Upsizing smartly – how to get maximum bang for your extra bucks

Upsizing smartly – how to get maximum bang for your extra bucks

With property value gains taking a relative hiatus in most states, particularly in the capital cities, the pendulum has swung to favour buyers in many areas. While there are still some micro markets within states and even within cities where prices and demand remain strong, if you find yourself in a buyers’ market, it may just be a good time to consider upsizing.

A buyers’ market means buyers have more bargaining power in a sale. This often happens when we see a slowdown in property value gains or when values decline. Typically, there will be fewer buyers competing and more properties available for sale. Buyers tend to become less desperate and vendors may become more desperate. So buyers can pick and choose between properties, take their time, negotiate harder and walk away more easily.

When values come down, higher end properties that were previously out of reach can become attainable. Of course, you still have to sell your existing property, and it will most likely have also lost value. That’s why in a buyer’s market it is highly recommended to sell first. You don’t want to be in a position where you are paying interest on two loans and have to sell your original property below market value because you are rapidly haemorrhaging cash. Unless you can negotiate a very long settlement on your new property, upsizing in a  declining market means you will probably have to arrange short-term accommodation in between. It’s worth asking the new owners if you can rent your old home after you’ve sold it, then you can stay put until you find your new home.

Upsizing might feel risky in a market that is correcting because ideally you don’t want to sell at all in this environment. However, it is far better to upsize in a declining market. In a rising market, those who sell first risk getting priced out by the time they buy if they wait too long.

Additionally, in a buyer’s market, while an upsizing vendor will “lose” some value at sale, their “saving” when they buy a more expensive house is greater. For example, if the market has fallen 5%, you might sell a $750,000 property at a 5% loss ($35,500). But if you upsize to a $1 million property, which has also lost 5% ($50,000), you are effectively gaining $14,500. It is easy to get paralysed by market sentiment and stay put in a declining market, but it is actually a unique opportunity to upsize if you have the financial means.

This effect is heightened in a number of places around the country, especially Sydney and Melbourne, due to an increased demand for more affordable homes. Nationally, the top quartile of the market has led the downturn with values down 6.6% over the 12-month period, compared to a 0.5% rise in values for the lowest quartile. In Sydney and Melbourne, the top quartile of properties lost almost 9% of their value, whereas the lowest quartile in Sydney declined by just 4.6% and Melbourne’s most affordable homes actually increased in value by 2.9%.

Be sure to do your research in the area you want to buy, however, as there is huge variation in trends between markets. While Perth and Darwin have seen large value declines and are definitely buyer’s markets, in those cities the weakest conditions are concentrated in the lowest quartile of the market, so upsizers would lose some of the financial gain.

upsizing, buying house

Top tips for buying in a buyers’ market

  1. Make sure you know a property’s current market value by looking at recent comparable sales in the area – your Smartline Adviser can give you a free property report. There are opportunities for great buys, and you don’t want to overpay when there’s a chance the value could go down.
  2. Have your Smartline Adviser arrange a pre-approval for you so you can pounce on a great deal at a moment’s notice.
  3. Negotiate hard. Real estate agents struggle in a slow market and often prefer to make the sale, get their commission and move on rather than haggle too much. They may even go in to bat for you by convincing the seller that the price you’re offering is the best they can do. You could also ask the vendor to throw in furniture or fixtures as an added bargain. Vendors can get desperate, too, or may have financial reasons for needing to sell quickly.
  4. Look out for “motivated sellers”. If the home has been on the market for more than eight weeks, has undergone some price reductions or is vacant, the seller may be keen to get rid of the property as soon as possible.
  5. Decide what the property is worth and stick to it. There are always other properties in a sluggish market and this gives you the upper hand. Don’t push the price up by getting into a bidding war or giving in to a stubborn vendor who can’t accept the property’s true value. Feel free to walk away.
  6. Consider making a low-ball offer – that is, offer a price that’s much less than the guide. Politely back up your offer with reasons why you think it is worth less. You may be surprised by an acceptance or counter-offer close to your bid. Handing over a signed contract, a cheque for the deposit and a deadline for acceptance is a sure way to put pressure on a vendor.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.