Can You Change your Home Loan Rate if Your Circumstances change?

There is a very wise saying: The only constant is change.

So, you have bought your dream house, you home loan was approved and everything is rosy. Six months later a major, and unexpected change, takes place in your life….and you can’t afford the monthly payments on your home loan anymore. Let’s be optimistic here, the major change in your circumstances could have been a positive one, such as an inheritance, or winning the Lotto, or getting married. 

We will look at the different options you have available, don’t ever assume nothing can be done. The first thing to consider is whether you have a fixed or variable home loan rate. A variable rate is the most common and means just that—it fluctuates as the prime lending rate goes up and down.

In South Africa we have been in an upward spiral for years now and some people have opted to take out a fixed rate. A fixed rate will remain the same for the agreed period, which could be six months to two years, depending on what is being offered by the banks at the time. If you have fixed your rate for two years, you are locked in at that rate, if the prime rate comes down you will still be paying the fixed rate for the remainder of your two year term. Of course, the opposite is also true, should the rates increase.

The main benefit of a fixed rate is that you know how much you are going to pay for the period your loan has been fixed and you can therefore budget accordingly. If you have chosen the variable interest rate and found that, after repeated rate increases, you simply can’t keep up your monthly repayments, you have options available to you:

The golden rule:

Whenever you experience a major change in your life, talk to your bank.

1. You have been paying off your bond for a year or two, never missed a payment and always pay by the due date. Bring this to the bank’s attention and ask them if they will consider a reduction in your home loan rate as you have now proved yourself as a reliable client.

2. You moved your current account and credit card to your home loan bank, in most cases this will qualify you to receive a lower home loan rate and reduced service fees, again, check.

3. You received a substantial increase or got married. Advise the bank of these changes and request a lower rate. As your risk profile has been positively affected by these changes, you may qualify for a lower rate at this stage.

4. If you took out your home loan years ago, the value of your property would have increased substantially and this may also qualify you for a lower rate. Remember, banks always look at the risk when determining lending rates.

5. If your changed circumstances were brought about by the spiraling interest rates, the bank will not lower your rate but, there are other ways in which they can assist you.

For most of us, our home is our biggest asset, look after it, get help when you need to, talk to an expert financial adviser.

Courtesy: Homeloans South Africa

 

Building Loans for First Time Home Buyers

As a first time home buyer there are many dreams to fulfill, many questions needing answers. Buying your first home is not only exciting but also daunting, especially if you decide to have your dream home built, rather than buying an existing property. Banks have a specific product for people like you, it’s called a building loan.

The products on offer differ from bank to bank and from time to time. All banks usually have special products for first time home buyers, allowing you to get 108% loan to include the transfer and attorney fees. Due to the current financial climate these loans are not available at present, but the economy will improve again. Always confirm with the bank of your choice, or the originator you work with, what is available at present. Property is still the best investment you can make and getting your foot in the door at a young age can determine your long term financial wellbeing.

The changes to home loan products do not mean that you won’t qualify for a building loan as a first time buyer, you simply won’t receive any special concessions. So, where do you start? Find out what the maximum loan is you can afford. Interest rates are (hopefully) in a declining phase but you must always prepare for a worst case scenario, taking into account that interest rates fluctuates. You can find home loan calculators on the internet – on the web sites of the banks or home loan originators.

When you apply for a building loan the bank will assess your financial position to see if you can afford the loan. Very few people can buy their dream home first time round; you may have to accept that and get into the market at a level you can afford. It may even mean that you need to start saving now, getting rid of all other debt before taking on this huge responsibility.

Especially now that 100% loans are not available, you will need money for a deposit and all the other costs involved in buying a home. Not only will you have to pay your loan monthly but also the rates and taxes, insurance and utility deposits. If you use your own builder you will also have to pay for drawing up the building plans, getting them approved and rates and taxes must be paid as soon as the land is registered in your name.

An important point to take note of is that with a building loan you only start paying once the final amount has been paid out, when the building is completed. In the meantime interest is being debited to the home loan as soon as the first payment (draw) is made to the builder. It is in your best interest to pay at least the monthly interest right from the start; if not you may find that there are not sufficient funds left when the final draw is required.

Another option is to buy a property jointly, with friends or family or other business partners – a word of caution – choose your partners carefully. In a case such as this you need to have a contract drawn up by a lawyer to protect the interest of all parties.

So, how does a building loan work? The bank finance the vacant stand and then pay out as the building progress, always making sure that sufficient funds are retained to complete the building. You can either buy your own plot and get a builder to build a house for you, or you can buy in a development, called plot and plan. Either way, you need to make sure that you deal with a reputable builder or company; if not your dream can turn into a nightmare.

The bank will require the approved plans and a quote from the builder before they grant a building loan. The bank’s assessor uses the plans and quote to derive at a valuation or security value. This amount will be used to make a final decision as to granting the building loan. A contract needs to be drawn up between you and the builder stipulating all the details of the building.

Where you buy is also a main consideration, cheaper developments can be found in more outlying areas but you still want to buy in a good area. This will play a major role in the future value of your home. On the other hand, take travelling cost into consideration, depending how far from your home you will be working. Security is also a very important consideration, find out what the crime statistics are in the area.

Consider the floor plan carefully, a good layout is imperative. This is the great benefit of building your own home, you can decide on what you want. With careful planning you can start with a one bedroom home and make provision for further extensions as your needs and your finances grow.

Before you sign any contract, do your homework properly. Visit as many show houses as you can to get ideas of what you really want. When you move into your brand new home enjoy the sense of achievement, you are now a home owner!

Courtesy: Homeloans South Africa

 

The NCA and The Home Loan Market

The NCA and How It Affects the Home Loan Market

The culprit is…

The decline in the property market has been blamed on many factors such as the world-wide recession, the high interest rates, inflation and also on the National Credit Act (NCA.) The NCA came into effect in June 2007 and no-one can deny that it did have a negative effect on the property market, but it should not be seen in isolation. All the factors mentioned above have worked together to put severe pressure on many households, not just low-income families.

The act replaced the Usury and Credit Agreement Acts that were in place before. No doubt it is now more difficult to get a home loan approved than in the past. Players in the bond originator market have reported a fall of up to 70% in terms of approved applications. First time home buyers are particularly hard hit when banks removed their special First Time Buyer products late in 2008, but this was due to the world-wide credit crises. Some actually say that the NCA saved South Africa from going the same route as America with its property market collapse.

Arm yourself with knowledge

The best advice we can give you is to gain a better understanding of how the NCA affects anyone who applies for a home loan. The NCA is really there to protect the consumer’s rights and prevent them from over-indebtedness. Most South Africans cannot survive without credit – credit is not a bad thing in itself; the problem lies in the huge number of people getting into trouble because they cannot afford to repay the amount of debt they have accumulated. The NCA is the government’s way to help South Africans get a hold on their overall indebtedness and create a fair, clear, controlled, non-discriminatory, competent, accessible and responsible credit marketplace.

Some of the aims of the NCA are as follows:

1. To regulate the responsible granting of credit. A big change is that credit lenders have to look at the total debt of a home loan applicant. In the past the qualifying criteria was based on 30% of monthly income. The lenders are now looking at what you have left (or available) after all your monthly expenses have been deducted from your income; it is called your net surplus income. All your debt must be declared, including credit cards, store accounts, car loans and any other loans. If it is proven that a bank granted a home loan recklessly under the new act, they can be held liable for the full amount and may receive a huge fine to boot. The banks therefore have to protect themselves by scrutinizing the application very carefully before approval.

2. Regulating the costs of credit. The client is entitled to a quote before finalizing a credit application. A quote must include all the costs associated with the application, including the total cost of credit.

3. The consumer must be informed – this is good news: the lender must clearly state what interest rate and other charges or fees will be payable by the borrower. The borrower must understand all the terms, risks and obligations of taking out a home loan.

4. Credit Bureaus must comply with a number of provisions and ensure that their information is accurate, can be disputed, corrected or removed where appropriate.

5. The onus is now on the credit provider to prove compliance where in the past the consumer had to prove non-compliance.

6. You can see a debt counselor if you cannot keep your payments up to date.

7. Home Owners Insurance is still compulsory but clients can choose their own insurer.

It is taking longer

One point that cannot be argued is that home loan applications are taking longer to approve, although it is not as bad as some prophets of doom predicted. Banks had to implement new systems, more information is required and the completion of forms and getting all the required information has slowed down the process.

Home loans from Mortgage Originators must be completed in full and the banks re-confirm information with the client. There are prescribed warranties and declarations that must be signed by the applicant before the bank can process the application. Working through a reputable mortgage originator who can help you with your home loan application can help speed up the process.

Good news for serious sellers

For sellers the NCA brings the benefit that once the buyer has passed the strict new home loan application process, there is an excellent chance that the deal will be finalized without any major challenges. Pre-approved home loans are no longer allowed. Having too many credit commitments will count against you now and it would be in your best interest to reduce the amount and number of credit accounts you operate before applying for a home loan.

The way forward

With all the easy credit many South Africans have become used to living above their means. This is no longer the case and some of us will are feeling the pain. A year and a half after the introduction of the act, South Africans should look at the positives and be thankful that the act has our best interest at heart. Eventually living a lifestyle that you can afford will provide you with peace of mind, which is a wonderful feeling.

By SA Home Loans

 

A guide to bond registration

Purchasing a home and registering a bond can be a stressful and lengthy process. It helps to know the parties involved and the steps required for bond registration.

Parties involved in the sale or purchase of a property:

• Seller
• Estate Agent
• Buyer
• Transferring Attorney (appointed by seller to transfer the property to the buyer’s name)
• Bond Attorney (appointed by the bank granting the bond)
• Cancellation Attorney (appointed by the bank cancelling the bond of the seller)

The same attorney could be dealing with more than one or all of the above transactions.

Step 1: Purchasing a property
The buyer and the seller sign the Offer to Purchase. The buyer applies for a bond with a bank.

Step 2 : Bond Approval
The bank approves the bond and advises the Bond Attorney to register the bond.

Step 3 : Property Transfer
The seller advises the Transferring Attorney to transfer the property. The title deed and cancellation figures are requested from the bank which currently has a bond over the property. A statement of rates and taxes is requested from the local authority.

Step 4 : Bond Attorney contacts Transferring Attorney
The Bond Attorney advises the Transferring Attorney of the amount available for guarantees and requests the draft deed of transfer and guarantee requirements.

Step 5 : Cancellation Attorney
The Cancellation Attorney is requested to cancel the seller’s bond upon receipt of a guarantee for the amount owing.

Step 6 : Transferring Attorney
The transferring Attorney receives the title deed and cancellation figures and sends a copy of the deed of transfer and the guarantee requirements to the Bond Attorney. The Transferring Attorney requests the buyer and seller sign the transfer documents. The buyer pays the transfer costs and the Transferring Attorney then pays the rates and taxes and the transfer duty.

Step 7 : Bond Attorney
The Bond Attorney prepares the bond documentation together with the relevant account. The buyer signs the documents and pays the costs The Bond Attorney prepares and issues the necessary guarantees, forwards them tot he Transferring Attorney and prepares the bond documents for lodgement in the Deeds Office.

Step 8 : Transferring Attorney
Once the Transferring Attorney has received the guarantees, they are forwarded to the Cancellation Attorney.

Step 9: Cancellation Attorney
The Cancellation Attorney obtains consent to cancellation from the bank which holds the seller’s bond.

