Emotion a hindrance for sellers

By Emma Goodwin

When you're buying a home, you have a simple checklist of things to look for. But when you're selling, the procedure can be a little more complicated.

Selling a house can be a stressful experience, and there are things to consider to make the task easier.

First of all, think of the sale as a business transaction and try to disconnect your emotions. A decision to buy a property is often based on emotion. But when you sell real estate, you need to remove emotion from the equation. You need to think of your house as a marketable commodity.

The goal is to get others to see it as their potential home, not yours. If you don't keep this in mind, you could inadvertently create a situation in which it will take longer to sell your property.

One of the first things to do is remove most of your personal trinkets. Things that may remind you of your wonderful trip to Morocco in 1987 may look like a whole heap of clutter to potential buyers.

So tidy rooms and cupboards to remove clutter, and remove extra furniture so that rooms look more spacious. If necessary, rent a storage unit temporarily, or give away items you no longer use.

First impressions are important. Fix small defects such as peeling paint and cracked windows, and get the cleaning equipment out.

You need to have your house spotless. Take special care with the kitchen, bathrooms and windows, and look upwards. Many a first impression is spoiled by cobwebs hanging from the ceiling.

Go through the filing cabinet and get every piece of paperwork you have on your home. If necessary, go to your local council and get the file on your house, so that any questions about legality of boundaries, building work or anything else that could stand in the way of a quick sale are taken care of.

Put together pertinent information, such as the title documents, valuation documents, surveys, mortgage statements, information on upgrades and any plans for improvements.

Select a property sales agent by conducting a series of interviews - until you find the perfect one for the job.

Get a registered valuation of your property and ask any prospective agent for a market appraisal.

Then decide on a sale strategy with your agent. You can select from a range of different methods, including auction, tender and negotiation. The Real Estate Institute of New Zealand has a glossary of real estate terms that explains these methods.

You and your agent then need to set a realistic marketing price, so that you attract as many buyers as possible.

If your home is priced too high for current market conditions, you may deter buyers. They will look around, and conclude that other properties are of better value.

Valuing a Leaky Home

By Glenda Whitehead

How do we assess the market value of a home with un-resolved or un-quantified weather-tightness issues Does such a property have a different value to an owner who is going to repair it themselves, versus a purchaser?

To some people, leaky homes have no value. They wouldn't even consider buying one. To others, the value is intrinsic because it is already their home. And yet to others, a leaky home may represent an opportunity to make a profit.
Let us start by considering what 'market value' actually is. The market value is, by definition, the amount a property would exchange for between a willing, well-informed buyer and a willing, well-informed vendor. The principal of market value also states that the situation is free of duress, such as financial stress or matrimonial circumstances. It does not however take into account any emotional stress the vendor may be under in a 'leaky home' scenario.
Often an existing owner will conduct remedial work themselves and will not expect to make a profit from the situation. In such cases the owner only sees the intrinsic value of their home and doesn't consider what the open market would pay for such a property. For many, the stigma attached to a leaky home means it won't even be considered for purchase.
Leaky homes do sell, and with various levels of unresolved issues. The cost to rectify each home can be quite disparate. Therefore, valuing leaky homes by lining them up against one-another is generally not a good approach.
However, I have valued a terrace house in a development where all the homes required similar levels of work (re-cladding). The process was being managed through the body corporate and the actual cost was known to each of the owners. There was also recent market evidence (sales) within the development reflecting the same circumstances as the property being valued. What we refer to as 'direct sales comparison' was possible and suitable on that occasion.
But how do we value a leaky home when there is no direct sales evidence?
This question cannot be answered until the likely cost of repair is known. That is, we must establish the building costs, associated Council costs, financing costs over the rebuild period, and all other costs associated with the rectification process. Building costs will often be provided to us by owners who have sought builder quotes after engineers have established the extent of the damage.
We must also allow for extra costs such as landscaping, which may be ruined during the rebuild process. Having these facts at hand, we can then start the valuation process.
The valuer begins by assessing the value of the property as if the home has been fixed and has no leaky issues. We also take into account what the material the home will be re-clad with, and any incidental upgrading work, or other alterations that will occur during the process. Examples include re-cladding with weatherboards, replacement of joinery, and re-aligned roof lines to ensure better water disbursement. Often during the upgrade process other components of the home will be upgraded or replaced out of necessity, these are also taken into consideration when assessing the market value 'as if complete'.
From this, we then start the cost deduction process. We deduct for Council costs, building costs, other site development work, the cost of financing the project over the planning and rebuild period, and finally but significantly, a profit and risk margin.
Why do we deduct for finance costs? Because we put ourselves in the position of a willing buyer, who will see finance as one of the costs they will incur in the process.
A profit and risk (P&R) margin is taken off because; why would a purchaser take on such a project if there was nothing in it for them? While the current owner may not want to make a profit but just want a sound and dry home, a prospective purchaser would know there are always risks attached to such work being done. If actual costs exceed those provided, it is the profit and risk margin that will be reduced. Some uncertainty typically remains around costs, so we include a contingency fund.
Ultimately, if the project is undertaken by a new owner, the P&R amount is their reward, or for the current owner undertaking the project themselves, it represents their salvaged equity on completion.
The bottom line of our assessment is what a willing, well informed market buyer should pay for that property, in order to cover the costs to rectify it, and obtain a reward (the profit and risk component) for taking on the task.
Example:

