Property buyers are missing out on thousands of dollars in savings when adding to their portfolio by accidentally skipping a key step in the process, a finance expert has claimed.
Daren Crawford from Brisbane-based Trademark Finance said too many investors are failing to get pre-approval for finance before making an offer on a property – costing themselves time and money.
Mr Crawford said having pre-approval gives buyers huge bargaining power and could lead to a significant reduction in the purchase price, but many buyers are unaware of its importance.
“A vast majority of buyers in Brisbane – I’d say up to 80 per cent – don’t have pre-approval when they make an offer to buy a property,” he said.
“Most operate on a buy first and secure finance later policy, but it’s actually much smarter to do it the other way around.”
Mr Crawford said aside from the obvious benefits of pre-approval – such as knowing what you can afford and being ready to go when you find the right property – investors who were prepared also had far greater bargaining power.
“… having pre-approval means you have greater bargaining power, so when you do make an offer to purchase a property you can make it with a seven-day finance clause rather than 21 days, which will be a very attractive proposition for a seller," he said.
“If a seller has multiple offers they are more likely to accept the one that has the shortest closing period, and they’re more likely to accept a lower offer if they know finance is virtually guaranteed, since it gives them certainty.”
In the Brisbane market in particular, Mr Crawford said investors with this bargaining tool in their arsenal would start to surge ahead of other buyers.
“There has been a great deal of commentary around the Brisbane property market, with predictions of good growth to come, and despite the fact prices haven’t moved upwards substantially yet, sellers have raised their expectations around what they can achieve for their property,” he said.
“Since it’s no longer a buyer's market, buyers don’t have much bargaining power, but pre-approval can give them some power back. It can help them negotiate a lower price as they’re able to settle on the property faster.”
According to Mr Crawford, some buyers have saved thousands of dollars on property purchases by ensuring they had pre-approval in place before making an offer on a home. The process, he said, should be relatively simple.
“It’s really so easy to get pre-approval – the process only takes 48 hours, especially if you go to a reputable broker who has good connections with lenders – and once you have it, getting finance for a purchase really only hinges on a valuation,” he said.
“Without pre-approval there is a huge risk that the property purchase may not be completed. So many deals fall over due to a failure to get finance. Many buyers simply think that they’ll make an offer subject to finance, assuming they’ll automatically get it, but that’s not necessarily the case.
“Even if they can get finance after they’ve had an offer to purchase accepted, from the outset, they’re a week or two behind in the process than someone who already had pre-approval.”
Mr Crawford reminded investors that once a borrower has pre-approval it remains current for between three and six months and can easily be updated after that period of time.