Step 10 : Documents prepared for the Deeds Office
After all the documentation has been signed and the costs paid, the transfer, new bond and cancellation bond documents are prepared by the respective attorneys for lodgement in the deeds office.

Step 11: Deeds Office
All the documents are lodged in the Deeds Office by arrangement with the attorneys concerned. The Deeds Office takes approximately 2 – 3 weeks to check the documents before they are ready for registration by al the attorneys on the same day.

Step 12 : Bank pays out the loan
On the day of registration, the bank pays out the loan in accordance with the guarantees issued. Allow at least 3 months for the registration and transfer of the bond.

Factors that delay the registration of a bond.

• Failure by the seller and/or buyer to provide personal information
• Failure by the seller to provide details of the bank holding the existing bond
• The existing bondholder delaying/not providing cancellation figures and Title Deeds to the Transferring Attorney
• Delay in receiving rates figures (local authority) and/or clearance certificate (Transferring Attorney)
• Failure by the buyer to pay a deposit (if required)
• Delay in the provision of guarantees
• Failure by the buyer to pay bond and transfer costs on time
• Delay by the seller in signing the transfer documents
• Delay by the buyer in obtaining government capital subsidy approval/employee subsidy documents for new bondholders and failure to comply with other requirements of the bank.
• Delay by the buyer in signing transfer and/or bond documents
• When the Bond Attorney, Transferring Attorney and Cancellation Attorney are three separate firmsBy Credit Health

 

The 10 rules of financial management

We’re human. We develop habits in all areas of our lives. These habits have a direct impact on the results we experience. If, for instance, we go to gym regularly and eat nutritious foods, then it is likely that we will be relatively healthy. The same applies to our finances. How we behave with our money will lead to our financial circumstances. If we feverishly spend money we don’t have to have on things we can’t afford by continuously whipping out our credit cards, then it is likely we will become increasingly over-indebted and eventually seek out the services of a debt counsellor.

By learning the 10 rules of financial management we are likely to avoid the above situation, and lead a life of financial well-being. So here they are:

1. Have realistic expectations
Nothing that you can do today is going to change your finances today, but each financial decision you make can make a small difference to your finances. Enough of the correct small decisions and you will make a big difference to your financial decision. It is important to have a clear picture of what you want in your finances, and then to stick to these goals. Similar to a successful weight loss program, you need to start out with your goals, and then to take action every day in the direction of those goals.

2. Live within your means
Actually, you need to live below your means. The most important way to generate wealth is to live below your means. It stands to reason: if you’re spending all the money you make, how are you going to make your money for you? But most people don’t understand this. The average South African spends 73.8% of his income on debt repayments. That’s over 73% on just servicing the debt. After that, he needs to spend money on consumables like groceries, insurance, petrol, security etc. Guess what is left at the end of the month. You guessed it – nothing! By living within your means we mean this: you need to curb your expenditure to less than 80% of your income. That way, you can use the other 20% + to pay off debt fast, and save & invest for your wealth.

3. Stay out of credit card debt
The main problems with credit card debt are as follows:

• If you can afford something, buy it using cash. If you have to use your credit card, you’re spending money you don’t have. This is called debt. As we know, debt inhibits your ability to build wealth.
• The interest rates on credit cards are very high, usually 5 – 12% above the prime rate of interest. This makes it very expensive.
• Many people who have a high outstanding balance on their credit card simply feel that it is hopeless trying to pay it off, so they don’t try too hard, sending the outstanding balance even higher.

Once you get into credit card debt you fall further and further behind because, in addition to paying your current expenditure, you’re paying for the previous expenditure you owe on your credit card.

We recommend that you:

• Reduce your outstanding balance of your credit card by paying off more than your minimum instalment, and more than you purchase monthly on your credit card. Any additional money that you can pay to reduce your credit card outstanding balance is money well spent
• Once you reduce your outstanding balance, call your credit card company and have them reduce your credit limit, forcing you not to overspend on your credit card in the future
• Don’t lose site of bigger picture. Don’t become discouraged. Always remember that, with willpower and concerted effort, you can get your outstanding balance on your credit card down, leading to peace of mind in the medium to longer term.

