Who doesn’t love a bargain, right? But when it comes to buying a property under market value or “for a steal”, it’s important to understand why the property is selling relatively cheaply and what the knock-on effect can be for capital growth and future tenant prospects. 

In this post, you’ll learn just a few reasons why a property could sell for a significantly lower price than comparable properties for sale (or those which have sold recently) and why it matters. 

1. Vendor Circumstances

A really common reason for properties to sell below market value involves the vendor’s personal situation or current market conditions. For example, the vendor may be under pressure to sell by a certain date and are therefore more open to accepting a lower price if they can sell on the terms they require.

Similarly, if there is an excess amount of properties on the market that are alike in value and style, this can dilute the buyer pool and put the buyer in a position of power at the negotiation table.

The good news is: situations such as these don’t necessarily imply the property is worth less but do create an opportunity to purchase a property at a discounted price. Cha-ching! 

2. Fixed aspects of the property that lower its value

This is an important point to be aware of as the lower price relates directly to the property’s characteristics that are difficult (if not impossible) to change. This might include but isn’t limited to

• The location being compromised by being on a main road, opposite a train line or close to industrial sites 
• The property being in a high-density development where there are plenty of others for sale and no scarcity in availability
• Poor or limited access to amenities such as public transport or no parking available in populous areas 

Always be extra, extra vigilant if a house seems like a bargain and ensure you’re doing your due diligence to understand why the property’s value is below average.

What does this mean for capital growth?

Put simply, capital growth is your property increasing in value over time. You can calculate capital growth by finding the difference between the current market value of your property and the price you initially purchased it for.

When a property has a tangible aspect that might detract from its value, the pool of people who will consider it shrinks therefore reducing the amount of interest in a sales campaign. Capital growth is driven by demand, and the best way to stimulate competition is to have a property that will appeal to the widest possible demographic of buyers!

When assessing a property, be sure to put yourself in other people’s shoes – whilst you might forgive certain drawbacks in a property, the likelihood of everyone else feeling the same way is diminished.

Future-proof your ability to attract tenants for your property

When purchasing from an investment perspective, it’s also important to consider the pulling power your investment might have in attracting potential tenants. Tenants are generally more forgiving than purchasers given the shorter-term commitments of renting and much less financial risk, however, they’ll still have their ‘deal breakers’.

Whilst you may have bought the property at a great price and in turn expect a higher yield, tenants may only accept the shortcomings of a property at a discounted rent which means you may be faced with a higher vacancy rate or below-average market rent. 

My rule of thumb? If it’s too good to be true, it probably is.

This isn’t to say it’s impossible to snag a deal, however! In a few cases, specifically for people looking to purchase an owner-occupied home, a discounted property may have its merits. For example, if accepting a drawback such as living on a busy road means that someone can buy a property in their preferred suburb, be close to their family or in their desired school zone, it may be an instance where a compromise on capital growth means they can buy in the location they’re after.

In summary, always remember when you buy at a bargain, you’ll most likely sell at a bargain. If your goal is capital growth, don’t let a good deal cloud your judgement as stronger long-term capital growth will always outweigh a short-term discount. 

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Want to learn more? Check out my online course The Property Guidebook to help you buy your first home faster – without the fuss.

If you’re looking for professional support for buying a property, check out my buyer’s advocacy services over at Amy Lunardi Property.