How to make better offers - and avoid bidding wars

Low interest rates have led to a huge surge in first-time homebuying over the past year – and a growing shortage of properties for sale in the sub-R1m price category, says Gerhard Kotzé, MD of the RealNet estate agency group.

“Deeds Office records show that more than 50% of all home sales fall into this price category, which is not surprising since it is the category most favoured by both first-time buyers and those repeat buyers who are downscaling for financial reasons or in preparation for retirement. However, the number of new homes being brought to market in SA’s municipal areas is lagging demand, which is not only boosting prices now but increasingly resulting in homes for sale attracting multiple offers from competing buyers.”

According to the latest figures available from StatsSA, he notes, a total of 7055 new houses, flats and townhouses were completed in SA’s larger municipalities in the first quarter of 2021, compared to 6471 in the same period of 2020. This is an increase of only about 8%, and one must remember that it derives mostly from the completion of projects that were planned up to two years ago.

“The surge in home demand since the middle of 2020 has in fact not boosted the confidence of developers and building contractors as much as might have been expected, as evidence by the fact that the number of building plans passed by the major municipalities for future new homes (excluding tourist accommodation and homes for the elderly or disabled) actually shrank by some 17% in the first quarter of this year compared to the same period of last year.

“And since delivery of new projects generally lags planning by between 12 and 24 months, most of these units will only be available to buyers from the first half of 2022 at the earliest. At the same time, we are now seeing developers cancelling or delaying certain projects for which plans were passed last year and where off-plan sales had already taken place - with the result that those buyers are now back in the market. A prime example is Balwin Properties’ Wedgewood development in Sandton, which would have contained 1340 apartments at prices starting from around R800 000.”    

This is the background to an increasingly competitive purchasing environment in which an offer from another prospective buyer “can quickly result in the dream home you've just found becoming nothing more than a mirage,” says Kotzé.

“Most buyers of course prefer a home that is ready to move into, and many are willing to pay a premium for this advantage at the moment in order to make the most of the low interest rates. This can easily result in a full-price offer, and perhaps even one that exceeds the seller's asking price if there is another buyer in the picture.

"Alternatively, delaying your decision to make an offer while you consider a few properties may well create the opportunity for another buyer to jump in and snatch up the one you liked best.”

However, he says, there is much that serious buyers can do much to ensure that their offers are favoured in this environment, starting with a home loan pre-approval obtained through reputable bond originator. “This reassures the seller that you will be able to obtain a bond and that a sale to you is unlikely to fall through. 

“Second, you need to be honest with the seller if you have a genuine interest in the property and third, you need to make it clear that while you are prepared to negotiate your own offer and terms with the seller, you will walk away if anyone tries to push you into a ‘bidding war’ with other potential buyers – because the one thing worse than losing your dream home to another buyer is paying more than you intended as a result of a bid and counter-bid battle.”

Kotzé says buyers always need to keep in mind that every increase in the price paid results in an increase in the amount of cash needed to cover the deposit and the transfer costs, as well as an increase in the size of the bond needed – and thousands of rands of additional interest payable over the next 20 years.

“In addition, buying at an inflated price following a bidding war means a slower build-up in home equity – which means that if you are forced to sell before the house realises significant appreciation, you may even have to pay in more money to settle your home loan. This is really not a situation you want to create in the current uncertain economic climate.”