4. Maintain a spotless credit record
Your credit record contains all the information that your creditors are maintaining on the way that you make payment of the financial obligations you enter into. As such, it is your financial reputation. It is also a strong indicator of your financial habits. If your credit record contains lots of negative information, it tells us that you don’t have very good financial habits. It is a symptom of a larger behavioural problem. Make sure that you maintain a spotless credit record, which will lead to lower interest rates, and creditors wanting to do business with you. It’s worth the effort.

5. Rationalize your spending
You may really want that new car or cell phone, or latest gadget. It tells others that you’ve arrived, doesn’t it? You will the envy of all your friends. This is the high consumerism market we live in, and we are the apple of every good marketer’s eye.

The truth is that you don’t have to have the latest car, cellphone or iPod. You can do without it, at least until you can afford to pay for it in cash, or to buy it out of savings you have created by spending your money wisely, and saving and investing the balance.

6. Understanding opportunity costs
Opportunity cost is defined as the cost of pursuing one opportunity over another. For example, if you are considering buying a bicycle which costs R1000, the opportunity cost would be defined as the lost opportunity of doing something else with this money, like investing it in a 32-day notice savings account. If you buy the bicycle, then in a year’s time it may be worth R250. If, however, you had taken this money and invested it in a savings account at 7%, it would be worth R1070 after 1 year. The difference between the first option and the second option is R820 (R1070 less R250) – the opportunity cost of not buying the bicycle.

7. Understanding the time value of money
This is the most basic law of money. The time value of money law states that a rand today is worth more that a rand in the future. Let’s give you an example.

Suppose you invest R1000 in a savings account today, at a 7% interest rate. In a year’s time, your investment will be worth R1070. Therefore, if you can choose to have R1000 today or R1000 in one year’s time, you would always want it today instead of some time in the future.

Now let’s look at the reverse of this, to see how the time value of money can work against you. Suppose instead of receiving R1000 that you spent R10000 by buying something on your credit card. Remember that a rand today is worth more than a rand tomorrow, so in this case, you will have lost money because you will need to pay off your credit card using money from the future (which is worth less than money today). In addition to having to pay with future money, you will also have to pay the interest expense. So, in this case, if you paid off the credit card in one year (assuming 20% interest), you’d have to pay R1200.

You should think about the time value of money in your financial decision making.

8. Understanding the compound effect of money
The compound effect of money is the most important law of finance, and the one most likely to make a huge difference toward growing your long term wealth. Let’s look at how it works.

Suppose that you invest R1000 in a savings account at an annual return of 7%. In one years time your investment will be worth R1070 (R1000 + (R1000 x 7%)), effectively yielding a R70 gain. However, at the end of year 2, the same initial investment is worth R1144.90 (R1000 + (R1000 x 7%) + (R1070 x 7%), yielding a R74.90 gain. In year 3, the same initial investment would be worth R1225.04, yielding a gain of R80.14. By year 10 the initial investment would be worth R1967.15, and by year 25 it would be worth R5427.43.

From looking at this example, you can see that investing R1000 today is much more valuable that investing R1000 in a few years time. In order to build wealth, you need to utilize the benefits of the time value of money and the compound effect of money.

9. Take appropriate risks
If you want to make money, you will need to take some risks. But how much risk should you be taking? You’ve heard that the higher the risk the higher the reward. Does that mean you should be taking the most risk possible?

The answer to this question is that you need to be taking the risks that are appropriate to you. This will depend on two things, namely your time horizon and your aversion to risk. Your time horizon means the time frame that you will require the money to be available in. If you are close to retirement, you will typically have a short time horizon, as you will require access to your investments shortly. You will also typically have a strong aversion to risk, and will want to be in less risky investments.

