英语-FINS3633

FINS3633 Real Estate Finance Lecture 7 Successful First Time Home Buyers Have a budget and truly understand what can afford to pay Clear idea of the property type they want—or what they do not want Know the components of a serious offer Can negotiate with agents Stick to their plan Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) 6. Offer strategy if passed in or prior to auction 7. Negotiating with selling agents 8. Offer acceptance (Signing contracts and paying deposits) 9. Settlement day (money in account, solicitor works will seller’s solicitor) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) 6. Offer strategy if passed in or prior to auction Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) 6. Offer strategy if passed in or prior to auction 7. Negotiating with selling agents Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) 6. Offer strategy if passed in or prior to auction 7. Negotiating with selling agents 8. Offer acceptance (Signing contracts and paying deposits) Buying Process 1. Getting preapproved/approved for your home loan (mortgage broker) 2. Identifying potential properties (realestate.com.au, domain, selling agent lists, buyers’ agent) 3. Inspections (solicitors to review contracts, potentially strata reports and inspections) 4. Determining the value of a home 5. The auction process (66 W form) 6. Offer strategy if passed in or prior to auction 7. Negotiating with selling agents 8. Offer acceptance (Signing contracts and paying deposits) 9. Settlement day (money in account, solicitor works will seller’s solicitor) Home Loan Approval Deposits and how much you need to qualify for a loan Historically could put down as little at 5% but you would pay LMI and receive a higher interest rate LMI (Lenders Mortgage Insurance – is a one-off insurance premium payable by the borrower that protects the band against potential loss them may incur A guarantor is a third party to a home loan, heling you to get a loan by offering the additional support, generally limited to immediate family members. Home Loan Approval Pre/approval, approval in Principle, Conditional—want one that is fully assessed for how much a bank would be willing to lend given that you are still employed, based on the appraisal etc. Final approval—actually receive the bank approval but subject to the bank’s actual appraisal value of your home. Generally working with a mortgage broker or individual bank’s brokers at this point. Budget Planner Know the Fees! Stamp Duty—roughly 5% in NSW now, could be more for nonresidents Buyers Agent Fee—typically 2% of sale price, could be flat fee Solicitors/Conveyancer Fee – roughly 2K Inspections/Strata Report – Around 200-300 each Bank Fees –600 roughly but can sometimes be waived Mortgage Registration/Transfer fees LMI (Lenders Mortgage Insurance) if applicable Council and Utility Rates House Types- Houses Pros Space and privacy Backyard/Gardens Easy to increase value with improvements No land tax and no Strata fees Cons Maintenance can be costly Renovations are expensive Cost more than Strata House Types- Apartments Pros Lower maintenance Easier to make internal upgrades Access to common areas Located closer to amenities Cons Strata fees, special levies, increases to Strata Limited space and storage Shared areas and walls with neighbors etc. Governed by Strata House Types- House and Land Packages Pros Brand new to your specifications Energy efficient and comes with builders’ warranty Government grants and exemptions available Cons Costs are not always fixed Takes time to build Generally away from the CBD Rely on how the local area develops House Types- Off the Plan Pros Secure the property with 10% deposit Brand new and can chose fixtures etc. Government grants and exemptions available Cons Sunset clause—maximum time the developer must complete the build (ensure your solicitor reviews this) Market prices can change by time they are completed Personal circumstances might change too, as home loan approval could be affected Difficult to increase the value of the property Buying an owner occupied home What do you need Absolute essentials—bedrooms, bathrooms etc. What are non-essentials Shortlist potential suburbs and property types: be realistic to the areas for certain properties of the home such as a lift, air con, swimming pool, pet friendly, has views etc. Searching for a Home RealEstate.com.au Domain.com.au Off Market Listings—Buyer’s agent Real estate agent mailings Pricing A Property Selling agents set the price point as guide Listed price listed eg For Sale $495,000, can negotiate Price Range, can give you some room to move within the range “Price guide” is the lower bound—if reject an offer above the price guide, legally need to update price guide By negotiation or contact agent, generally high price properties Can ask for comparable to come up to a figure Expressions of interest, very high price properties Offers over/above/plus (illegal in NSW, VIC) Fixed date sale (popular in Victoria) –submit your best offer By Auction—popular in high demand areas Working with Selling Agents Remember the selling agent represents the SELLER Use pressure tactics—scarcity, good deal, competition, they are professional negotiators, any information can be used against you Don’t give away too much information Be polite and friendly Make it easy for them to want to work with you—have preapproval in place, easy to contact etc. Be confident Do your own research Questions to Ask the Selling Agent How long has the property been on the market Why are the owners selling Have they bought elsewhere What feedback have your received (but don’t believe everything) What comparables using Have there been building or pest inspections Have you received any offers, and if so for how much (again, don’t believe everything) Why do you think it wasn’t accepted Questions to Ask the Selling Agent What do you think it will sell for Any contracts requested (NSW, ACT, Section 32 VIC) Is the vendor an investor or an owner occupier Lease in place What are the council water rates/strata