Everyone loves a bargain, so it’s clear to see why the idea of purchasing property at a (sometimes steep) discount is a temptation to many.
Below market value properties can be a great opportunity for many buyers. The term itself refers to properties which are currently listed at a price lower than their original market valuation.
But wait! This type of property isn’t always what it seems. Let’s explore some of the important facts related to buying property that’s below market value (BMV).
Why Are Properties Sold Below Market Value?
In many cases, properties are sold at below market value because the seller wants to make a quick sale.
This might be because of financial reasons such as a need to free up cash, or a property developer looking to accelerate unit sales in a particular development.
It could also simply be a personal decision that a homeowner wants a sale completed quickly to move on with another aspect of their life.
Why Buy Properties That Are Below Market Value?
Buying a house is a big and exciting investment opportunity, but for many people, it’s also one with which they hope to earn valuable returns.
If you’re gonna be purchasing a property for a price that’s lower than the current market value, you’ve already made a great first step in realising a financial return on your investment!
Sometimes Below Market Value Isn’t What It Seems!
Not all below market value properties are created equal.
Secondary market property could be sold below market value due to a particular financial need or personal circumstances, but that’s not the only reason.
BMV could represent certain problems or flaws with a particular property, whether that’s expensive repair needs or a location that’s shady, dangerous or undeveloped.
It’s important to find out why a property is BMV as part of any purchase. BMV properties also exist in the primary property market of new units and fresh developments.
So, why is that the case? Below market value sales tactics can actually be a trick used by some sellers to entice potential buyers.
You see, the market valuation that a property is assessed against, is often taken at a particular point in time.
If there’s a drop in the local property market, then prices in an area may fall too.
Unscrupulous sellers then market their home as ‘below market value’, since the price they are asking is actually below that of the original valuation.
Therefore, if you compare the property against the local property market, there’s a good chance that the price they’re listing for would match, or is even higher than, the fair price represented by market conditions.
If the original launch price of a new development is significantly inflated, this can also lead to potentially misleading marketing of BMV properties.
A Summary Of The Benefits Of Below Market Value Properties
There are clear benefits to purchasing a below market value property. Here’s a quickfire summary:
1) More Bang For Your Buck
You can afford a potentially better property than your funds might have otherwise been able to purchase.
2) Lower Loan Requirements
Reducing the price of a purchase often means reducing the amount of your home loan.
Since that payment is ultimately paid back with interest, below market value properties could save you more than just the original price difference in the long run.
3) Better Capital Growth
Since you’re starting with a purchase price below the true market value, you’re potentially benefiting from an immediate capital appreciation represented by the difference between the price you pay, and the true market value.
4) Better Potential Rental Yield
Rental yield is calculated by comparing the purchase price with the rent a property would bring in.
Since the quality, and thus potential rental price, of the property is the same no matter the price you pay, paying less means an improved rental yield from the start.
A Summary Of The Challenges With Below Market Value Properties
Some deals really are too good to be true, and that can be the case with below market value properties:
1) Potential Problems Behind Valuation
It may be there’s a reason behind the significantly lower valuation which you aren’t aware of, such as poor infrastructure, hidden faults, or an undesirable local area.
2) Can Be A Sales Trick
The BMV tag can sometimes be a sales trick used by unscrupulous sellers to entice you to buy.
3) May End Up Paying More
If you don’t pay attention to current market valuations for similar properties, the BMV tag could actually mean you end up paying more.
How To Find Below Market Value Properties?
Individuals and developers selling below market value property do so for a reason – to encourage potential buyers to take a look. That means BMV properties are normally clearly marked.
If you want to find below market value property online, the best way is to use simple search terms and filters to discover these properties.
There are currently over 26,000 properties that carry the tag ‘below market’ on PropertyGuru, as of 6 March 2023.
Be aware that some people use the phrase ‘below market price’ instead of ‘below market value’, so try using similar terms to find the greatest number of properties available.
How Can You Determine The ‘True’ Market Value?
If you’re worried about the actual market value of a property, it’s important to do your research and check to see what you can find.
1) Ask The Seller How They Defined The Market Value
It could be the market value is months or years out of date. That’s a clear sign that not all is as it seems when it comes to market value.
2) Research Current Market Trends
Explore market trends within the area to help understand how property prices might have changed in recent years.
3) Compare Similar Properties
This is a particularly helpful step if you’re looking at condos or apartments in a large complex. Take the time to compare the price asked against similar units within the development.
If the property is more unique, such as a bungalow or semi-detached, there’s still likely to be some helpful insight found by comparing against other properties in the same neighbourhood.
4) Explore The Property In Detail
If you’re thinking of buying a below market value property, be sure to explore the property’s insides as well, especially if it’s in secondary markets.
That means looking beyond first impressions to check fittings, look inside cupboards, even ask neighbours or explore the neighbourhood if you want to go that extra mile.
5) Work With A real estate agent you trust
Real estate agents are professionals with extensive knowledge of property markets, more so if they’re a specialist in a particular area.
Working with a real estate agent you can trust is a good way to get informative insight on the true market value of property.
6) Ask For A Copy Of Valuation And/Or A New Valuation
If the developer or seller really wants to sell, they should be open about valuations. Ask for a copy of the valuation, and if you’re not sure, request for a new valuation to be undertaken.
If in doubt, check with the Board of Valuers, Appraisers, Estate Agents, and Property Managers to ensure the agency carrying out the valuation is properly accredited.
Adding Value To Your Below Market Value Property
The great thing about a true BMV property is you’re already enjoying a healthy capital appreciation at the point of purchase.
If you pay RM250,000 for a property that’s worth RM300,000, you’re technically RM50,000 up on your investment from the start.
But there are other things you can do to improve your property’s value like renovating, redecorating, improving fixtures, enhancing outdoor areas, and a range of other possibilities!
When it comes down to it, below market value properties are an important part of the property market.
They help people who genuinely want to sell quickly, while buyers enjoy a great opportunity to purchase property at a very fair price.
Just be extra careful and consider the pros and cons before you sign on the dotted line.
If you’re looking for a great bargain, or simply want to explore what below market value might mean in your area, why not explore the thousands of below market value properties that’s available?
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.