I'm considering buying a section to build my 1st home on (the city I live in is crazy competitive and expensive due to a major earthquake 7 years ago on top of NZ's already bonkers real-estate market, though it is settling down a bit lately).

I've seen a section through a real estate mobile app that also lists previous sales for property listings. The section was sold at $57k in March 2016 and is now being listed for offers over $120k.

The current price lines up with the market in the area, but it seems mad to me that a small section in a not-that-great part of town can almost double in value over a year.

Is it wise (or even, not totally stupid) to throw out a low-ball offer around $70k just based on this sale price from a year ago?

  • Please define what a "section" is in New Zealand - in the US it's one square mile, or 640 acres. If you can get that for $120K in New Zealand, I'm immigrating :-) – jamesqf May 30 '17 at 4:11
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    @jamesqf: You can get 640 acres for under USD 120K right here in the US - heck, there are even listings for under NZD 120K. Granted, it won't exactly be in a city... or, say, within several miles of any road... – Nate Eldredge May 30 '17 at 5:29
  • @Nate Eldredge: Well, I'd regard not being in a city as a distinct plus :-) But I would like it to have water, trees, and if possible mountains. – jamesqf May 30 '17 at 18:25
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    @jamesqf In NZ a section is basically any land that the local council will allow you to sell on it's own. Most of them are between 250 to 400 Square Metres. This particular section is about 200 sqm and is one of the cheapest in the city. – Wompguinea May 30 '17 at 21:46

The risk in throwing out a low-ball offer in any negotiation is that it may indicate that you aren't serious / aren't aware of the true value of what you're trying to buy.

If you went into a car dealership and saw a car with a $15k sticker price, and offered $5k, the salesperson might view you as a waste of time, and not properly engage. On the other hand, if you truly know the value of the car is $11k, and you offer a price of $10,500, the salesperson might see that your offer price is close to what the dealership wants, and could work to get you the rest of the way there.

In real estate, the additional complication is that, depending on jurisdictional regulations, often multiple offers are given privately to the real estate agent, who passes the information on to the buyer. If you could see that it was a slow day at the car dealership and made a low offer, the above salesperson might still entertain you because you're the best shot of a sale they have at the moment. In a real estate transaction however, you might not even know how many real offers are happening at the same time. Instead of counter-offering, the land owner might just ignore your bid entirely.

So the question is: would your offer be so low that the seller would just ignore you? And as a follow-up, how much would you actually be willing to pay, if you were forced to go that high?

Ultimately the price of anything is what the purchaser pays for it. If there are a lot of comparables for that thing, then you can easily determine what the price 'should' be. But real estate is not fungible; there may be close comparables, but no exact matches. This means that it can be very difficult to determine the value of property, and the value to you might not be the same as the value to the seller. For example - does the acreage have good public access to nearby grazing properties? If so, it has increased value for someone who keeps sheep [or who plans to sell to sheep herders in the future], but no increased value for your personal use.

So, if the value of the property to you for your use is only 70k [perhaps you'd go as high as 75k, but you want to leave yourself some negotiating room], and if you wouldn't ever go as high as 150k, then having the seller walk away means nothing to you. But if you would otherwise go as high as 140k because that's what the property is worth to you, then you may lose your shot by starting so low.

Can the land have increased in value so much over a year? Maybe, particularly if improvements were made, or if access to the land changed in the interim. Maybe the last seller was very motivated to sell, and couldn't wait for a proper offer. But ultimately the price 1 year ago doesn't impact the value today, except as a possible indicator of a near-comparable property. The real question is how much you're willing to pay for it, based on current comparable properties today.

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  • Thanks for your advice, as to your last point... yes and no. New Zealand has one the highest rates of property price increases in the OECD compared to wages, with our largest city Auckland recently rated as unaffordable as London. Property is viewed by many as a stable long-term guaranteed return which shafts first home buyers like myself. A tiny residential section shouldn't double in a year, let alone be $120k, but that's what NZ is like since the '08 recession. – Wompguinea May 30 '17 at 21:52
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    @Wompguinea What things "should do" doesn't always impact what they "actually do". If the fair market value of the land is $70k, as defined by the fact that there are many neighboring, near-identical properties selling for $70k, then $120k is overvalued. But ultimately the seller holds the power, if they want to wait to receive $120k. Besides that, the real estate market 'overall' is not the same as 'price changes for a specific property'. The land may have been underpriced before, and improvements may have been done, or something very specific to that area may have increased its value. – Grade 'Eh' Bacon May 31 '17 at 13:19

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