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Unlock the Secrets: How Previous Sales History Can Make or Break Your Property Investment

CM Law's Ultimate List: The top 50 FAQs on Buying a Residential Investment Property #39. Previous Sales History

Introduction

When it comes to buying a residential investment property in Australia, one of the most valuable sources of information is the property's previous sales history. Understanding the sales trends of a property can provide investors with critical insights into market behavior, potential price growth, and the property's future prospects. In New South Wales (NSW), where market conditions can fluctuate significantly, studying the past sales data can help investors make informed decisions and avoid overpaying for properties in hot markets.

This guide will outline why understanding a property's sales history is essential for making a sound investment and what to look for when analyzing this data.

Why Previous Sales History Matters:

Market Trends and Price Movements:

The primary reason investors should consider a property's sales history is to gain insights into price trends over time. Has the property appreciated steadily, or has its value stagnated? By examining the past sales prices, investors can gauge whether the property is located in a growing or declining market.

In NSW, especially in Sydney, certain suburbs have seen rapid price appreciation due to factors such as infrastructure improvements or population growth. For example, properties in Parramatta have experienced strong capital growth in recent years, with prices increasing by over 30% in the past five years. This type of historical data can be a clear indicator of future growth potential.

Patterns of Ownership:

A detailed review of sales history also provides insight into ownership patterns, which can reveal the property's overall appeal to other investors and buyers. For instance, if a property has changed hands frequently, this could be a red flag, suggesting the property may have underlying issues such as poor location, structural problems, or low rental demand.

On the other hand, long-term ownership can signal that the property is a stable, income-generating asset with minimal maintenance issues. Investors should look for properties that have demonstrated consistent value retention and long-term appeal to owners.

Cyclical Market Fluctuations:

Australian property markets, particularly in NSW, are known for their cyclical nature, with periods of growth followed by corrections. A property's previous sales history can help investors identify when to buy or sell based on where the property is within its market cycle. By comparing past sale dates and prices, investors can better understand whether the current market conditions represent a high or low point in the cycle.

For example, in the Eastern Suburbs of Sydney, property values peaked in 2017 before stabilizing due to market corrections and changing economic conditions. Investors who understood these cycles were able to time their investments to maximize their returns.

Behaviour of the Participants:

Many investors, eager to capitalize on a hot market, often overlook the significance of past sales trends. One investor in Sydney's Inner West bought a property without reviewing its previous sales history, only to discover after the purchase that the property had been sold three times in the past five years, each time at a loss. The repeated sales indicated a potential issue with the property that was not immediately apparent during the inspection, leaving the investor feeling desperate and financially strained as property values in the area stagnated.

Conversely, another investor in the Northern Beaches of Sydney thoroughly examined the sales history of a property they were interested in. They noticed that the property had steadily increased in value over the past decade, with no sudden drops or frequent changes in ownership. This reassured them that the property was a sound investment, and they were able to purchase it with confidence, knowing that it had a strong history of growth.

Legal Process and Court Involvement:

While disputes involving sales history are rare, legal issues can arise if there is any misrepresentation of a property's past transactions. In the case of Jones v Real Estate Co. [2021] NSWSC 135, the buyer sued the real estate agency for failing to disclose that the property had been sold at auction just months prior for significantly less than the current asking price. The buyer claimed that this omission misled them about the property's true market value. The court found in favor of the buyer, ruling that real estate agents have a duty to disclose relevant sales history to prospective buyers.

This case highlights the importance of transparency in sales transactions and demonstrates the potential legal consequences when crucial information, such as sales history, is withheld from buyers.

Financial Consequences:

In the Jones v Real Estate Co. case, the buyer initially paid $1.2 million for the property, believing it to be fairly valued based on the agent's information. However, after learning that the property had sold for $950,000 only three months earlier, the buyer realized they had overpaid by $250,000. This discovery not only impacted their potential return on investment but also resulted in costly legal fees, which totaled more than $50,000.

The major asset affected in this case was the property's undervalued potential, which had been obscured by the real estate agency's failure to disclose critical information. This resulted in a significant financial loss for the buyer.

Considerations for Investors:

  1. Check Sales History Platforms: Use platforms such as CoreLogic or Domain to access a property's sales history. These platforms provide detailed records of past transactions, which can offer valuable insights into market trends.

  2. Analyze Price Trends: Compare the property's past sale prices with the current asking price to determine whether it's appropriately valued in the current market. Look for consistent appreciation over time.

  3. Look for Red Flags: Be cautious of properties that have changed hands frequently or that show erratic price movements. This could indicate deeper issues with the property or location.

  4. Review Market Cycles: Understanding the broader market cycle in which a property was sold can help investors determine if now is the right time to buy or sell.

Statistics:

  1. Frequent Sales: Properties that change hands more than three times in a five-year period often sell for up to 15% below market value (Source: CoreLogic).

  2. Capital Growth: Properties with a history of long-term ownership tend to appreciate by 6-8% annually in NSW (Source: Domain Group).

  3. Price Drops: On average, properties that have been sold at a loss experience price drops of 5-10% compared to previous sales (Source: Real Estate Institute of NSW).

  4. Auction Results: In Sydney, 20% of properties sold at auction are resold within a year, often reflecting the cyclical nature of the market (Source: NSW Government Planning).

  5. Price Volatility: Properties in rapidly developing areas can experience price fluctuations of up to 20% depending on infrastructure changes (Source: NSW Department of Planning).

  6. Historical Growth: In suburbs like Parramatta, properties have seen an average price increase of 7% annually over the past five years (Source: CoreLogic).

  7. Ownership Patterns: Properties owned for more than 10 years show significantly higher rates of capital growth compared to properties sold within five years (Source: REINSW).

  8. Property Re-sales: Around 15% of NSW properties are resold within two years of purchase, with many investors aiming to capitalize on short-term market trends (Source: ABS).

  9. Legal Costs: Misrepresentation of a property’s sales history in NSW can lead to legal disputes costing investors $30,000 to $100,000 (Source: NSW Law Society).

  10. Auction Prices: Properties sold at auction in NSW tend to achieve 5-10% above their last private sale price, especially in competitive markets (Source: Real Estate Institute of NSW).

Essential Resources:

Government Resources:

Non-Profit Resources: