30 days of work on a property. After this initial phase, properties are open 'by appointment,' which is a sign the property hasn't garnered much interest, and this is something you could use to your advantage.
Your goal as an investor is to know your numbers and put in favourable offers in an attempt to snag the 'let's just sell the place' type of seller. A vendor who is eager to sell and move on.
Negotiating like a pro
Ultimately, the best way to make money on purchase is to stack the odds in your favour and then negotiate hard.
Always get a building and pest inspection and renegotiate on anything you find based on the final report.
You can save anywhere from $1,500 to even $6,000-7,000 off the original contract price through a second round of negotiation. This is something most investors don't do or don't know they should be doing.
The psychology behind selling a house from the vendor's perspective is that it's a done deal once the offer is accepted. Negotiating for a second time is when you can get a larger discount because they are off celebrating and just want the deal finalised.
A tale of two Christmases
As COVID slammed the brakes on transactions this year, in 2019 uncertainty surrounding the Federal election weighed heavily on the property market.
Last year, following the election result, we saw a spike in buyer activity that continued right up until Christmas.
Interestingly as vendors become more motivated to sell as Christmas loomed, at Ripehouse, we did some of our very best deals during the final weeks of 2019.
On the back of COVID restrictions lifting and confidence returning in the markets, we anticipate that this year will be the same.
However, it's essential to understand that while there are opportunities galore during this period, you have to treat each market type differently and be prepared to negotiate hard if you want to bag a bargain.
