Avoid a bidding war at all costs

Knowing how to keep your offer at the top of the list is key to getting the home you want

Q:

If we decide to use a mortgage originator to apply for our first home loan, how will the process work?

A:

You complete one, generic application that is acceptable to all banks and, once your loan application has been submitted to all the banks, you will get daily feedback on its progress.

You will ultimately be given a choice of which bank’s home loan offering to accept.

A mortgage originator will guide you through the entire home loan process and assist with all the documentation. This service is free to all buyers. – Elmar Pittendrigh, managing director of Bond Gallery

Q: We are buying our first home but seem to be losing out to other buyers in what is becoming a bidding war. We are offering close to the asking prices but are still not having our offers accepted. How do we ensure that, when we next make an offer, we come out on top?

A: Low interest rates and a growing shortage of properties for sale in the sub-R1 million price category have led to a huge surge in first-time home buying over the past year.

This is one of the reasons behind 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.

Most buyers 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, there is much that you can do to ensure that your offer is favoured in this environment, starting with a pre-approved home loan obtained through a 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 buying the property.

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.

Always 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 rand 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 equity – which means 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 not a situation you want to create in the current uncertain economic climate.

– Gerhard Kotzé, managing director of the RealNet estate agency group

Q: We are considering putting in an offer for our first property, a smalholding, but our neighbours have a servitude on a small area of the property which they mainly use for access. They also have some fruit trees on it. We are worried this may have an unforeseen impact on us. What should we bear in mind when considering whether to buy this property?

A: A servitude allows a third party, who is not the owner of the property, certain limited rights over the property.

Essentially, what this means is the owner of the property may exercise all their usual rights of ownership, provided it does not impede the rights of the servitude holder. Similarly, the servitude holder may utilise the servitude but should do so in a way that causes the least possible inconvenience to the owner of the property.

Most servitudes will be passed over to the new owner of the land on which the servitude is held if the property is later sold.

The owner of the property on which the servitude is held is not required to get permission from the servitude holder before they sell but the new owner of the property will be required to honour the servitude agreement.

While servitudes may not be an issue for some buyers, others may be deterred. This can reduce the demand for a property which in turn can have a negative impact on what asking price it can achieve.