When is paying too much not really paying enough?

Post auction on the weekend I was approached by a couple who were a little shocked at the sale price of the property.

We’d had a chat about the price of the place before the auction started and I had told them I was a professional buyer, so after the fall of the hammer they wanted my “professional” opinion on whether the new owners had overpaid or not. (The couple I was speaking to obviously thought they had).

First thing to remember is that if you have more than one ACTUAL bidder at auction, then the price at which the hammer falls is actually the market value of the house- The value determined by public auction on the open market- You can’t argue with what the market determines the value of a property is regardless of what you wish it was.

The next thing to keep in mind is market movement. I’ve watched a suburb that we have been interested in jump in price from approximately $450k to just under $600k in the last 10 weeks. Awesome movement if you saw it coming, not so good if you are chasing the suburb now. Let’s say, during that meteoric rise you really believed things were going to boom, so instead of stopping the bidding at $450k you pushed things another $10-$15k, would you be overpaying? It is $15k over market odds at the time.

If you had taken that punt, then I’m guessing people would have called you crazy on the day. Yet 10 weeks later, you are a genius, having paid $465k for something worth $600k. It’s speculation like this, and volumes of transactions in an area, coupled with profiteering from vendors in suburbs benefiting from the property “ripple” effect that drives pricing.

Getting ahead of this wave, even if it costs you a little more than it should at the time, is the hallmark of a smart investor. The thing is, only time will tell if you did spend too much or snap up a bargain.