When Meir (not his real name ) and his wife bought a garden apartment in Kfar Sava, they were not concerned about paying NIS 2 million. Meir assessed the value of the 4-room apartment he was selling in Herzliya at NIS 1.7 million, and planned to cover the difference with a mortgage.

"Prior to purchasing our new property, we performed an extensive market review to assess housing prices in our neighborhood. This served as the basis for our valuation. Meanwhile, however, things had changed," says Meir. He put his property up for sale at the end of December 2011, counting on selling it within a month. By the end of January, however, he realized he was facing a serious problem.

"There was some interest, with a few potential buyers offering around NIS 1.5 million," he says. "Thinking we still had time, we turned down these offers, but no further ones were made."

Last month, Meir approached a realtor, who recommended pricing the apartment at NIS 1.65 million. It is still on offer.

Meir claims he is not stressed. The payment schedule for their new apartment requires that 80% of the total be paid upon receiving the keys and moving in. Meir plans to obtain a loan from the bank, under terms requiring payment of only interest and cost-of-living adjustments, with the capital borrowed due at the end of the loan period. The plan is to finance these payments by renting the unsold property for the duration. He believes he can get NIS 5,000 a month, but admits that one or two months without renters will pose a serious problem. In retrospect, he regrets not starting out at a more realistic asking price, as well as not seeking realtor services.

According to a report published by the Ministry of Finance last week, 45% of those seeking improved dwellings can identify with Meir's predicament. The number of people buying new homes who were stuck with unsold apartments peaked at the end of 2011, according to the ministry's report. Although this number has come down in recent months, according to the report, this is attributed to concerns of potential buyers not wishing to find themselves in similar straits, rather than to an improvement in the housing market.

According to the yad2 website, the largest platform for second-hand sales in Israel, the average selling time for a 4-room, second-hand apartment rose from 71 days in the first quarter of 2011 to 85 days in the first quarter of this year. The biggest concentration of apartments "on hold" is in the coastal plain, totalling 25% of all transactions. The amount of such apartments in Tel Aviv has been declining steadily since 2009.

Does this picture reflect a cooling off of the real estate market? Realtors we have spoken to believe that it is merely a reflection of an adjustment in expectations - a market correction for the inflation in housing prices that has taken place in recent years.

"The main problem is the mindset of the sellers," says David Levi of Anglo-Saxon Real Estate in Herzliya, Kfar Sava and Hod Hasharon. "People got used to quick sales at better-than-expected prices. They find it difficult to accept that things have changed since 2011."

"Until recently, the market was hot," confirms Tsafrir Werthenfeld of Tilan Real Estate in Herzliya Pituah. "Selling times are becoming longer and people are again choosing to sell first, before purchasing, as was the case prior to 2005. Sellers are also showing more flexibility in negotiations."

As usual, "location makes a big difference, with Tel Aviv bucking the trend," claims Boaz Giladi of Reshef Real Estate. "There is always a strong demand for prime-location apartments there, but even in Tel Aviv, buyers are deterred when faced with a mismatch between asking prices and perceived value, along with uncompromising sellers."

According to Levi, listing at an unrealistic price strongly detracts from the chances of selling. "The problem," he states, "is that these apartments become 'marked.' Serious buyers with money in their pockets and a desire to buy show up first, having done serious market research and price evaluation. When they find the property overpriced by NIS 150,000, they tag the apartment as irrelevant.

"The next round of buyers arrives later, but these tend to be slower to act, wanting to see other properties as well. The seller gets no feedback from people viewing the apartment, they simply never return."

In such cases, Levi's advice is to take the apartment off the market for a cooling-off period of a month, and then to re-list it at a lower price.

'Unrealistic expectations'

"The biggest change is in buyers who are now more knowledgeable," says Carmel Adam, head of Carmel Center Agency. "Buyers do not hesitate to make an offer at 15% lower than the asking price, and will walk away if this is not met. Sellers, on the other hand, try to maintain a cool facade. We often know they have already purchased a new apartment but are not divulging this information to us, so as not to show distress and appear pressured to sell. The problem is with unrealistic seller expectations. Listing at 10% lower asking prices would remove this pressure."

Baruch (not his real name ), a pensioner who is one of Adam's clients, listed his 3-room apartment near the center of the Carmel near Haifa in April 2011, but only sold it last month. "Many people came to see it but left uninterested. Everyone was looking for a cheap deal," he says. After several months, he started renting the apartment he had himself had purchased, in order to keep up with payments. After further attempts at selling, he finally settled at a price that was lower by NIS 150,000 than his original asking price.

The cost of extending the waiting period until finalizing a sale is reflected not just in the lower sale price, but also in additional costs incurred by having to make payments on the new property before receipt of any money from selling the old property. This often necessitates taking out bank loans which, in spite of their relatively easy terms, demand payments on interest which would not have been necessary had the old apartment been sold earlier.

Kobi, a 40 year-old-father of two, employed in high -tech, took out a NIS 1 million mortgage with a bridging component to finance a 5-room new apartment in Kfar Sava. He and his wife planned to finance the deal by selling their 4-room apartment, but it has remained unsold for over a year.

"I thought it would sell within 3-4 months, enabling us to pay off the bridging component," he says, "but the market went into a deep freeze." The terms for a mortgage with a bridging component are less favorable than for other mortgages, but at least the couple is on schedule with payments for the new apartment.

Like others in his situation, Kobi searched real estate websites that led him to believe he could sell for NIS 1.7 million. However, this information turned out to be outdated. He turned down several lower offers, and then "we started gradually reducing the asking price, by NIS 10,000 or NIS 20,000 each time. Psychologically, this is a difficult process," he continues.

The couple ended up listing the apartment for NIS 1.6 million, through Levi's agency. It has still not sold, although Kobi says he is waiting for offers from several potential buyers. Luckily for him, the contractor building his new apartment has also run into delays. As long as the moving date is postponed, so are Kobi's final payments.

"Since the contractor demanded early payments, we set up our bridging mortgage to take this into account," he says.

What will you do if you can't sell?

Kobi: "We'll rent it and move either to the new apartment or in with our parents."

A client of Modi'in realtor Moni Hershko, of Remax 2000, pounced on a bargain-priced cottage that he found for sale in his neighborhood.

"Since the clients had a whole year until the move, they did not hurry to put up their own apartment for sale," says Hershko. "Their apartment was comfortable, and they were in no hurry to move their children during the school year. The cottage was still unavailable, and they invested in some upgrading of their old apartment."

The family finally listed the apartment at NIS 1.7 million in January, two months before the projected moving date. The offers they got were in the vicinity of NIS 1.3 million. "The media had reported a projected drop in prices, and buyers were not keen on the higher price, whereas the clients refused to accept such low offers," Herskho notes.

The client and his family moved on March 1 and were left with no choice but to rent out the old apartment to minimize losses and cover their bridging loan payments. This greatly relieved their stress.

"The feeling is that there is a demand for apartments, but buyers are waiting it out. Perhaps people are waiting for a revived social protest to bring prices down further. So far this is not happening. Things have started to change in the last month or so, but buyers are still very selective. The thinking is that if prices are high anyway, buyers might as well go for larger apartments in buildings with elevators," says Hershko.

"The better apartments will sell, whereas those on higher floors with no elevators will not. The buyer is always at an advantage, since there is usually a gap between the asking price and the final amount that is settled on. This is also true today, although many sellers used to believe they could ask for and obtain exorbitant prices. In reality, the drop has not been in prices, only in the degree of greed."