HDB valuation: How agents get buyers to bid above a resale flat’s true market value

With HDB resale prices finally looking set to rebound in Q2 2018 after falling since the 4th quarter of 2016 (according to HDB’s Resale Price Index), we’re hearing more cases of resale flats meeting or even selling above their eventual HDB valuation.

As a resale flat buyer, your aim is to not sign an Option to Purchase and pay the deposit (option fee) with an agreed-upon offer that later turns out to be over the flat’s valuation, even if you are really interested in the unit. This is especially important because you have to pay cash for any amount exceeding the valuation (the amount cannot be covered by the home loan you’re taking). If you decide to back out after the HDB valuation, you lose the option fee you paid.

So, as buyers, how do we minimise the likelihood of paying above HDB valuation?

To help you do this, we’ve spoken to a few seller agents that closed deals above HDB valuation (i.e. the valuation of the resale flat turned out to be higher than the agreed-upon price) to learn how they did it. Read this before you look, and you might just save yourself a lot of money.

1. Property agents can quickly find out how much of an “investor” mindset their buyer has

Say you, the buyer, start negotiations by pointing out the prices of nearby units, which you’ve thoroughly researched. You also show a willingness to abandon some of your stated requirements (e.g. close to a certain school, preference for units not facing MRT tracks), in exchange for a better price.

This will identify you as a buyer who’s more focused on making money or getting value from your flat — rather than just living there. You’re less to be shown properties where the seller wants an unusually high price (that’s higher than the eventual valuation), as the agent knows you’re not agreeable to that.

On the flip side, say you start negotiations with living requirements. You also clearly prioritise amenities ahead of price concerns. For example, you show that the interior decor or proximity to the neighbourhood mall excites you, and you don’t even seem to register that the listed price of the flat you’re viewing is above that of neighbouring properties.

Doing so identifies you as a true home buyer who’s more focused on lifestyle needs than, say, selling your flat for a big profit later. You can expect to be shown units with nicer renovations or finishing or nearer to amenities — cases where the seller is to seek a profit overvaluation.

This isn’t some kind of scam. Rather, this is a property agent who’s responding to your priorities. If you obviously value comfort over price, then you’re more likely to end up viewing homes where the seller wants an above-average price.

2. Some agents know how to use scarcity value for good leverage

One of the key advantages of resale flats is scarcity. For example, some older types of flats, such as maisonette units, are no longer being built.

More commonly, resale flats have scarcity value from their location. In mature (and hence convenient) estates like Tiong Bahru or Marine Parade, resale flats are in high demand — many people want to live there, and it’s highly unlikely that BTO flats will be launched in the area.

As a buyer, due diligence here comes as checking the availability of the resale flat type, and other resale flats in the area that’s near to your shortlisted unit. (You can do this on 99.co with its interactive search filters such as enlarging search radius by mouse drag.) If you see there are few or no similar options other than your shortlisted choice, brace yourself as scarcity means that the chances of you having to pay above the eventual HDB valuation is higher.

Psychologically, don’t rush to accept a higher price just because of the flat’s rarity. As buyers, we place irrationally high values on things that are “running out” or of drastically limited supply. That’s how we end up queueing for hours just to buy McDonald’s Hello Kitty toys.

In short, the key rule of buying property is to exercise patience. The less urgent you make it on yourself, the less you are about to overpay.

3. You skip having your own agent, despite not doing your homework

This is just asking for it. As a buyer, take either of these options: (1) have your own agent, whose commission is often paid by the seller anyway, or (2) do your homework and know the prices in the area. You should know prices down to individual blocks, which isn’t hard these days. Just check online using HDB Map Services. On a 99.co listing for a particular block, scroll down to find past transaction prices for units in that block.

If you decide on neither option, you’re buying blind. You may think you’re putting up a tough negotiation with the seller’s agent, only to discover later that your accepted offer is way higher than the HDB valuation. (Again, the excess amount over valuation must be paid in cash, and cannot be covered by your home loan.)

Remember, the seller’s agent has an obligation to get the price the seller wants — and if they persuade you to agree to it, you can’t complain. That’s their job.

4. You give away too much about your personal situation

Tell a property agent all of your needs (to make sure they can find the right property for you). But there’s no need to give away too much about your personal situation, especially to a seller’s agent.

For example, if we’re looking for a new flat because we’re looking to cash in on a current flat at The Pinnacle@Duxton, we’d refrain from revealing that detail. A statement like that suggests you have money to burn, and you may be shown the upper-end of properties (by “upper-end” we don’t mean more luxurious, we just mean properties where the seller is demanding more).

You may also want to avoid stressing how badly you need the house before you strangle your in-laws, or how you’re having to delay your wedding until all of “this” is over.

When you reveal desperation, the seller, or seller’s agent, is inclined to start at a higher asking price.

5. You’re too shy to negotiate

Have we got any young readers out there? At the risk of sounding like your dad, here’s a bit of useful advice that goes beyond property:

Your success in life depends on the number of awkward conversations you’re willing to have.

If you’re too shy to negotiate, or you just hate the hours-long haggling (common among introverted buyers), you’ll pay more than you have to.

When agents put out the anchor price (the first price they throw out), they expect it to be bargained down a bit. There’s often an amount of “give” in the initial asking price. But you need to actively negotiate to see how far down you can get it. And it can be a long grind; don’t expect all agents to instantly give you the best price within minutes of talking to you.

So, when buying a resale flat, always put yourself in a strictly business mindset. If it’s an energy issue (you find it too draining to haggle), then get yourself an agent to represent you.

If you don’t, and don’t pay attention to the above pointers, you might have to endure a rude shock after getting the HDB valuation report. Finding out that you’ve to fork out tens of thousands in hard-earned cash above the valuation amount, or having to lose your deposit, is something no homebuyer wants to experience — so bear these lessons in mind to make sure the search for your new home doesn’t leave a sour taste in your mouth.

Do you have other tips to share when buying your HDB flat? Let us know in the comments section below. 

If you found this article helpful, 99.co recommends 3 questions first-time HDB resale flat buyers must answer and 9 biggest time-wasters when buying a resale flat.

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