a good time to buy
23 July 2008

It's no secret that the housing boom of the past couple of years has slowed substantially. Rising interest rates, stricter lending policies and declining consumer confidence have all put a damper on house prices and sales. While the consensus view amongst economists, estate agents, bond providers and bond originators is that the market downturn is temporary, it is nevertheless expected to continue until at least late 2009 or the early part of 2010.

The average length of time a property remained on the market has increased by more than 53 percent over the course of the last two years, from 8.1 weeks to 12.4 weeks.  Over the same period the percentage of houses selling below asking price has increased from 54 percent to 83 percent.  So, while in the short term the situation seems tough for sellers it's anything but for home buyers who have some time and funding available. Astute home buyers who are patient can negotiate some pretty decent deals in the current market.

The secret in a market like this is for buyers to take a little time to do their homework. Below are some key ways for buyers to leverage their negotiating power. Before a buyer starts looking around for houses, they should have as precise an idea as possible of what financing they have available for the transaction.

A recent PropertyGenie survey revealed that the majority of homebuyers only do rough estimates of what they think they have available before starting the home-search process. This may have been sufficient in years gone by, but with the introduction of the National Credit Act in mid 2007 and stricter lending policies from financial institutions it is now more important than ever to have as much certainty as possible before starting negotiations to avoid disappointment and a lot of wasted time.

Understand your finances
Getting to know what exactly you can afford is not a particularly onerous exercise. An experienced bond originator — like ooba — can assist buyers with a comprehensive pre-qualification to accurately assess their buying power. An additional upside of doing this work up-front is that once a buyer does find the right home, a lot of the financial paperwork is already underway.

Understand the seller's situation
Having an insight into the seller's motivation for selling can be invaluable when negotiating on the final price. If the owners are under pressure or in a hurry to move, it is more likely that they will accept a lower offer. It could also be useful to understand what the outstanding mortgage (if there is one) is on the property. Especially in instances where the seller is looking to sell due to financial pressures or is looking to emigrate, there can be significant cost in servicing the debt the longer the property remains unsold. Don't be afraid to ask questions both of the seller and the estate agents.

Find out how long a property has been on the market
The longer a property has been on the market, the more likely that it is overpriced for current market conditions. This typically happens where either the seller has unrealistic expectations or is working from a basis of incorrect advice or information.  Over-pricing a property is possibly one of the worst things a seller can do, but conversely it also presents one of the greatest opportunities for astute buyers. What usually happens is that the seller either hasn't received any offers or is rejecting offers she or he deems too low.   According to Ilona Bray, co-author of Nolo's Essential Guide to Buying Your First Home, the rule of thumb in the USA is that if a house has been on sale for over three weeks you can look for a price cut in the region of 10 percent and as much as 15 to 20 percent if it has been on the market for over three months. Just how applicable these deduction guides are in the South African market is debatable and it will most certainly be influenced by additional factors, but the principle most definitely applies.

Research comparable homes
The value of a property at a given time is governed by the current market in that area. The real estate market is, typically, very localized so it is important to have a good understanding of what similar homes — in terms of size, space and location — are selling for at the given time. If you have a good idea of the neighborhood you are searching in, focus your comparative pricing research specifically in this neighborhood.   One of the easiest ways to do this comparative research is to use a property portal like PropertyGenie which showcases houses for sale by neighborhood from all the leading estate agencies. This not only gives the buyer a sense of what is available at what sort of asking prices, it will also give them a good feel for the amount of stock available on the market. A large inventory of homes for sale in an area, especially in a buyers' market, typically gives the buyer the leverage to negotiate aggressively on price.

Price is not the only negotiable
Often if a seller won't budge on the selling price, they could still be negotiable on other issues. Sellers can often be focused on the final offer and the more attractive the price, the more flexible they could be on other points. Buyers should consider asking for concessions on transaction costs, items of repair or improvements. These may be substantially more palatable to sellers than a reduction in asking price, but can be very valuable to the buyer.

New developments may require a slightly different approach
In the case of newly built homes or new developments, developers are often less willing to lower selling prices, especially where they are selling identical units in the same development. This is because they want to keep the list price of units for future sales up. In these instances though, developers may well be amenable to provide other incentives such as upgrades or free landscaping to sweeten a sale. So while buyers may not be able to negotiate that strongly on asking price, there are still significant gains to be had on these types of transactions.

Johan Strydom, www.iafrica.com