How to sniff out real estate deals
Renier Kriek
EVERYONE BUYING a home would like to know that they are getting good value for money.
Buying a property that is good value for money is not easy—but is achievable for those who are astute, and are willing to be patient and remove as much emotion from the decision as possible.
The first important mindset shift is that buyers must not confuse value with price.
Just because you were able to negotiate a reduction in the asking price, does not make it a bargain. The price was likely to be inflated to begin with, because there are many incentives favouring higher listing prices.
Spotting a bargain
True bargains have some distinguishing characteristics to look out for, which include:
Motivated sellers
Sellers who are amid life-changing circumstances—such as divorce, having fallen behind on their mortgage payments, or have tenants who they are unable to evict—will be more likely to accept a lower offer.
Often, but not always, motivated sellers’ properties end up on auction. Bargain hunters may also visit dedicated online portals like MyRoof.co.za or find court notices for foreclosure or sheriff’s ac-tions as a source for good value propositions.
Fixer-uppers
The market tends to devalue properties by more than the cost it will require to fix them up.
It is likely that a property with R200 000 worth of arrear maintenance will be on the market for R1 million, but once you have done all the maintenance, the value of the property shoots up to R1.5 million. This means the value gained by the maintenance is often more than the cost of the maintenance itself.
Large plots
The average size of plots has been decreasing over time. The trend in urban areas is to densify and this is encouraged by municipalities. In a city like Cape Town, it is now possible to build up to three dwellings on a single ‘residential 1’-zoned plot.
However, one must always consider other issues such as rezoning and urban development rules, and this may require consultation with a town-planning expert.
If the size of the plot is larger than the average new development in the area, there is likely to be surplus value—unless the property is marketed as a development opportunity, which is likely to sig-nal that the price has already been inflated to account for the size aspect.
Vacant properties
Generally, vacant houses and flats sell for less than the ones that are occupied. This is mainly because a small crack, or a spot on a carpet, is more visible than in properties that are inhabited. If you are able to visualise the potential, it is a good buy.
Gentrification
This is where the character of an urban area is changed when, for instance, artists or young professionals start flocking to the area, and/or more art galleries and coffee shops start opening.
This is a reliable indication that the area is gentrifying. If you move quickly enough, you will be able to find a bargain that will increase in value rather quickly compared to similarly priced properties in other areas.
Relative value
When entering the market, it is a good strategy to consider buying the smaller or cheaper property in a particular area. The barrier to entry for these properties is generally lower than for the rest of the area, which means demand for them is higher.
Higher demand translates into quicker price growth.
Other considerations
Home seekers on the lookout for a bargain must remain alert to illegal construction. The risk associated with illegal building work is almost always not worth the discount on the price.
If there are any doubts about the structural integrity of a building, call in the professionals to do an inspection. The benefit of a qualified home inspector, especially to inexperienced buyers, cannot be overstated.
Since kitchens and bathrooms are the most expensive parts of any residential properties carefully consider the conditions of these two areas.
Finally, avoid bargains that are close to open public spaces. These areas tend to devalue property if they are not well maintained by local authorities.
Renier Kriek, managing director of Sentinel Homes.
