Did you know that there are more first home buyers active in New South Wales now than in nearly a decade?
According to the Australian Bureau of Statistic (ABS), the ratio of owner occupier first home buyer loan commitments in NSW reached 29.1 per cent in July – one of the highest levels since way back in December 2011.
It’s actually a national phenomenon with the number of first home buyers in the market up by more than 24 per cent since the same period last year, according to the ABS.
One of the reasons why are the financial grants available for first-time buyers, including HomeBuilder.
However, most Sydney first-time buyers are not being swayed by these new-build incentives and are generally opting to purchase an existing dwelling.
This is reflected in the Property Investment Professionals of Australia (PIPA) 2020 Annual Investor Sentiment Survey, which found that 81 per cent for first-time property buyers bought an existing property over the past year.
More and more prospective property owners are also seeking expert advice and assistance these days.
Yet, one thing that doesn’t seem to change much is their common misunderstandings about buying real estate.
So, here are five things that Sydney first home buyers must understand before purchasing property.
1. Asset Selection
The first property that anyone buys can either make or break their chances of upgrading at some point in the future.
An inferior property will struggle to increase in value in any meaningful way, which may leave you unable to do anything with it – apart from probably selling it at a loss and starting all over again.
Of course, asset selection depends on budget, but in every price point and each dwelling type there are properties that are more likely to achieve superior capital growth over time.
One of the main factors includes location, but not just at a suburb level.
For example, buying a property, say a unit, on a busy road will also drag down its potential capital growth because you can never do anything about its position.
That’s why it’s vital to always remember that the cosmetics of a property can be upgraded but its street location will always be set in stone.
2. Recognising Value
One of the biggest issues for first home buyers is often letting their emotions get in the way when they are searching for a property.
Now, this can often go either way, with first-timers over-paying for a property because they fell in love with it or buying a property because it seemed “cheap”.
Either of these scenarios can cause problems later on because you either paid too much or you purchased a property that was cheap for a reason.
Over-paying for a property means it will take longer for it to grow in value in any significant way and may also cause issues if you had to sell it sooner than expected.
Buying cheaply often means the property has significant issues that may be costly to remedy or its location is so substandard that it will always be viewed as mediocre by future purchasers.
3. Market Conditions
Understanding market conditions is vital and is something that many first home buyers struggle with.
While there is more property information available online than ever before, much of it is just marketing spin designed to motivate people to buy a particular type of property or purchase in a specific location.
Market cycles can have a significant impact on the price of property but often it can make no difference at all if a property is always in-demand because of its desirable location.
One thing that often trips up first home buyers is when markets are perceived as being soft or flat, which can make them believe they can make low-ball offers for good properties.
All this usually does is annoy the sales agent as well as the vendor and prospective property owners are often left wondering where it all went wrong.
One of the keys to first home buying success is buying an A-Grade property for an under market value price – but it is a skill that does take a while to learn.
4. Negotiation Strategy
I’ve alluded to negotiation in the above point, but first home buyers do tend to struggle with this aspect of the buying process.
Often, they’ll offer a figure that is too low to be taken seriously by the seller or they submit a number that makes the vendor start popping the champagne corks straight away.
Successful negotiation involves understanding the market value of a property as well as the needs and wants of the sellers as much as possible.
That’s because, for some vendors, it’s not all about price but rather privacy, which is where off-market sales come in.
For others, they want the security of knowing the offer is coming from a buyer who has loan pre-approval, which is imperative for first-timers in any market conditions so they know, and stick, to their budgets.
Sometimes, a seller wants a shorter or longer settlement period, which can be a negotiation tactic as well.
Of course, all of these factors form part of a successful negotiation strategy, but it takes experience to get the mix right.
5. Bidding At Auction
Most first home buyers are usually reluctant to buy at auction.
Perhaps it’s a fear of the process, including its cash unconditional contract, or they don’t want to buy a property so publicly.
The reality is that auctions are the best way to purchase real estate because they are the most transparent sales method that exists.
On auction day, every bidder can see and hear what is happening, whereas private treaty sales generally operate behind closed doors.
Bidding at auction means that unsuccessful buyers know the price that a property sold for, which may have been outside of their budget.
That is always a much better position to be in than making offers on properties and never understanding why someone else ended up being the owner.