This market is frustrating for many buyers.
The papers are full of stories about how this is a buyers’ market.
And yet, a huge number of sellers are holding out for high prices.
How is this possible and how can you find the really good opportunities?
The reason why so many properties are overpriced is because most sellers are not under pressure. They would like to sell but at a price that makes sense to them. Of course, what makes sense to them often flies in the face of market reality.
In many instances, these are people who haven’t bought particularly well in the last 7 to 8 years and want to sell and at least “break even”, i.e. also covering their transaction costs including Stamp Duty.
Idiotically, many agents are taking on these properties, which means it seems that there is a lot of choice on the market. The agents hope they can persuade the sellers to start reducing their prices but, in many cases, they’re not or are only doing so by a tiny percentage.
In short, the majority of properties are what I call on the market but not “in” the market, i.e. they will never sell as the owners are unrealistic and have no need to sell. This wastes a lot of time for buyers and gives a false impression of what is available.
So, where are the opportunities?
This is actually the wrong question. The real question is “Who are the opportunities?”. By this I mean, who are the owners who need to sell or are highly motivated to sell?
As you may have already guessed, staring at the property websites is unlikely to give you the answer. Yes, in some instances it may be obvious that a property is underpriced and the seller is therefore keen, but how often does that really happen?
The answer is pretty rarely, and even if you do see them what competitive advantage does that give you? After all, any other active buyer will have seen it advertised too, so you will have competition.
More importantly, you will be missing out on better opportunities because you haven’t discovered who the motivated sellers are who haven’t reduced their price. Although it may not make sense to you, there are several reasons why owners who need to sell don’t lower their prices.
I have written about this in other articles and don’t have the space to go into it here, suffice to say that people negotiate in different ways (as well as often being poorly advised).
So, you need to be actively looking to uncover these opportunities and one of the key ways of doing this is to be speaking to all the agents in your target areas on a weekly basis.
Is this time-consuming and dull work? Yes! But if you are not willing to do this due diligence then can you really expect to find the best property your money can buy? Frankly, you shouldn’t be buying a property if you aren’t willing to do the work, and it is one of the main reasons so many buyers make decidedly poor or average purchases. Do you want that to happen to you?
As one simple example of the advantage of speaking to the estate agents, consider which situation you would prefer:
You call the agents and are told that a seller is highly motivated and will probably reduce their price to an attractive level in the next two weeks. Will you be in a stronger negotiating position being the only person to have this information before the price reduction or would you prefer to wait for it to be announced to the masses on the website in two weeks’ time?
A Big Mistake
Of course, just because a property is cheap doesn’t mean that it is a good opportunity. There are lots of properties available that are cheap on a pound per square foot basis.
However, just because something is cheap, doesn’t make it good value. As Warren Buffett says:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
The same is true for property because the wonderful properties in any price range and area will always outperform the market quite considerably. They may not always be “cheap” on a pound per square foot basis (which is a dreadfully blunt tool to use for valuations anyway), but if you can acquire one at a great price and discount to what it would normally trade at, then you will have done well.
What if prices fall further?
Prices could well fall further. However, trying to time the bottom of the market is impossible as you can only know for sure after the fact.
Also, you don’t care about the market in general. Averages are misleading and it is the poor properties, e.g. lower ground floor flats or poorly located properties, that tend to get hammered at the bottom of the market.
Meanwhile, you just want to find that one great property that can be acquired at an attractive price… and as you are buying from an individual, they may be willing to accept an offer way below what is the current market value, which protects you from further possible falls, i.e. the bottom of the “market” in general may actually be higher than what you can negotiate now with an individual.
At the same time, would it be unreasonable to suggest that prices have always bounced back and gone much higher? You may think it will be different this time, but prices bounced back after the Great Financial Crisis in 2008, the Dotcom crash and 9/11 in 2000/2001, after the massive 1990 crash, the UK as the sick man of Europe in the 1970’s, etc., etc.
All of these and many other dark times were forecasted as being the end of London property and yet here we are today, still the best city in the world according to most indices. It could be different this time, but that has always been a losing bet in the past.
What should you do?
I was interviewed last week and asked: what am I advising my clients to do right now?
I’m afraid the answer was suitably dull: “It depends”. Everyone’s situation is different which is why the blanket advice and “statistical averages” you read in the press are so dangerous and misleading. They encourage herd mentality but does that help you?
Nevertheless, there are some factors that remain constant. For example, it is essential that you remain selective and patient but move swiftly when you find a great opportunity… and there are several strategies that you can use to find these “best in breed” properties.
As for what should you do right now?
It’s impossible for me to say without speaking to you. If that seems like a hideous prospect and a complete waste of your time, then I quite understand. However, if you think there might be some value in having a conversation, simply email me at jeremy@mercuryhomesearch.com to arrange a time to speak.
