Regular readers of this column will know that it is usually a ‘How To’ for property buyers; however, today is more of a ‘How Not To’ lesson for would-be buyers.
When it comes to buying property, there are many rules that are to live by, some are arguably more important than others. The first rule is the most basic, this is to always have finance in place before embarking on the process. This means that if you have qualified for a mortgage, then you should have that Approval in Principle in writing and get the letter from the proposed lender updated every three months. If you are intended to fund the purchase by way of cash, it is important to ensure ready access to that cash – I have lost count of the number of transactions that have fallen through because of buyers not realising the notice period on special deposit accounts, which can sometimes be up to 90 days. But equally important as having the funding in place is to know exactly how much you can spend on the property. I realise this sounds obvious, however, for one couple buying in Dublin recently, this is the first mistake they made.
The situation arose when two couples – all first-time buyers – started a bidding war over a very ordinary dormer house in what could only be described as a very ordinary, but still coveted, suburb of Dublin. The party who disclosed the tale to me had been house-hunting for more than two years at the time and had been disappointed in bidding on at least one or two occasions in the past. It transpires that they had been chased from closing on other properties because of aggressive competitive bidding. They were nervous about the offer process, which is the same thing that we hear from buyers every day, but is this case it struck me that both were competent professionals in high level jobs. They had put in a huge amount of research and preparation into the search and their assessment of market value was spot on – so where was the hesitation and fear coming from? It was coming from the lack of transparency surrounding the offer process in Ireland and these buyers simply did not know who to trust. But still they persisted with their search. They eventually settled upon the dormer house, priced below €400,000. They accepted the market value to be somewhere in the region of €430,000 to €450,000, however, bidding took them to €470,000. At which point they rightly walked away. Within days, the estate agent came back to the under-bidders to let them know that the highest bidders were not in a financial position to proceed but would be interested in securing the house at the €450,000 mark and would the uner-bidder still be interested. What nonsense; this is the danger of not knowing your budget, not bidding responsibly and not having regard for market value. I am delighted to report that the vendors’ had no further interest in entertaining buyers who blatantly lack credibility. Unsurprisingly, they accepted a sizably smaller offer from the under-bidders, who showed credibility and good faith throughout the negotiations.
In this particular instance, the buyers were fortunate that the estate agency involved was a reputable, sound firm that handled the matter expertly and decisively – this certainly is not always the case. But it does reinforce a point that I make repeatedly here: Being the best bidder is not about being the highest bidder. Also, this tells me that now is the right time for buyers to join forces and lobby for greater transparency throughout the offer and bidding stage.
This is not the first time that I have raised this issue, in fact, many industry commentators have looked at overseas models and there is no doubt that a system of listed offers could be made available to interested parties if the will among estate agents were there.
Estate agents are required under existing rules to maintain a register of bids and bidders on any given property. They are also required to make bidders aware of the value of competing bids on the same property. With all due respect, it would not take the sharpest brain in the industry to come up with a solution here. So many organisations hide behind the Data Protection legislation, and the property industry allowed this to be used as an excuse not to publish sales price data for more than 30 years. But the market place has evolved; it is unreasonable to allow buyers to be given bid values that lacks credibility, while at the same time keeping the real information hidden. Who is winning, who stands to benefit from such secrecy? Certainly not the property professionals who consistently have their roles and reputations called into question because of this lack of transparency. If Data Protection legislation needs to change, then change must be pursued, doggedly. The property industry in Ireland has been turned on its head over the past decade; it would be a shame to reinstate the status quo today when collectively we could make it function better tomorrow.