Maximizing gains in reselling your property
There are tons of online content on how to buy real estate. Sponsored media articles by developers, brokerage firms, property listing portals, land aggregators and any other entity that has vested interest in primary real estate activity. Interestingly, there is not half as much chatter about how best to sell one’s property. In reality, a significant proportion of home buyers in India are typically upgraders – we recycle our existing old property to buy a new one, either larger in size, at a better location or one with better amenities or combination of these factors.
Research reports estimate that around 3 lakh residential units are transacted in an average year among the top 7 to 8 Indian cities. The thumb rule is primary transactions are typically a third of the overall transaction activity, which could put the number of residential resale transactions anywhere between 5 – 7 lakh homes with a market anywhere between 4 lakh crores to 7 lakh crores, a staggering figure that could amount to over 2% of our GDP. Add tier-2 cities and towns, this number could be 20-30% higher.
Unfortunately, this large market gains low media attention as the only entity with business interest in this resale market is your neighborhood broker. Large real estate brokerage firms prefer to work in the primary market as it is significantly easier for them to leverage the developers’ marketing muscle and generate faster returns on their invested capital, compared to a fragmented resale market where they need to generate all marketing horsepower by themselves.
Market statistics aside, let’s dive right in on what is your best approach as an individual seller in driving a successful resale transaction.
1. Valuation is not about hearsay anymore. Use the right data points.
Gone are the days when you had to just depend on your broker’s or neighbour’s estimates for your resale valuation. Data points around last transacted prices are starting to be increasingly available for public access as new-age analytics firms process the government registration data and offer this data at a nominal price.
Websites like Zap key, Property Science (Liases Foras) and Index Tap (CRE Matrix) offer the option to easily check actual transaction prices of comparable properties in the vicinity. One needs to use this as a ready benchmark and just be rational about applying a limited price premium or discount from the benchmark basis the attractiveness of your house (floor, views, internal finishes, etc.). The data points covered by these firms cover most tier-1 cities and even tier-2 cities and towns in the country.
Competition with new properties: Ace with space
There was a time when ready properties used to command a premium over under-construction ones. This is not true anymore in most markets (barring trophy assets and elite pockets like Lutyens or Malabar Hill). Developers lure home buyers with newer and fancier amenities and buyers want to buy the best and newly launched concepts. It is not fair to benchmark one’s resale valuation of an older home to your next door new projects’ pricing. Sellers need to accept there is always a discount for the age of the property and lack of newer amenities.
One aspect where you always win over the new projects is space. Newer developments come with increasingly smaller apartments (Read our previous post on shrinking apartment sizes) that challenge basic livability for families. It is important to highlight the space when you are selling the property and do up the interiors of the house in a way that magnifies this positive aspect.
Resale valuations do not always follow developer pricing strategies
You might have bought your apartment on a higher floor or better views by paying 10 lakh as premium charges to the developer but at times, the resale valuations might not in sync with this pricing approach. Hence it is prudent to apply a reasonable premium/discount value from your transaction benchmark you have collected from these platforms and not hope for a large price upside because the apartment has a garden view.
Valuations are a function of supply scarcity
The uniqueness of your apartment is a key ingredient to achieving a valuation premium. It might be that extra storage space, the balcony in the bed room, a worship place or excellent ventilation. It is critical for you and your broker to assess how your house stands out from competing properties in the vicinity (other apartments in your own complex or other complexes) and how you would communicate this effectively to the buyer.
2. Package it right. Invest in staging.
Ever wondered how you instantly desire to own the house when you walk into a developer’s show flat? Using interior design to enhance desirability and valuation is a lever individual sellers of property need to adapt from the developers’ playbooks.
Many owners do the mistake of letting their broker showcase a poorly kept house to prospective buyers. If you have a dirty dry balcony or a half-peeled paint on the wall, forget the price premium you are pushing your broker to get for you, you are likely to lose out even on getting par valuations of comparable properties. The trick to get this right is to do a walk in the house as a buyer and see if you would fall in love with the place yourselves on your first visit.
