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Property Market: Home Buyers appeal of the Subject Property
By arlene | June 30, 2008
Once you know the objectives of the owner, have inspected the property and conducted a market analysis, you can make recommendations on the market position of the property so that it will have good buyer appeal while achieving the objectives of the owner.
Similar to owner motivation and cooperation, you can develop a visual profile from which buyer appeal can be ascertained, at a glance. This is a rating grid that can be used to assess the appeal of the property for potential buyers. In this diagram buyer appeal is assessed in terms of six variables. A profile which, on average, is in excess of three indicates average to excellent buyer appeal. A property which scores only ones may have very poor buyer appeal.
Again, use your judgment and discretion when interpreting a property profile especially in exceptional or unusual situations. For example, a property may have a relatively poor location but score a seven for all five remaining variables. Use your own judgment.
- Asking price. When a property is priced substantially above its expected market value (we assume that a reliable market valuation has been done), even the most bullish buyers are likely to be discouraged and may not be prepared to consider the property. There is no absolutely “correct” price for a property. But a property priced beyond the upper limit of your market value range will be difficult to sell. When assessing buyer appeal in terms of price, score a four if the property is priced close to, but above, market value, one if it is grossly overpriced and seven if in your opinion the property is being offered at a very reasonable and attractive price relative to market value.
- Popular perception of demand and supply in the market. In almost all property markets there is a popular perception as to whether the market is oversupplied, in balance or undersupplied. For example, the common viewpoint may be that there is an oversupply of industrial erven, or that there is a three-year oversupply of office space, or that the East Rand region is totally overshopped. Perceptions of an oversupply, fictitious or real, often dissuade prospective buyers from even considering such properties when they are offered for sale. This is a factor that can influence buyer appeal very detrimentally. One way of overcoming such prejudice is to convince a potential buyer that the prevailing opinion is a misconception or does not apply to the property for sale. For example you could argue that, although it may be true that the East Rand is overshopped, your feasibility studies and agreements with national tenants demonstrate convincingly that there is a strong demand for shopping on the erf that you are offering for sale. If it is indisputably true that there is a large oversupply of the specific type of property, you will have to make the subject property relatively scarce by way of correct market positioning. For example, in order to sell a vacant, serviced industrial erf, you may have to offer it at a very attractive price and under very favourable sales terms. In some cases you may only be able to sell the property to a speculator. Oversupplying occurs in a cyclical pattern in the case of properties such as farm land earmarked for township purposes. There may be times when the only bona fide buyers for such land are speculators who will only be prepared to buy the land at a low price and under f avourable sales terms, knowing that they will have to hold it for a considerable length of time before it can be resold at a profit. Rate your property one on the scale if there is a perceived huge oversupply, four if supply and demand are considered more or less to be in balance, and seven if the property is thought to be in very short supply.
- Sales terms. If the property is offered on sales terms that are typical in the market, rate the property four. If these terms are very rigorous and totally incongruous with the realities of the market place, rate the property one. When highly favourable terms are offered, rate it seven. Favourable sales terms can result in a higher sales price, or may reduce the length of time that the property will remain on the market.
- Location. If the property is in prime location, you will rate it seven. At the other extreme, if the property is poorly located rate it one. Between these extremes, four will indicate an average location.
- Physical aspects of land and improvements. In the case of improved properties, the physical Aspects refer not only to the land but also to the improvements, including their functional and structural nature, their siting on the erf and factors such as adequacy of parking. In the case of vacant land, consideration is given to the influence of factors such as topography, shape, size and soil conditions on development potential and hence the value of the erf.
- Land use and development potential. In the case of a developed property you will have to determine the extent to which land use rights have been exercised. Is the property over-, correctly or underdeveloped in terms of permitted floor space? What are the advantages and disadvantages? If the property is characteristic of what is generally found in the market place, you will rate it at four. If the property is not developed to its permitted floor space and can be profitably expanded, you will rate it seven. Conversely, if a property is developed over its permitted floor space, you will rate it between one and three, depending on circumstances. For example, some existing buildings on the Atlantic seaboard in Cape Town will, if demolished, have to be replaced with buildings further away from the ocean. The result is that existing buildings are often simply refurbished and not demolished in order to retain the same floor space. In the case of land which is not yet an approved township, its development potential will be the important factor. Can it be developed immediately or will it take another eighteen months to be declared an approved township? Have all the services been provided? Will water, sewerage and electricity be immediately available on the site, or will it take five or more years for these services to be provided? Will this la nd appeal to township developers, builders or speculators in terms of the immediacy of its development potential? Rate this factor accordingly on the scale from one to seven.
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Topics: Development, Land, Market, Property, Sale |
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