Buyers should do their homework

Buyers should do their homework

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IF you've ever sold anything in the secondhand market, you have probably experienced a wide variation of prices a buyer was willing to pay.

Buyers will consider many factors: age, condition and the price other sellers are offering for a comparable product.

Negotiations will follow and, in the end, a deal may be sealed at the market value of the item for sale.  

The property market operates much the same way.

Potential home buyers must carefully assess the price they are willing to pay for a property, which is likely to be the largest purchase of their lifetime.

Buyers also need to understand the difference between "property appraisal" and "market value".  

An appraiser essentially gives value to a property by conducting a comprehensive examination to determine its worth.  They consider size, condition, location, quality of construction, comparable local sales and indices that forecast the potential value of properties in the future.   

Market value is usually determined by a real estate professional and is generally defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller, wherein the parties acted knowledgeably, prudently and without compulsion.  

POTENTIAL HOME BUYERS MUST CAREFULLY ASSESS THE PRICE THEY ARE WILLING TO PAY FOR A PROPERTY.

Market value is highly influenced by the current real estate market climate, the location, condition and how urgently the owner wants to sell.  The most common approach in determining market value is comparative market analysis, which is an evaluation of sales of equivalent properties.  This approach is generally considered the most reliable, if good comparable sales exist. It is an independent check on the reasonability of an appraisal opinion.

Appraising property values in Cambodia has been dynamic as prices were estimated to rise 60 percent in 2006, 80 percent in 2007, and after a 30 percent jump from January to May 2008, are expected to be flat for the year at best.   

Appraising property in Cambodia does have its special considerations.  Cambodians place a premium on the value of the land.  

Sales can be made on the basis of the land value with little regard for the building or house that occupies it.  Quality of construction can be associated with the era the property was built.  Older properties, more than 40 years old, are generally considered well-built in terms of materials and engineering.  

Properties built between 1980 and 1995 may be considered of lesser quality, as many of Cambodia's engineers where lost during the reign of the Khmer Rouge and there was a scarcity of high-quality building materials.  

Quality of properties post-1995 is inconsistent, with a greater focus on building costs.  Each property will be different regardless of these generalizations, which may not apply to an individual property and thus, each property must be considered on its own merits.

Market values are generally based on historical data and appraisers rely on many channels of data, including property listings, shared data from a network of real estate agents and research staff out in the field.  The use of the land is also a consideration.  If the land will be for rental properties, future income streams on a discounted basis may be calculated to ascertain an appropriate purchase cost and an overall yield or return.  On average, returns are thought to be 3-4 percent presently, excluding capital appreciation, up from 1-2 percent a year ago.

Having a professional appraisal performed for a property under consideration for purchase is certainly very valuable, and arguably essential.  In the end, however, good old-fashioned homework should also be applied. 

View as many properties as possible in the area you are considering, so you can have an overall assessment of the market.  Talk to realtors and other prospective buyers and sellers.  Test prices through negotiation.  The property you buy may represent the highest proportion of your net worth, and you will want to make sure it is purchased at a fair market price.    

__________________________________________
Anthony Galliano is head of corporate and

institutional banking, ANZ Royal Cambodia.

Should you wish to contact Anthony, please

send an email to [email protected]

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