Buying a house, especially if it is your first, is an exhilarating experience. But it can be very easy to get carried away and make some costly mistakes in the process if you are not careful.
It is important to set some ground rules for yourself, so here are 5 rules to help guide you through the bidding process.
1. Don’t try and make an offer before you are approved in principle?
One of the first mistakes you can make as a buyer is to go looking at properties too soon. If you don’t already have your house in order (finances) then this is what you should be prioritising. Unless you are one of the few who are in a fortunate position of being a cash buyer.
Offers from mortgage buyers will not be entertained unless they have a letter from their bank showing that they are approved in principle for the offer amount.
When the housing market is hot, properties can be snapped up and closed even within the space of a week or two. If you are not ready to pull the trigger then you are probably wasting everyone’s time.
Similarly, many prospective buyers may be using the sales proceeds from another property to fund the purchase of their next property. Timing delays here can also cause issues, so it’s best to seek advice from the auctioneer and be open about your situation.
2. Before the bidding starts set a limit
It almost feels like gambling.
It is very easy to get caught up in the emotions of the bidding process when you get started. You start imaging yourself living in the house and visualising your new life before you even have secured the deal.
When this happens, the budget goes out the completely out of the window and you could end up paying way more than what is a fair price for the house.
It is vital to set a limit on the price you are willing to pay, a price at which you will walk away from the table no matter what. This simple rule can help control your emotions and avoid paying way over the odds for a house.
3. Going in to low with the first offer might not be the best approach
When you are bidding against others it can be like psychological warfare. There are upsides and downsides to going in with too low of an offer.
When you go in with a low offer you will be dictating the start of the bidding. This can set the tone of how it will go forward, and any little edge you can take could work in your favour.
On the downside, bidding well below the fair price for the property could end up dragging out the bidding process and ruling out any possibility of a quick sale. When the bidding is dragged out this could end up inviting more interest parties which could drive up the price even more than you anticipated.
4. Don’t leave the asking price become an Anchor Bias
An Anchor Bias when it comes to property is when you take the first bit of price information you have and rely too heavily on it.
Sellers and Auctioneers can use the initial listing price tactically. It can often be well above or below the actual fair value of the house. The strategy here will differ depending on the location and type of property.
You should make your own assessment of what you think the property is worth and not be guided by the asking price. You can lean on other available information such as price of properties in the same area, or other properties of the same size, number of bedrooms/baths, etc.
This way you will have a much better idea if the initial asking price is well above or below similar properties and this can then guide you on your bidding strategy and what limits you want to set for yourself.
5. Don’t forget about all of the extras you will have to pay on top of your deposit
While you may only be focusing on the deposit and the actual price of the property, you will be faced with a number of additional costs when buying a property that need to be accounted for.
Here is a quick snapshot of some of the additional costs you will face:
– Stamp Duty: 1% of property price
– Legal Fess: €2,000 – €3,000 + VAT
– Home Insurance
– Valuation reports/Surveyor reports
– Mortgage Protection
– Property Tax
Make sure you are not blowing all your cash on the deposit and leaving yourself short to pay these fees.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.