The notion of undervalued property might seem inconceivable – why would anyone sell their most expensive asset for less than its worth? However there are many reasons why people sell property for below market value.
Acquiring a good property for below market value can deliver huge financial windfalls and even help investors buy their next property sooner.
Owner-occupiers and investors, alike, sell property for less than it’s worth for a number of reasons.
Before listing these, though, it is worth noting.
While undervalued properties can be found from time-to-time, in the large majority of cases if the price of a property seems too good to be true, there is generally a reason.
Subsequently, it pays to complete adequate research because the price may have been lowered for a number of reasons, such as delinquent neighbours, structural issues with the house or noise factors, among others.
However, here are six reasons why good properties can be sold for below market value.
- Downsizing: If older owner-occupiers want to downsize, or move into a retirement home, in many cases price won’t be a priority. The owner may prefer a quick sale and therefore advertise the property at a lower price.
- Presentation: In soft markets, when housing stock is high, buyers can be more selective and will generally prefer renovated properties. Savvy investors can purchase older homes that will demand higher prices after minor and cost effective upgrades are completed.
- Divorce: Similar to the downsizing situation, when a couple is separating, the price of the property may not be a priority. Rather the owners may require a quick sale.
- Uninformed selling agents: If an agent isn’t familiar with the suburb they may under-price the property. Additionally, the agent may not be familiar with the particular zoning of the property. For example, a selling agent may advertise the property as a potential duplex development, however planning rules may allow a triplex, or bigger.
- Financial distress: The owners of the property may be under financial pressure. They may have had a bad tenant that hasn’t paid rent or amassed too much personal debt to meet mortgage repayments.
- Difficult tenants: Existing tenants may be difficult and only provide limited access to the property for home opens. This can discourage potential buyers, which means less competition and the chance of a lower price.
It’s certainly more important to buy a property with the best long term growth prospects rather than focussing on the best “deal”, as that initial saving can soon disappear if the property performs poorly. You should always focus on the better long term investment. However in a softer market there are opportunities to get great properties and get a little more off the price.