Should you buy a property that’s been on the market for a year?
At the height of South Africa’s property boom, houses were selling within weeks, if not days, of being listed and it was only the most problematical properties that remained unsold month after month.
That’s according to Richard Gray, CEO of Harcourts Real Estate, who says the boom period of 2004 to 2008 embodied the rule of thumb that, in an ideal market, a property should take about eight weeks to sell.
“There were times during these years that buyers were literally queuing for properties, and many instances in which properties sold within hours of first being advertised,” he says. “However, on the back of the financial downturn, the current market is far from balanced, as evidenced by the findings of FNB’s Estate Agent Survey for the second quarter of 2012 that houses are spending an average of almost 18 weeks on the market.”
Further, he adds, there are properties that, despite repeat on-line and newspaper advertising, have been on the market for a year or more.
Clarifying his use of the word ‘problematical’, Gray says he is referring to three specific problem areas, namely price, location and the condition of the property.
“Of these, the most critical and yet easily remedied is price. If a property isn’t priced in accordance with prevailing market conditions, it won’t sell. Over-pricing is one of the key reasons for properties spending months, if not years, on the market and sellers who won’t accept that pricing has to be based on what the market will pay, rather than what they want in their pockets, are likely to end up selling for a discounted price a long way down the line – if at all.”
But if the price is right, he adds, then regardless of any other problems the property has, there will be a buyer for it.
The second problem is area. “Location, location, location is the age-old watchword of real estate,” he emphasises. “The less desirable the location of the property, the less options the seller has. Properties in areas characterized by high crime or encroaching industrialization are likely candidates for long stays on the market, unless, of course, they are priced accordingly.”
Third on his list is defects. “A defective property is going to chase buyers away,” he warns. “Most buyers want to buy a place that’s fit for them to move into and start living. While some are prepared to do cosmetic improvements, most people don’t want to have to undertake major repairs, nor do they have to in this market, where supply far outweighs demand. That means the buying pool for these properties is extremely small, comprising only the bravest or most desperate buyers who are looking for a bargain.”
Properties that, despite being advertised week in and week out, fail to sell, become stigmatized, continues Gray. “Days on the market matters – it’s one of the first questions a buyer will ask an estate agent. They feel there must be something wrong with a house that’s been on the market for a long time, even if in reality it’s a quality home that was just over-priced when it was listed.”
Once appointments to view dry up and buyer interest hits zero, sellers will invariably, depending on their personal and financial circumstances, either withdraw their homes from the market or reevaluate their pricing, he says. It’s at this point that old listings have the potential to become today’s best buys, provided purchasers keep three basic tenets in mind.
“Buy it if the price has been brought in line with current selling prices. Buy it if you’ve done your homework on the area so that there are no nasty surprises with regard to crime or other negatives. Buy it once you’ve done a thorough inspection of the roof, foundations, wiring and plumbing, and make sure all structural changes are on plan. If you’re not confident enough to do your own inspection, ask your agent for the name of a professional home inspector who will advise you of the existence of any problems and give you an idea of the cost of remedying them.”
Finally, says Gray, find out about all recently sold comparable listings in the neighbourhood and then work out an offer based on the averageselling price less the cost of any renovations.