If you are young and 40 years away from retirement, you should probably be investing in more risky investment products, as you don’t need the money any time soon, and can afford to take some risks that could produce a high return payoff.

10. Save money
You’ve heard the saying: “A penny saved is a penny earned”. This is very true. To build wealth you need to start saving. You can do this in many ways. Find every way possible. One way of saving is to forego a purchase today that you can put off until tomorrow, or next year, or in five years time. The point is this; you need to start saving today.

By Credit Health

 

10 things every new homeowner should know

You bought the house and secured the keys. Now what?

Real-estate expert Sid Davis says maintenance crises, financial demands and renovation disasters can become overwhelming to inexperienced property owners.

“They were renters before, so whenever they had a problem, the landlord or supervisor would come by and fix things,” says Davis, who wrote “The First-Time Homeowner’s Survival Guide” ($16, Amacom, 2007). “Now they are on their own.”

Davis, real-estate inspectors and other property experts were interviewed to glean these 10 tips for new homeowners:

Act now, save later

1. Pull out the home-inspection report and reread it. Use the report as a handy maintenance checklist.

Most inspections take place during a stressful time when the buyer’s main concern is closing the deal, Davis says.

“A lot of small problems tend to be overlooked and dismissed,” he says. “But in time they grow to bigger problems that can max out your credit card.”

One of Davis’ real-estate clients watched for three months as a water stain crept across his ceiling. Then one night while the man was eating dinner, the entire ceiling collapsed. The lesson: Be proactive. Take care of issues as soon as or before they arise.

Know your enemy

2.”Water is 90 percent of a homeowner’s problems,” Davis says. A home’s basement, foundation and roof are the most susceptible to costly water damage and corrosion.

Inspect bathrooms, laundry rooms and kitchens regularly for water leaks. The fix can be as simple as tightening a nut. Caulk around doors and windows to prevent water from seeping into the walls. Outside, keep water routed at least 5 feet from the foundation.

Maintaining a home’s gutter system is a major line of defence against water damage. Leaves, dust and dirt from shingles can result in a clog that forces water out and down into the foundation. Use a ladder and a water hose to clean out the gutters regularly, and make sure they drain properly.

Wade Williamson, owner of Axium Inspections in Denver, says many homes he sees have missing downspout extensions. Inspectors suggest checking a new home’s landscaping to make sure the slope of soil and sod doesn’t push water toward the house. Always turn sprinkler heads away from the house.

Remember the roof

3. Roofs should be next on the maintenance checklist. If a roof is more than 12 years old, get it professionally inspected.

A homeowner should avoid climbing on the roof to avoid getting hurt or breaking shingles. Instead, use binoculars to check for broken shingles and spots where the mineral coating has worn off, curled up or is getting brittle. To avoid leaks, make sure that flashings are intact and not getting flaky or deteriorated.

Take charge of circuits

4. Map out the home’s electrical system by determining which outlets serve which circuits and then labelling the breakers. Don’t trust that the previous homeowner labelled the circuits properly.

A tripped circuit is a red flag for an overloaded breaker. Read appliance labels to figure out how many amps (electrical current) each one draws. Many household circuits can have only 15 amps. Update electrical wiring in homes 10 years or older.

Make sure GFCI outlets (ground fault circuit interrupters) are installed near all sinks, in the laundry room and garage, and on exterior outlets. This inexpensive fix – hire an electrician – helps prevent electrocutions and fires.

Tighten screws on outlet covers and replace missing ones. Never use extension cords in place of permanent wiring.

Know your shut-offs

5. The main electrical shut-off should be switches either at the main breaker panel or outside near a service entrance.

The water shut-off valve will be on a wall of the house facing the street. These areas need to be easily accessible.

Check for leaks

6. Inspect all plumbing and fixtures. Make sure the shut-off valves on toilets and sinks turn easily and are not rusted shut. If they are corroded, replace them.

If the faucet is leaking, then it needs a washer. Take the faucet, washer or stem along to the hardware store to match it.

