Rewind to the year 2000.
I had moved to Australia in January 2000 and was working at my electronic banking job in North Sydney, and living on Sydney’s northern beaches. I was pretty clueless about the whole real estate scenario in Australia at the time. But I dearly wanted to buy a home of our own, and very preferably on the northern beaches, as I loved the area.
So I scouted around extensively and found something that I was able to stretch to and could make work financially. It was a new estate being developed by Australand at Warriewood. They were building turnkey house and land packages on small allotments, and selling ‘off the plan’. Construction was underway and moving to frame stage. I got in on the first sale weekend, from memory; property records tell me that I bought in October 2000, for $447,000. It was quite a large double storey brick/tile house with 4 bedrooms plus a study, 2 bathrooms, and a double garage; on a small block of just under 400m2. The house was considerably bigger than what we needed, but hey, we had our first home in Australia! And moved in about 4 or so months later.
Some months later, I needed some money.
I really didn’t know a heck of a lot about local property, but still; I had a pretty strong feeling that our property value had increased nicely. So naturally, I approached my trusty ‘big 4’ bank to request a modest increase on my home loan. Serviceability was in order, so it was just up to the valuation.
Well well, I was very disappointed when I got word back that the bank valuer had called it at $440,000. A little less than what I had paid ‘off the plan’ the previous year (in a rising market, as only became clear to me later).
I weighed up what to do, and decided to speak to a real estate agent. This I did, and I was shocked when he told me that he would be comfortable selling my property at around the $570k mark. This sounded too good to be true, so I said – go for it, if you can do that, then yes sir – please do it. But since I was really not convinced at all, I negotiated not to pay any advertising or marketing costs. My agent was true to his word, and sold the property quite quickly, at $563,000 (July 2001).
That was an excellent result, right?
But here’s the rub. Other houses (highly similar) in the estate sold in mid to late 2003 for around the $900k mark. So the property’s value had doubled in approximately 3 years, and I had missed out on most of this capital growth at the time because I had sold!
The two real estate mistakes I wish I avoided and suggest you always do?
- Get an independent, professional opinion of value.
- Don’t ever sell.
Not doing these are the biggest real estate mistakes you can make.
Ok, both of these points need some elucidation.
In my scenario, getting a good independent opinion could potentially have made a world of difference. I have no knowledge of the details of the specific valuation. Now, it is true that bank valuations can lean to the conservative side (yes, I now have intimate experience of performing bank valuations) – and fair enough, banks need to control their risk.
But $440,000 versus $563,000??
Seriously, that smells of just plain incompetence.
On receiving the bank’s feedback, I should have employed a good valuer on my side to do a professional, unbiased assessment. And then go back to the bank with the information. I did not actually want to sell at the time, I just needed to draw some funds out of equity. With a proper assessment, I would have been able to rectify things at the bank (or alternatively, gone to another bank), and ended up with the ideal result of borrowing the needed funds and keeping the property.
There are other circumstances where a proper, unbiased assessment can be even more critical. For example, when buying or selling a property. Mainly, when you are not familiar with the market you are buying or selling in; e.g., you live elsewhere. Even if you are a local, it is entirely possible that you could spend a couple of hundred dollars on a professional assessment and save many thousands by not selling too low or paying too much.
Never sell?
Ok sure, there are circumstances where onehas no other choice. At times like these, you just have to sell and move on. But there are many, many instances where property owners sell to realise a profit when they had a choice in doing so.
Hold on to property wherever you can. Leverage your equity if required. It is time in the market that counts. Holding on to property can make you financially independent. I dearly wish I still had the properties I previously owned.
