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Monday Oct 15, 2012

Overpriced property a 'stumbling block' in slow market

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 problematic properties that remained unsold month after month.

Richard Gray, chief executive of Harcourts Real Estate, says that the boom period of 2004 to 2008 illustrated the rule of thumb that, in an ideal market, a property should take about eight weeks to sell.

"There were times during these years when buyers were queuing for properties, and many instances in which properties were sold within hours of first being advertised," he says.

"Following the financial downturn, the 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 on average almost 18 weeks on the market."

Clarifying his use of the word "problematic", Gray says he is referring to three specific problem areas, namely price, location and the condition of the property.

"Of these, the most critical but most easily remedied is price. If a property isn't priced in accordance with prevailing market conditions, it won't sell.

"Overpricing is one of the key reasons for properties spending months, if not years, on the market. 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, Gray says, 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 fewer options the seller has. Properties in areas characterised by high crime or encroaching industrialisation 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 a place that's fit for them to move into and start living. Although 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."

Gray says properties that fail to sell, despite being advertised week in and week out, become stigmatised.

"The number of days on the market matters - it's one of the first questions a buyer will ask an estate agent. They think there must be something wrong with a house that's been on the market for a long time, even if it's a quality home that was just overpriced when it was listed."

Once appointments to view dry up and buyer interest hits zero, sellers often withdraw their homes from the market or revaluate their pricing, depending on their personal and financial circumstances.

It's at this point that old listings have the potential to become today's best buys, provided buyers keep three 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 concerning 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, find out about all recently sold comparable listings in the neighbourhood and then work out an offer based on the average selling price, less the cost of any renovations.

Weekend Argus (Sunday Edition)

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