When is a bargain property really a bargain?
When the painstaking due diligence process supports the decision to proceed. But buyer beware – not all bargains are what they seem and if it seems too good to be true…well you know how the story goes. Check out our recent experience of a bargain priced property and why we walked away.
The advertised price range for this good sized 2 bedroom, 1 bathroom villa, with a lock up garage, north facing yard and great natural light was so attractive that the open for inspections were overrun with interested parties.
It quickly became apparent that the bargain price was due to the amount of damage and lack of maintenance over the 12 years since the property was built. Now in a difficult financial position, the vendor had no choice but to list the property in its current state.
We knew this property had good rental potential and was very well positioned in the suburb. However, once we started listing the items to be fixed, the cost was mounting.
Pricing due diligence supported our view that the value of this type of property had dropped dramatically in the past six months. We’d been working in the suburb regularly for clients over the past few years and had seen prices rise during the height of the market, only to level out dramatically once pent up demand had been met post COVID lockdowns. Recognising the opportunity for increased rental returns and affordable buy-in prices, savvy investors have been returning to the area to secure a well priced A-Grade property.
Using comparable property data, we set an initial price for the villa which fell within the advertised price range. We continued our investigation of the property, analysed the rental market and completed a cost breakdown for landscaping, maintenance, and repairs to the damage caused by the previous tenant.
The week of the auction, we had our trusted building and pest inspectors undertake their thorough assessment of the property. While we had picked up most of the issues during our own inspections, there were a few more repairs and future risks to add to the list. It should be noted that no other potential purchasers did a building and pest inspection for this property, and therefore we can only assume they are unaware of these unseen issues.
A seemingly inexpensive property with potential was now blowing out to be a money pit. Was it still the bargain we thought?
When we put all the calculations and building and pest findings together, it became clear that this property was NOT the bargain we had hoped for. So we walked away knowing that we would find a better opportunity for our client.
Unfortunately we weren’t surprised to see the property sell at auction 23% above our pricing. Sadly, we see these types of results too often where the purchaser has not done their homework (due diligence), or obtained a building and pest report.
The purchaser may think they’ve bought a ‘bargain’ however a small portion of what they have overpaid for this property could have been invested in the engagement of a buyer advocate (or at the very least, a building and pest inspection) and achieved a far better outcome.
While it may be that the new owner has different plans for the villa (owner occupied vs investor), with the price paid for this property and the amount of repairs required, the new owners could have purchased a walk-in ready property in a number of sought after suburbs.
Despite the recent downturn in the property market, a genuine bargain is still hard to find. Digging deeper and undertaking thorough and timely due diligence is an investment that buyer’s should not avoid. Buyer Advocates spend many days and hours undertaking these tasks to ensure our clients are fully empowered and educated to make the right choice of property and to avoid the costly surprises awaiting this recent purchaser.
In a market where bargains seem to appear everyday, digging deeper often reveals most are not genuine bargains. If you are a homebuyer or an investor who would prefer to avoid the painstaking process of conducting due diligence to ensure you understand what you are really buying, a buyer’s agent could be the right fit for you. Reach out to our team today to discuss how we can achieve a superior result for you.
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