Fix both the hardware and software of the house
As a seller, one needs to invest in two major refurbishment efforts – getting the house in decent shape, which means fixing the paint works, doors and windows, polishing or even upgrading the flooring, deep cleaning (say, the hardware) and then to stage the house into a desirable living unit through interior design intervention – re-arranging furniture, adding lighting and accessories, planters, etc. (software).
One does not need to spend large sums in doing up the interiors of the whole unit. A sample hack is to get furniture on rent from furniture rental platforms like Furlenco or Rentomojo and just buy other necessary accessories to make the house look good. You can rent furniture for an entire house for 5,000 – 10,000 INR a month but reap benefits from a desirable looking home with trendy furniture and fittings. Home staging is a thriving business in many global cities and we shouldn’t be surprised to see a venture in this space soon in leading Indian cities.
Your old interiors are not helpful in driving up the valuation
Many home owners feel that the interiors they have done in their house 10 or 15 years ago should help them fetch a price premium comparable to other properties. In the age of fast fashion in furniture and fittings where innovative designs come out every day, this is a foolish assumption to make. The younger buyers do not really care about the TV units and wardrobes you have done up with high quality wood, because it is simply outdated for their taste. Your true benchmark is the next new projects’ show flat which your prospective buyer has likely seen and carries an image of while evaluating properties.
Spend time in creating a desirable atmosphere
Ever wondered why you feel like spending more time in the developers’ show flats? There is a lot of work behind the scenes by their marketing teams - Lighting, optimal air-conditioning, ambient aromas and even sounds in some cases, potted plants all contribute to a conducive place for buyers to just spend time lingering around. Subtle things like keeping the air-conditioner and lights on, curtains open and just having a few nice plants in the house can have a significant impact on the desirability for a buyer and make them overlook the age of the house.
How does the math add up?
Say you are trying to sell your house for a valuation of 1 Crore and the valuation gap is currently 10% or 10 lakh (a starting valuation gap of 5-15% is common with most resale transactions). The idea is to spend 1 to 2% of the desired valuation of your house in staging it effectively but reap a benefit of a 5-10% upside or narrowing of valuation gap. Sounds optimistic but in the emotional and sensory-driven property sale market, the fact remains Jo dikhta hai, wai bikta hai.
3. Use services of home-flipping companies if you are selling to upgrade
Considering the large resale transactions market size, there are recently launched platforms which guarantee a home sale for you basis recent transaction data and hence allow you to release the capital from the old/existing house. Zapkey and Homexchange are two platforms actively offering this service in Mumbai metropolitan region and Bangalore. While Homexchange’s model requires to buy a new home with one of their developer partners (most leading branded developers), Zapkey’s service allows you to sell your home and release capital without essentially buying a new home, offering you flexibility.
The difference is on account of their business models as Zapkey runs mostly a buy-sell platform where it also invites resale buyers to purchase homes from their platform. Homexchange works as a facilitator for upgraders with revenue sources from both the resale home seller and the property developer from whom you buy your new home. Both are exciting service offerings that are looking to disrupt the resale transaction space and formalizing this market.
The home flipping market is nascent in India and follows foot steps of firms from the US such as Zillow and Open Door. The business models of these firms in the US are currently taking a knock in the ongoing turmoil in the property market after a post-pandemic bull market, but that shouldn’t deter you as a seller, as long as you get a fair price and their service allows you to upgrade or release your capital from the property without the typical hassles involved.
4. Be present during viewings as a proud owner
Many property owners feel their broker will weave a magic wand and get the resale done for them at the best valuation and in quick time. While brokers bring their value-add in communicating selling proposition for your house, it is a refreshing experience for buyers if the owner is present during the viewing and talks about the house with a sense of pride in their ownership. Everyone loves stories and a personal account of how and why you came to own this house could itself be an interesting conversation to buyers to remember. This is of course logistically not feasible for NRIs but for owners selling flats in cities where they live, they should invest time and effort in meeting prospective buyers which adds an additional layer of credibility to the brokers’ sales speak.