Estimating Offer Price for Townhouse

pyramid on 06/11/2016 - 22:59

Hi guys,

I m first home buyer and looking for property around in Melbourne. We liked one town house (~270 sqm land) which was was passed-in at Auction at $450k. We inspected it few weeks back. I offered $460k which agent rejected saying they have got offers of $490k but seller wants atleast $500k. Now I am trying to figure out and justify if i should offer $500k or not.

Also i am trying to think through why seller is not budging anything less than $500k. Here is my rational based on RPData report of this property and general calculation: House is first sold in 2012 for $430k. So assume 4% appreciation, in 4 yrs appreciation should be ~$68000. So total house price today is $430k + $68000 = $498k. Plus add stamp duty + any loan interest that seller is paying. Is this how offer price or expected price works out? Am i missing anything here?

Thanks

Financial

Comments

  • resubaehtgnolhcs on 06/11/2016 - 23:09

    What are similar town houses (in terms of age, number of bedrooms, land size etc) in the area selling for? Also, is your 4% appreciation correct or is this just a guess? People generally set a price according to what similar properties in the area have sold for, plus any additional features their property may have that would allow them to ask for a further premium.

    • pyramid on 06/11/2016 - 23:11

      4% is my guess but I also think that if I would also expect similar appreciation if I will need to sell property…

      • resubaehtgnolhcs on 06/11/2016 - 23:15
        +1

        your guess may also be out - so many variables affect the appreciation of a property! Try getting data (if you have access to RPData) for similar town houses in the area that have sold recently. This will give you a better gauge of prices - if similar property has sold recently for $500k this would explain why this seller would want this amount. Guessing won't help here.

      • Realsteel on 06/11/2016 - 23:17

        Capital appreciation is hard to forecast. It can be higher if we have not hit "boom" yet or lower if we are there already. No one knows! Do your research and you should be fine. The fact that the house did not sell makes me think the house may be overpriced at $500k. I am only making assumptions on the information you have supplied.

  • Realsteel on 06/11/2016 - 23:14

    There seems to a gap between what the market is willing to pay and what the owner's are expecting. In anycase, you should be in the safe zone by making any offer subject to finance. At Auctions, you do not have this safety net. So if you end up bidding $xxx amount and the bank values it under, you can be in a spot of bother.

  • garetz on 07/11/2016 - 03:24

    Why are you assuming appreciation at 4% pa? as long as you know the suburb, you can easily calculate the actual value using certain sites. Just cause the seller wants 500k, doesnt mean it is worth what they are asking, as evidenced by the 450k auction that was passed in. When he bought it for $430k, he may have overpaid by a large margin, dont assume the original price is the actual value at the the time the current owner purchased the property. Do your due diligence.

    Also assume every word out of a real estate agents mouth is a lie, to get you to up the offer. Just stick to your guns, make an offer you are comfortable with, when the agent comes back with whatever lie he came up with to get you to up your offer, just say you will be sticking to your offer, and let you know if the vendor changes their mind. This is assuming the real estate agent took your offer to them in the first place, which may not be the case at all.

    Do not let your feelings interfere with purchases, especially at this magnitude, unless you really really love the property, and are willing to spend more than market value there is always something else available in the same area sooner or later.

    • dasher86 on 07/11/2016 - 07:23
      +1

      Always submit an offer with a time expiry.

  • jason101 on 07/11/2016 - 07:29
    +4

    I think what you are missing is that there is often no logical way to calculate an offer. The vendors circumstances will dictate the eventual selling price (if them home sells at all). If $490-500 is over the mark, but that is the only price the vendor will sell for, the $490-500 IS the current value of that property IF you want to buy it.

    You can play hardball all you like with the agent, but if the vendor won't budge on their price, then you have to pay the money if you want that home - or of course walk away.

    I might be a fish out of water around here but I am a firm believer in letting your feelings influence you if you are looking for a home in which to live yourself - I'd rather pay an extra $20-30k now than spend the next 12 months comparing other homes "to that really good one I missed out on".

    • Skramit on 07/11/2016 - 09:22
      +1

      I might be a fish out of water around here but I am a firm believer in letting your feelings influence you if you are looking for a home in which to live yourself - I'd rather pay an extra $20-30k now than spend the next 12 months comparing other homes "to that really good one I missed out on".

      Spot on. Agree with you about buying the right house (as long as it's within budget) not necessarily the best investment maths wise. You have to be happy in your own home.

      A house is worth what it's worth based on what somebody is willing to pay for it and what the vendor will sell it for. No amount of calculations and estimated % growth increases can tell you the "right" price.

      Ring the agent, tell them you have a signed deposit cheque for 10% of your offer and are ready to go. If still no go and you don't want to pay more, walk away. Don't get hung up about it.

    • djkelly69 on 16/11/2016 - 13:53

      I'd rather pay an extra $20-30k now than spend the next 12 months listening to my wife reminding me of "that really good one we missed out on"

      Fixed it for you.

  • JimB on 07/11/2016 - 10:54

    On average most properties in Melbourne have seen property increases well above 4% p.a. since 2012.

    Of course not every property is average, just like every suburb is not average.

    As mentioned above, just offer what you think it's worth.

    However here is my take, you're better off to pay slightly more than you would like IF you really like the property. You won't regret it in 10 years time.

    Having said that, $460k to $500k is a big jump.

  • snook on 07/11/2016 - 13:57

    You offer 500 and then the agent goes to all the other 'offerers' and gets them to up their price …
    or
    You offer 500 and then the agent says the seller wants no less then 510
    and on it goes

    If you really want a place and you like it, 40k is nothing

  • Olga on 08/11/2016 - 14:18

    Not sure what the rules are in WA but in NSW any offer put in writing MUST be presented to the seller. The agent could tell you anything regarding other offers but you don't know the details, for eg the 490k offer could be subject to finance or to settle in xx days which could be a problem for the seller.
    My advice is put in your offer in written with a time limit and subject to conditions eg

    Offer valid for 24 hrs subject to the following conditions-
    1- subject to finance
    2- subject to building report and pest report
    3- subject to no canvassing of other offers

    etc…

  • JimB on 16/11/2016 - 09:47

    SO OP, you a homeowner yet?

    • pyramid on 16/11/2016 - 10:53

      No. Not yet.

  • tsunamisurfer on 16/11/2016 - 11:39

    OP…the auction passed in at $450k is something you can leverage.

    Why are you going to offer more than your initial when the auction determined market price is less?

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