Buying home during turbulent times (3): Ten mistakes to avoid

Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid


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5. Don't believe seller/ agent's bluff. Savvy sellers know how to create sense of urgency. You will be told despite current economy conditions, another potential buyer is rushing to close this deal.

As buyer, the one who pay money, remember, you make the call. Don't let the seller dictate your pace. When you are in control of the pace of negotiation, you get the fair price you want. When you cannot dictate negotiation pace, most likely this is not a good deal. Forget about the deal.

What if the "bluff" is for real, you ask. I once read "deal of a life time comes every two weeks" from either Robert Kiyosaki or Dolf De Roo. We should not worry about losing one deal. If you are not in a desperate position you have time to explore and compare. See hundred places, shortlist a few "dream home" and negotiate at the same time.

This leads to the next point...

6. You must see more properties and compare

When you have seen sufficient alternatives, you will learn there are many ways to imagine how a dream home can be. It leads to abundance mentality. You will know there are many places as good as the one you are seeing now. There are many places you can design to be your dream home. There are many ways to design most places to become your dream home. You will not stuck your mind to just-this-one.

Once you are exposed to many possibilities of a dream home, abundance mentality kick in. With abundance mentality instead of desperate or just-this-one mentality, you will be more equipped to negotiate. Savvy sellers will sense your solid position (on many options available to you, sensible financial choices, etc.) and become more willing to back down on price.

I was the one reluctant to explore more houses and condominiums offered in the market. I just wanted to get a good place and quickly got it done. We checked less than a dozen of places. The moment we found one good place within, though stretched to the limit of, our budget, we became desperate for this particular place. We were in scarcity mentally. We did not want to lose this deal. The seller's agent held firmed of the property's price (at its ever peak).

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Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times: Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid

Buying home during turbulent times (2): Ten mistakes to avoid

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Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid


Your position

2. Don't stretch to your financial limit

If your financial position is not strong, you are taking greater risk to buy a property during economy slowdown. By stretching to your limit of affordability, you left yourselves no buffer for unexpected adverse scenario, i.e. job loss, interest hike (until recently the central bank reaction to inflation pressure is to tighten monetary policy and increase interest rate) that lead to higher instalment.

We borrowed to our limit to buy our home in 1997. Asia financial crisis changed our view on risk for good. There is no solid ground in the stock market. Nothing is impossible, i.e. free fall of stock market index to 20% or less of original height. The company that I worked for was going through redundancy exercise. We lived through the period with financial fears knowing that just one of us losing our job we would have problem in repaying home loan. We learned, bit our teeth, went through the period safely and repaid the home loan in 7 years. I know I will never want to risk myself in such situation again.

3. Don't be a desperate buyer

Because if you are desperate buyer you cut yourselves from many money saving options, you can be "squeezed" by the seller, you left yourselves with little corner to turn away from a deal and get the best out of negotiation.

We were desperate buyer then because my wife refused to rent, I refused to move in to my in-laws house (lose face ;-) , and give her the power over me), and our earlier home purchase was delayed for about a year and was called off (not approved by local authorities due to developer own problem. Our deposit was refunded). The worst part is the seller agent knew our position.

This lead us to next section on negotiation.

Negotiation

4. Don't show it on your face.

If you like the property, don't show it on your face in front of the seller or his/her agent. If you are desperate to live at this place, don't show it on your face. Working in stock market industry, I used to think there is a fair market price blinking on the wall for anything. I thought mind game or pretensions is unnecessary for negotiation, as there must be a fair market price. I was wrong. The only fair market price in property is how desperate the seller want to sell and how desperate the buyer want this specific property.

We were naive, we wanted to let the seller know that we were genuine buyer and not just tires kicker. We revealed our "desperate" position. We discussed our true likeness or dis-likeness of specific property in front of her. When she brought us to a condominium, she saw the sparkles in our eyes. We did not hide our excitements. When negotiate, we could not reduce a single cent even in the midst of Asia financial crisis. Actually there was no reason for her to reduce the price. She knew how desperate we needed a place quickly, she knew how much we like the property.

We can always be friendly yet tightly guarding our position. Play your cards close to your chest.

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Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid

Buying home during turbulent times: Ten mistakes to avoid

Buying a home during turbulent times?

Share prices are falling. Inflation is rising. Property prices remains uncertain. Financial and banking system have never been seen as fragile before. Job market seems bleak. However, you (and your partner) have decided to buy a place call home. Below are the top ten mistakes you can avoid in buying a home.

We bought our home, a condominium, at the midst of Asian financial crisis in December 1997. The share market had fell by half. Future of property market seemed fragile but had without sign of cracking, yet. We made most of the mistakes listed below. Therefore, despite the economy conditions, the seller's agent was able to hold tight to the price offered. We did not manage to reduce a single cent. Looking back, we were lucky to go through that difficult period. However, if we were not so naive, we could have saved huge.

Market Timing

1. Not now, just delay for a while. In the time of fragile economy and slowing growth, you are taking greater risk to buy a property.

a. Property prices
Property prices may stay or fall further, while it is unlike to go up in near term. If the property prices had not fell or had not fell significantly, it does not hurt just to wait for while (3 - 6 months) and see.

b. Banks are reluctant to lend during this period
Your bank marketing officer assure you that you can get loan for this property. You happily place your 10% down payment to the seller. A week later, the bank credit department reject your loan application. You are left to scrabble for financing or risk losing your 10% down payment. Banks are simply reluctant to lend during economy slowdown.

In other scenario, your bank may want you to pay higher down payment and take less loan.

c. Depends on Central Bank strategies, interest may go up.

After just one year, the property market crashed (selectively) too. If we waited for just a while, we would have paid 30% lower.

We were lucky enough to get a loan during that period as I was working for a financial Group. The bank within the same group has got no problem in lending us home loan.

However, our first few instalments from July 1998 were lower than the monthly interest expenses due to interest rate hike after the loan was approved. IMF, though its aids was rejected by Malaysia government, was preaching for higher interest rates. All Western media was preaching about market forces and higher interest rates. (In 2000 and Today, US Federal Reserve did the opposite lowering interest rates. Western media kept quiet.)

Our loan principal went up for a few months.

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Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid