Property Price |
Yesterday, I was inspecting a property for one of my clients.
Like the vast majority of houses and apartments that I see, it wasn’t good enough for me to recommend to them.
But, it did highlight a massive mistake that people make.
As it happens, I had inspected this flat about two years ago for another client. At the time, it couldn’t be bought as a single unit because the owners wanted to sell the entire building as one lot. It was potentially interesting for my client as he was looking to invest c. £15m into one building with multiple units.
Unfortunately, there weren’t any details on the property back then, so I remember being slightly surprised when I was shown round the building. There were six flats in total, but they weren’t particularly big and were also in decidedly average condition. The guide price of £12.95m was, frankly, farcical. £8m was more realistic. Possibly £8.5m at a stretch.
Anyway, I had completely forgotten about this until yesterday when I was looking at the flat. I asked the agent whether the owners were still planning to sell the building and what had happened. It transpired that the sellers were now more motivated, hence trying to sell the flats individually as well as the building as a whole.
Unfortunately, they had also made a bit of a blunder. They had turned down an offer of £10.5m from a cash buyer a year ago. The guide price for the entire building is now £9.75 and it will be a miracle if they achieve £8.5m.
I asked the agent why the sellers had turned down £10.5m. “They said it wasn’t enough.”
“So, how much did they want?”, I asked.
“Closer to the guide property price of £12.95m”.
“Why did they think they would get that? Surely you showed them the comparators to prove that £10.5m was a ridiculous price for this and they should accept the offer?”
And this is where she explained that she had tried everything to get the seller to see sense but the seller “knew better” and had used his own comparators to prove why he should be receiving higher bids (it was also his asking price and not the agent’s valuation of the property).
This is despite the fact that the property had already been on the market for a year and he hadn’t had any other offers. This was also despite being told that the comparators he was using were not like for like, i.e. he was using valuations for a much better street. In other words, he was comparing apples with oranges.
This naivety, greed – call it what you will – has probably cost him £2.5m.
Now, you may be shaking your head, thinking that this is just typical of sellers: believing their properties are worth much more than any buyer would pay. And this certainly happens a lot. But it is just one side of the coin. Buyers make exactly the same mistake.
I have lost count of the number of people who tell me that they are not going to buy because they think prices in the market are too high. Indeed, when I founded Mercury Homesearch in 2001, several people told me I was mad because house prices were too high and that a crash was imminent.
So There Are Two Questions That You Must Ask Yourself About Property Prices:
- What makes you think that property prices in general are too high? If prices are simply higher than they were a number of years ago that doesn’t guarantee that they are too high. There may be legitimate reasons for this that you haven’t understood (and if you are looking for advice in the press, it is highly unlikely the journalists know either. Indeed, their track record, like that of economists, is woeful)
- How much do prices need to fall before you think they represent good value? If you can’t answer this question and give good reasons as to why you think prices will fall to this level, then you need to do a lot more research or think again. Do not rely on the press or opinions of others who can’t also give you well researched reasons.
By the way, a high house price to earnings ratio or higher interest rates do not guarantee a fall in house prices. So, if these are the only reasons you have for not buying, be careful (I give talks for private banks, law firms and tax advisers in which I prove these points. If you would like more information on this, please email my assistant at email@example.com or call 02034578855 (+442034578855 from outside the UK).
Navigating Property Prices: Avoiding Misguided Opinions and Maximizing Opportunities
Please note that I am not saying that prices always go up. They most certainly don’t and there will be times when you most definitely need to be very careful. But if you look at all the reporting in the press over any decade, you will see that prices are “too high” most of the time and yet prices spend considerably more time going up than they do going down. And they increase far more than they decrease which is why property prices are higher in every cycle.
This is a fact that seems to escape almost every commentator…
So, just as this seller let his opinion get in the way of accurate data, please don’t make the same mistake as a buyer and miss opportunities because you feel prices are too high.
That is the macro side of this mistake. Likewise, when you are looking at a property be careful of thinking that you should be negotiating a bigger discount on a property than is realistic. Sometimes you should definitely be negotiating a bigger discount.
However, if you don’t have a very clear understanding of valuations of property, you may be too aggressive or unrealistic in the negotiation and miss out on a great opportunity. Again, this sometimes comes down to not having accurate information, but very often it can also be due to ego, i.e. feeling that you haven’t won the negotiation.
As Warren Buffett has said, his biggest mistakes are the ones that don’t show up in the annual reports, i.e. the investments he didn’t make that he should have.
Of course, it is often not easy to accurately value a property. Unlike buying shares in BP, for example, which are all the same, every property is different, so there are numerous factors that you need to take into account in addition to what else has sold in the same street and price range.
There is also a huge amount of “noise” in the press about property prices much of it contradictory or confusing – which then leads to conventional wisdom having an opinion which is more often than not based on misinformation.
Expert Guidance for Smart Property Acquisition: Complimentary Strategy Call to Avoid Costly Mistakes
You need to ignore all of this and have a forensic understanding of what is actually happening in the market for the particular type of property you want to buy.
And this is just one of the seven most expensive mistakes you are likely to make as a buyer. So, if you are serious about acquiring a property in London but are concerned that you might make an expensive mistake or are unsure of what you don’t know, you can request a complimentary 15 minute Strategy Call with me.
The purpose of the call is to highlight your blind spots so that you can avoid making an expensive blunder and acquire the best property your money can buy while negotiating the lowest price possible.
If you think this might be helpful, you can request a complimentary strategy call by emailing my assistant at firstname.lastname@example.org or calling 02034578855 (+442034578855 from outside the UK).