If a toilet runs all the time, a flapper valve needs replacing. Have slow drains looked at immediately to prevent costly backups.

Consider warranties

7. Sid Davis warns homeowners that warranties can be just as pricey as actually replacing faulty appliances. However, real-estate coach Jason Hanson, author of “How to Build a Real Estate Empire” ($25, Foundations of Wealth), says warranties can provide peace of mind.

When appliances break down, Hanson says, homeowners can use the warranty instead of searching for reputable repair companies.

Buy, update insurance

8. Get “replacement coverage” to cover property damage. Make sure the policy outlines in writing exactly what will be covered in case of a catastrophe. Videotape or photograph all valuables, keep a list of serial numbers and write down the date an item was purchased for possible reimbursement proof.

Also, track all home improvements by saving receipts and records to help avoid capital-gains taxes when you sell the home.

Buy a flood policy

9. Get flood insurance even if your home isn’t near a flood zone. Forty percent of flood claims are made by homeowners in nonflood areas, according to Davis.

A heavy rainstorm, improper drainage and runoff from road or subdivision construction can funnel water into the home.

Do your homework

10. Compare property taxes with similar homes’ taxes in the neighbourhood. If all things are equal (i.e. square footage and upgrades) in multiple-listing service documents, protest your rate increase with the assessor’s office.

Copyright © 2008 The Seattle Times Company

 

Understand your own finances

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.

Getting to know what exactly what 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 they deem are 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 as the buyer you have a good idea of the neighbourhood you are searching in, focus your comparative pricing research specifically in this neighbourhood.

One of the easiest ways to do this comparative research is to use a property portal like PropertyGenie which showcases houses for sale by neighbourhood 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 or items of repair or improvements. These may be substantially more palatable to sellers than a reduction in asking price, but can be substantially 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 on these types of transactions.

 

A good time to buy…

Depending on your outlook and your current financial situation, these are either challenging times in the property market or the start of a period of great opportunity.

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 dampener 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 over 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.

Understand your own finances

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.

Getting to know what exactly what 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 they deem are 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 as the buyer you have a good idea of the neighbourhood you are searching in, focus your comparative pricing research specifically in this neighbourhood.

One of the easiest ways to do this comparative research is to use a property portal like PropertyGenie which showcases houses for sale by neighbourhood 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 or items of repair or improvements. These may be substantially more palatable to sellers than a reduction in asking price, but can be substantially 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 on these types of transactions.

 

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Cash is king in CT northern suburbs

Up to 50% of buyers are now paying cash when purchasing properties in Cape Town’s northern suburbs.

Mariana Vercueil of the local RealNet office reports that the property market in the area is livelier than in months. “But the most surprising element is that we are seeing droves of cash buyers.”

“And in the current market cash is of course king – people who can pay cash are in an excellent position to snap up bargains and to negotiate lower prices.”

She says sellers have come to appreciate how much easier a cash transaction is “and we have facilitated several deals where sellers accept a slightly lower cash offer in preference to a higher offer subject to bond finance”.

Vercueil adds that the northern suburbs market is also benefiting from the interest of buyers who are taking advantage of the downward pressure on prices in order to upgrade to bigger and better properties.

“A fair number of buyers are also relocating from elsewhere in SA and due to RealNet’s wide exposure on the Web, quite a number of purchasers are enquiring from other countries as well. Areas such as Plattekloof and surrounds, Goodwood and Parow are popular because of their good access to major routes, the CBD, the international airport, schools, shops and medical facilities,” she says.

Property prices are another draw card. Vercueil says bachelor and one-bedroom apartments are still available from about R400k while basic family homes can still be found at the R700k mark in Parow and Goodwood and there is good demand for these.

“But the biggest demand currently is for luxury property that is in the price range of R2,5m and up. The middle segment of our market, where prices range between R1m and R2m, is quiet at the moment and there is ample stock in this range.”

Taken from: Property24