Indicated Value 'As if Complete' basis: Land value	$	400,000
Value of improvements	$	290,000
Market value on Completion (excluding chattels)	$	690,000
Added value of chattels	$	10,000
Market value (including chattels) 'As if Complete'	$	700,000
Less costs to rectify
Estimated building costs, including labour, materials, architectural fees, Council fees	$	170,000
Estimated finance cost over rebuild/re-sale period, allow: (say 6-9 months at applicable interest rates eg 7%)	$	21,000
Profit & risk allowance (typically a percentage of 'as if complete' value, 15-25%)	$	105,000
Indicated value 'As Is'	$	404,000
As the indicated value after deducting all likely costs is close to the assessed land value, we are of the opinion that the land value should be adopted as the present value. "As is" Market Value adopt $400,000

The above example, in which the Market Value is equivalent to the land value, is from our experience, not uncommon in the Auckland market. The owner then needs to ask themselves whether they should rectify the existing dwelling, or demolish and start again. The latter would incur further costs associated with demolition. Such a decision would depend on the size of the existing home and how well it makes use of the space the site offers. For an existing owner, rectifying the existing building may be the only viable option.
In our assessment, we have not considered that the owner may recoup costs from parties deemed to be responsible for the home having weather tightness issues. If some recovery is known and certain, it could be factored into the equation.
There is a definite stigma attached to properties that have monolithic, or plaster cladding, regardless of whether they have been proved to leak or not. We see this in sales evidence where values are discounted in comparison to, for example, a similar weatherboard home. We also know that saleability is reduced as some buyers won't even consider purchasing them. We have noted that these homes can take extensive time periods to sell. This can also be said for properties which have had leaky issues in the past, even if they have been re-clad. The stigma remains and is exacerbated in slow market conditions.
The value of any home can be significantly reduced if it is discovered to have weather-tightness issues. If you are purchasing a property and have any doubts about its construction, get a suitably qualified and registered person to look at it, and provide you with a written report. It could end up being the only leg you have to stand on.

Real estate as investment loses allure

By SUSAN PEPPERELL



The Kiwi love affair with property investment is over. New research shows a drastic decline in the number of people intending to buy real estate as a money-making strategy.

Property experts say tax changes announced in the Budget, rumours of a capital gains tax and a lack of confidence due to the recession are contributing to investor reticence.

Nielsen's annual Real Estate Market Report shows a 40% drop in the number of people intending to buy an investment property compared to the same time last year.

Last year one in four people surveyed said they would buy residential property for investment, but that figure is now down to one in seven – the lowest in the five years the survey has been conducted.

Alistair Helm, chief executive of website realestate.co.nz, says the decline began last year and the May Budget announcements removing tax claims for depreciation had simply continued the trend.

"The reality is that people's appetites have changed."

The Budget measures were introduced to dampen Kiwi enthusiasm for property investment and encourage investment diversification. Massey University's director of banking studies, David Tripe, said they appeared to be working, which was "not a bad thing".

"If we go back, there has long been a hysteria among Kiwis for investing in property because they saw it as a way to make lots and lots of money. Now we're getting a slightly more realistic view."

Helm said that a lot of property investment was based on the potential capital gains rather than yield from rents. Uncertainty and increased risk because of the economic environment had stopped people being so acquisitive.

However, there had not been a flood of investment properties coming on to the market either. "If there is, it tends to be at the lower end of the market."

The Nielsen survey also showed a corresponding 42% decline in the intention of property investment owners to sell.

And there have also been predictions of a price drop of up to 5% in the next few months based on tax changes taking effect in October, the new depreciation rules and a struggling market which had flatlined in the past 9-10 months.

According to Inland Revenue, the total amount of taxable losses claimed from residential property investments in 2008 was about $2 billion, compared with about $1.5b in taxable income declared by investors who made a profit on their properties.

The trends meant the real estate market was a lot quieter.

"The property market mirrors consumer confidence and confidence in the economy, which can't find its feet at the moment," Helm said.

Tripe said New Zealanders traditionally borrowed internationally and they did not invest in anything but property, which was not a good base for the economy.

Meanwhile, New Zealand Property Investors Federation president Martin Evans says membership of his organisation, an umbrella body for about 20 property investor associations, has slowed as a result of the reluctance to invest in property.
"The bottom lines are not as good as before and interest rates are going up.

"People looking for properties as a rental proposition used to do so to realise the capital gain, but there will be no capital gain in the foreseeable future."

Evans said that at the bottom of the market some properties were being sold for less than the original purchase price, and he predicted there will be more sales in that category.

Speculation about a capital gains tax was contributing to the depressed market and landlords were reluctant to raise rents, especially those managing their own properties who knew their tenants personally.

Private sales losing their appeal

By Susie Nordqvist

Private selling may well be losing some of its lustre, as increasing numbers of people say they would turn to an agent to drive a sale in the current market.

The results feature in the latest Nielsen Real Estate Market Report for realestate.co.nz, which show just 11 per cent of people said they would definitely list their property privately, down from 17 per cent at the height of the market three years ago.

At the same time just under half (47 per cent) of those surveyed said they would definitely use a real estate agent to sell their home, up from 35 per cent three years ago.

Realestate.co.nz's Alistair Helm said the "euphoria" associated with listing a property on Trade Me and selling it the next day had gone.

"Today, three years later nearly half of the respondents are recognising that agents can be trusted in such uncertain times, with another third still unsure, but probably going to rely on an agent," Helm said.

The pendulum was continuing to swing back towards using agents as the complexity, litigation and current market, left people wondering why they would want to take on the role of "self employed agent" next to their day job, he said.

Property investment also took a big hit in the survey, with just one in seven people saying they intended buying residential property as a future investment.

This is down from one in four when the survey was conducted last year.

The survey also showed a 42 per cent fall in the intention of landlords to sell.

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This trend has been echoed throughout the Palmerston North residential housing market. Private sales are at the lowest level I have seen in 18months.

Barry McKean