fees Any special levies or schedules works What settlement period Why do you think it hasn’t sold yet (for properties on the market for more than 4 weeks) Private viewing or second inspection What TO say to a Selling Agent You are interested and will be in contact You have pre-approval (but not for how much!) What NOT to say to a Selling Agent That you are first time home buyer How long your have been looking That you love the property That you’ve missed out on other properties—need to know basis What you think the property is worth How much you have to spend If you have a deadline Too much personal information Property Valuation Comparables: RealEsate.com.au, Domain.com.au, CoreLogic RPData, PriceFinder,, 3 current properties on the market (less than 4 months old) Independent appraisals– expensive Elements for property value Bedrooms, bathrooms, garage, living spaces Land size, apt sq. meters Location Fixtures, fitting and inclusions (kitchen, bathroom) Uniqueness for some reason, special features (swimming pool) Development potential Views and direction if faces (north facing is popular) The Auction Process Viewing other properties as they go to auction Be prepared, finances, contracts, expectations for prices Auctions can vary but governed by strict regulations There are no cooling off periods (66W in NSW) A deposit is paid and contracts exchanged immediately Vendor bid must be announced to buyers (not necessary the reserve price) If the bidding does not reach the reserve price, the auction is “passed in” and the highest bidder will get the first chance to negotiate an offer, still on that day. (Don’t go inside if you are bidding on the street!) Auction Day Best Practices Arrive early, register your interest to bid, conduct one last inspection Don’t bid against yourself Stick to your budget, or appoint a friend to bid for you with your budget Be prepared to sign same day if you win Keep calm, no need to start bidding, call out the bid in FULL Making an Offer Your offer Price Settlement Date Deposit amount Conditions if any (can the vendor use your deposit etc., cooling off.) Best in writing (email): address, your details, preapproval Always follow up to confirm receipt (phone/text) but be patient for a response You can add an EXPIRY: Please note, my offer expired at 5pm on March 28th. If we do not receive an answer by this date I will proceed with an alternative property. Negotiating Strategies Stay calm and don’t give away too much information The Agent wants to sell the home (else they don’t get paid) You can negotiate settlement terms Waive cooling off period Short/long settlement period Temporary rent back options for the owner Releasing your deposit Be flexible Be prepared to walk away-–give the agent your best and final offer in an email and say the vendor can reconsider but will not be going higher Accepted Offers Pay deposit to Real Estate Agent Trust Account Exchange contracts—working with a conveyancer or solicitor Cooling off period 3-5 business days (unless signed a 66W NSW or at an Auction) Building and pest inspections, strata reports (if have cooling off period) Final loan approval—delays are still common so make sure all finances are in order well before Settlement Date Settlement Date Complete final inspection Property settlement is a legal process between the legal representation of the vendor and buyer The buyer’s conveyancer/solicitor will know what bank is providing financing. Collect keys! Investment Properties Minimum two bedroom Best to be close to amenities Pros if new, keep close tabs on maintenance, can claim huge depreciation costs on taxes (older builds probably have fully depreciated) Should have representation (property manager) Should have landlord insurance which insures against damage caused by the tenant or covers losses is a tenant under contract fails to pay. Do not need to sell, can refinance and take out equity to buy another property—as long as you can service the two loans and the leverage would not be a problem Never Sell Strategy You buy a $500 property with 100K deposit and 400K mortgage It rises to 1M and you sell it Capital gains tax would be $1m-$20K fees-$500K cost = $480*25%=120K Leave you with $1M- $20K-$400-$120=$460 as a deposit Buy a new property worth $1.84M with the deposit (20%+costs) Mortgage = $1.47M Never Sell Strategy You buy a $500 property with 100K deposit and 400K mortgage It rises to 1M and you refinance it=> bank lends you $800K You already owed $400K so that gives you $400K for deposits and costs Buy another property worth $1.6M You now have two properties, one worth $1M and another worth $1.6M è 2.6M Mortgage= $800K + $1.28M è 2.08M Conclusions There are many factors that affect home prices For owner occupied purchases you may be more flexible on the price but try to stay calm, there will in fact be another property For investment properties, buy at or below market value and be prepared to manage the debt that comes with property investment Housing prices can in fact fall! But high-income earners in Australia will generally own 2-3 investment properties as part of their portfolio. Agenda First time Home Buyer – Customized material not from our textbook No recommended end of chapter questions this week Next week will be the in-class take home project presentation. Turn it In Links are available under Week 8 section Auction Failure Rate Data source: Domain Auction Listings Auction Failure Gives impression something is wrong with the house but… Not necessarily true! It is a bad news event but if something were truly wrong, the auction should succeed but at a lower price >> Reserve Price Mismatch Auction Sales Method Homes sell for more at Auctions, this finding confirms previous literature But ours is the first to study long run price implications of auction failure: ln Pi = β1Auctioni + β2Failed Auctioni + Fixed Effects + i 1.2% x 0.83 – 2.6% x 0.17 = 0.57% In aggregate if auction failure rate doubled, it would wipe out all potential gains. Potentially endogenous as better homes are sold via the auction method