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The majority of buyers know much less than you’d think!

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Given that every other Australian owns property, it can be hard for investors to understand why some people don’t. There is a certain amount of mental tenacity required to ‘decide’ to become a property investor and for some, their naivety about the industry is enough to dissuade them from getting into the property market. Interestingly though, research has shown that many of those who do decide to buy, know much less about the process than you might expect. A property literacy survey conducted earlier this year by Home lender ME revealed a number of surprising realities about Australia’s first home buyers and more experienced buyers that could be inspiring, but are mostly concerning – bungee jumping anyone?

Of the 1,000 Australians surveyed in total, almost 70% of respondents expressed confidence in their financial decision-making capabilities and 50% agreed they understood the processes and costs involved in buying a property. This was not necessarily reflected in their answers however. Both first homebuyers and existing owner-occupiers took part in the survey, but ignorance over certain points or issues did not lie more with one group than the other. It seems many of us suffer from poor attention spans when it comes to finance and figures; as with anything, we pay the most attention to the thing that is either most relevant in the moment, or the easiest to digest and understand under the circumstances. This is where the time worn phrase “I don’t know, he said something about …” comes from.

Before we unpack the results, the greatest revelation was that 61% of those home buyers who completed the survey failed the test – with a fail meaning that less than 50% of the questions were answered correctly. This is not only of concern for the buyers themselves, but for the industry as a whole. It seems buyers are blindly paying hundreds of thousands of dollars towards their investment, with little understanding of exactly what that money is buying them. Not to mention the personal toll this takes, of knowing you have a responsibility and that certain things affect your circumstances, but grappling with anxiety of what that actually means as you listen to the evening news.

One of the simplest ways to become educated as a first homebuyer is to understand the terminology. There are the processes, the products and the general tasks involved in buying and selling a home, and then there are the players. Most aspects of the property market can be put into these categories, making for easier navigation. Processes include things like researching prices, attending open houses, asking agents questions and so on, while products can range from deposit bonds and home loans to insurances and bank accounts. General tasks like conveyancing, building or pest inspections and cooling off periods, can be terminologies first home buyers are unfamiliar with; while finding the right players – agents, buyers’ agents, conveyancers, strata agents, solicitors and so on - when you don’t really know how to play the buying game, can be daunting to say the least.

Lack of knowledge in these areas was evident in the survey results, with 88% of first homebuyers not understanding for example (even though the name could be considered self-explanatory), that lenders are protected by lender’s mortgage insurance, not borrowers. Or that when you buy at auction, there is no cooling off period (85% thought there was); or that you must pay the deposit on the spot when yours is the accepted bid on auction day (78%). Two thirds of homebuyers surveyed could not correctly state what the term conveyancing meant and 63% may have heard of an offset account, but did not know what it was.

It’s not all gloom and dimness however. Of all those surveyed, 90% provided correct answers about stamp duty and who pays it, while 71% understood what having equity in their home means, in practical terms. More than two thirds of people knew how the application of interest worked, over the term of a shorter loan rather than a longer one and the same amount know that banks consider more than just your income when deciding whether to approve your loan or not.

Being literate where finance and property is concerned is a great asset and more easily achievable than you might think. Everyone has their own taste in movies, music and food and it’s the same with finding a way to make learning about the property industry more digestible. There are countless books, TV shows, online videos, gurus, seminars and advisors you can choose from, you just need to find the one who speaks to you in a manner and language that you understand.

Start with some google searching, ask around amongst your friends and family and talk to your local library or bookseller about what’s popular amongst the masses. Author’s like Scott Pape (The Barefoot Investor) and Robert Kiyosaki (Rich Dad, Poor Dad) for example have provided life-changing insights to many. There may be someone else who tells you what you need to know in a way that is more meaningful and accessible to your specific needs. For all the essential resources of your financial life, the Australian Government’s MoneySmart tool provides information and guidance about everything from budgeting and spending to borrowing and superannuation. You can also checkout your current bank’s website for handy hints, product information and online mortgage calculation tools. Most importantly, getting independent professional advice will not only inform you, it gives you the chance to ask the questions you need and if you choose your advisor well, they will know that no question is stupid - if you don’t know the answer.

Download Home Buyers Guide

Read more:

Is now a good time to buy property?

Can you buy a house with your best friend?


DISCLAIMER

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

Tags: buyers, first time buyers

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