When most people think of due diligence they think of pest and building inspections and maybe getting contracts looked at.
As a buyers agency, when we conduct due diligence on a property we will obviously ensure a property is up to standard, however, we are also very focused on whether that property represents good value in the current market.
Over the past two years, we’ve seen some very different types of property markets in what has been a very short space of time.
Looking back to around April of 2020 and most of us can remember that property transactions virtually ground to a halt as uncertainty was as high as its ever been. This was also when the RBA and the big banks famously said property prices could fall by 40 per cent.
Fast forward six months and on the back of the RBA slashing interest rates to 0.1 per cent, property markets around the country were starting to really move.
Towards the end of 2021, most locations had seen some of the best growth in house prices in decades with demand incredibly high and listings well below the five-year average.
Now, in early 2022, we’re starting to see more listings come back into the market and a return to a more balanced marketplace.
One of the key factors we have to take into consideration here is that during each of these phases of the market, doing your due diligence on a property wasn’t necessarily straightforward.
We always aim to buy properties for our clients that represent value and to do that we need to pay the best price we can. When markets are changing rapidly or moving sharply higher, the goalposts can quickly change.
Things like suburb reports that might examine 20,000 homes aren’t really going to be able to give you the kind of clarity that you need to know what’s actually going on.
The most effective way to understand what a certain property market is doing is by looking at comparable sales and seeing what has been selling in that area on a micro level.
When doing your due diligence in the past, it might have been possible to look back as far as six months to get an idea of what a property is worth. With all that’s happened over the last few years, and the way the markets have changed that lookback period has become a lot shorter.
Last year, with properties rising in value so much, even waiting a month could see a property increase in value by 5 per cent or more.
Now with listings on the rise and more choice for buyers, we are now in a stronger position to negotiate and also pick up deals that just weren’t on the table only a few months ago. In the current environment, vendors have to be a lot more realistic with their expectations as the competition amongst buyers isn’t there like it was.
When you’re doing your due diligence it’s really important that you’re estimating the value of a property based on the current state of the market and not trying to compare apples with oranges.
A lot has happened in a short space of time and it’s important to really understand your marketplace and really pay close attention to the micro-movements.