The buyer with the most money doesn't always win: Mal James

The buyer with the most money doesn't always win: Mal James
Mal JamesApril 30, 2013

We got a letter recently from a woman who wanted to engage us to buy a family home, but whose husband was sceptical about whether it would be worthwhile.

“My husband says I am crazy to think about engaging a James Buyer Advocate when all deals are about is 'he who has the most money wins',” she wrote.

The idea that whoever has the most money always wins the deal is a common line of thinking – but it’s not actually true.

Over the last five buying weeks in a very competitive market in early 2013, we have bought 90% of the 22 homes we have gone after at auction and private sale and expressions of interest, the large majority of which have been over $2 million.

That figure should be balanced with the fact we have pursued less than 5% of the more than 300 homes we have assessed – which is the time to say no to price. So these were properties we and our clients were confident were worth the price we felt they were going to achieve.

But in each of these negotiations there were others who were also prepared to pay around that price.

So – are we just lucky that we were hired by the people who had the most money on almost every home?

No. The truth is that most buyers have around the same resources when they go after a home. Most people looking at $3 million homes have got around $3 million to spend, and most $5 million homes have $5 million buyers looking at them and so on.

So if buyers for a particular home are generally prepared to commit around the same resources, then the argument that the one with the most money always wins doesn’t quite hold water.

In fact, in our experience in buying over 1000 family homes, how much money you have is around number 7 in terms of what determines whether you get to buy the home you really want.

Here are the others:

No. 1 – Relationships

Successful deals depend on your relationships with the agents you are dealing with – how long you have known them, whether they “own” you or whether you are “owned’ by another agent, and whether you have a house to sell yourself.  Many of our relationships with agents are good, solid, professional ones that are into their second decade. You as a buyer may struggle to make up the ground against a competent advocate or a more qualified buyer with one or two open for inspections, a phone call and an email or two – no matter how smooth or smart you are. Off-market sales are further evidence of the need for good relationships.

No 2 – Preparation

What do others think the home is really worth i.e. other agents, the vendor, and the market? Who is your real competition? What are the issues connected to this home – our favourite catch cry is “no surprises in negotiations”. Buying a home is all about doing the preparation. Not to mention legal, council, architectural and building inspections and so on.

No 3 – Understanding Processes

Rarely does anything run entirely to a plan. You need to be able to second-guess what may happen in a. If you don’t know how the other side works then you won’t know when to zig and when to zag in that very real game that is “dealing with agents”. The number of buyers who think buying a home in Melbourne is the same as buying at a lower price range or in a different area is surprising. Normally it takes those buyers a few misses before they get an idea of how things really work. At the  when good stock is tight this can mean years of searching, or worse – missing out on what you really want.

No 4 –  of Purpose

When the going gets tough you need have the mindset to get going – especially on the good homes in . You need to have a clear focus on your desired outcome. Determination will win out over money any day – it’s the same in  home buying as it is in life. And for many, Clarity can only come with assistance and guidelines.

No 5 – Strategy

In a number of deals we had exactly the same resources as the other side. Sometimes they were also represented by advocates, but their strategies resulted in missing out on the purchase – especially when it came to situations like boardroom auctions. We have been successful in the last dozen or so boardroom auctions, ranging in amounts from $2m to over $10m. Why is that? It can’t be money alone, given that we have faced more than 30+ opponents during that time. Our clients can’t have had more money than all of them. It’s the same with Expressions of Interest. If you enter an EOI negotiation thinking it’s just a matter of opening your chequebook that is naivety in the extreme. And if you think that strategy at auction is irrelevant – let’s be clear: having bought hundreds of homes at auctions, I can tell you absolutely that that is a false statement.

No 6 – Will and 

Many people could make the putt Adam Scott made to win the Masters – but how many would have known how to get there and hold their nerve on the once-in-a-lifetime opportunity, on that specific green and at that specific time, when there was no second chance?  In home-buying, there may be another, but the fight will still be as hard and the prize won’t be the same.

Our clients hold their nerve – they do so through clarity and through natural inner strength. This happened in two recent high profile boardroom auctions, and at an auction in  last Saturday when our clients held their nerve at $4.3 million in front of nearly 300 people with three bidders over $4 million proving the true market against the quote of $3 million.  Experience in these situations is worth more than money.

No 7 – Money

How much money you have is important. And yes if you’re prepared to spend $5m on a $3m home then you will often buy it – but the chances are you won’t keep that $5m for long if you make too many decisions like that.

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.

Mal James

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million.

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