According to our research more than 8% of all South African homeowners with mortgage bonds are still underwater with their loans (where balances are higher than values), hinting that there are more distressed sales still to come. In effect, this will continue to restrain price growth in some areas, and create major constraints for certain sellers in 2012.
So, if it’s still a buyer’s market here are 5 tips for 2012 that are aimed largely at the group that needs the most advice – South African home-sellers. In addition, there are also five tips to help buyers navigate the surplus of investment opportunities available.
1. Price your house right from day one
The old-school strategy of real estate crossing their fingers and hoping for a better offer, whilst starting at a higher mandate, will be brushed off by most home-buyers. For an objective gauge, have your estate agent produce the latest comparable sales, including distressed sales and sales in execution in your area as well as a recent summary of sales prices versus original list prices. However, be aware that this information doesn’t reflect the homes that failed to sell. Also, do not rely on a small sample of one or two homes.
2. Play nice
As a seller today, you need buyers far more than they need you. The days of the arrogant seller is well and truly over if you want to sell that is – you have to be ready to not only negotiate price but offer extras such as improvements (or a cash discount), appliances, a few months of bond payments or even seller financing which is a growing trend. Home sellers who’ve been quietly sitting on the sidelines advising their agents to ignore low offers simply don’t have that luxury now. Instruct your agent to listen intently to prospective homebuyers’ misgivings about the home and seriously consider adjusting your price accordingly.
3. Don’t fall for distressed seller schemes
Fraudsters are targeting distressed homeowners with “deals” that can sound perfectly legit. Many of these fraudsters were the same ones getting buyers into the boom market. Some offer loan modifications for upfront fees while others offer fee-based “help” in navigating bank sales assistance programmes, sometimes claiming they’re attorneys. There are also con-artist “investors” compelling desperate owners to sign over their homes with empty promises that you can remain in the property indefinitely. Others are telling former owners they can get their homes back for a lump sum. Be forewarned: never sign blank documents or documents with blank lines. If you’re unsure of an offer, have independent attorneys look carefully at these offers.
4. Buyer financing
Realise that it’s harder to qualify for home loans these days. Credit records are under greater scrutiny, and lenders are often demanding a minimum 10% down payment and some pricing flexibility from the sellers, especially if the bank valuation doesn’t reach the selling price.
Consider cash offers, even if they’re not the highest. Reject offers that are too-low, gently and with encouragement, telling them they’re close. You don’t want to give away your house but you don’t want to give it back to the bank either. These days, meeting halfway usually means meeting buyers on their half.
5. Get involved with your agent
Estate Agents often advise sellers to retreat from view during show houses in case they disclose something unpleasant that could ruin the deal – that’s now changed. If you can control your ego and emotions and come off as a keen, realistic and flexible seller you are a far better spokesperson than your estate agent. Be ready to answer would-be buyers’ questions about the neighbourhood and schools in the area, but be careful about making verbal promises or getting into legal discussions.
Here’s some advice on how best to operate in a buyer’s market.
1. Widen your market
There is still an overabundance of well-priced housing inventory out there, which means you needn’t immediately narrow your search to the first house you fancy. That’s especially the case with distressed sales, which can be a nightmare to close in a timely manner. There are some for-sale deals that need only a little polishing while others need substantially more. Therefore, it is best to shop around. Don’t dismiss insolvency sales or other bank properties, sales in execution, auction homes, for-sale-by-owner or lease-to-own homes. Pick at least three favourites and work from there.
2. Be wary of valuations
Are you perplexed by the home valuation your bank or agent did when they are both reputable organizations? Or are you puzzled how that bank valuation can be 25% or more above or below a very recent valuation you’ve had done? Well, value estimates can vary widely, sometimes by hundreds of thousands of Rand, even by the admission of the companies themselves. There are way too many variables in the valuation game to give too much credence to estimates that are impersonally calculated. Nothing beats a nuanced up-to-date professional valuation done by three to four highly reputable companies.
3. Buyer’s due diligence done properly
Due diligence on a potential property means so much more than going through the motions with the usual contracts, financial details and electrical compliance certificates. It is possible to negate substantial risk by doing a thorough inspection of the property, and if you feel unqualified or inexperienced, it is advisable to hire a property inspector to do this on your behalf. Ask them to check for;
• Unpermitted work such as illegal room additions and garage conversions.
• Consider the overall energy efficiency of the home with an energy audit (a growing trend with escalating Eskom costs)
• Be sure property boundary lines are accurate. If there’s any question, hire a land surveyor to research the original deed and to stake out the property’s lines and your neighbours’ property lines to avoid future disputes.
4. Create a neighbourhood checklist
• Go to the Body Corporate or Homeowners Association and ask to see their financials. (There is no point buying into a distressed building management).
• Spend some time around the neighbourhood and briefly interview neighbours. Determine if there are noisy neighbours, signs of gang activity, nocturnal barking dogs, crime, frequent loud parties and/or suspicious night-time visits. Are there lots of rental homes? Is there a restrictive or difficult Homeowners Association?
• Determine what types of buildings can be constructed on vacant land adjacent to the neighbourhood. This helps avoid unpleasant future surprises. Also, check if there is constant noise from a nearby highway or busy street.
5. Don’t lose the right house because you are being too difficult
Most buyers know that this is their market and timing is great to get into the market, but don’t forget that not every seller is desperate and many will not want to deal with you if you are too arrogant or patronising with your offers. The ones, who don’t have to sell, simply won’t and you could land up being one of those people who never find a house because your offers have been too low. By all means negotiate, but there will come a point that sellers won’t want to deal with you – so be smart about what you offer. Lastly, remember that real estate is a long-term investment, and what may a financial stretch now will, over time, become insignificant if you did your homework on the property.