Investing in Property

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Property investment is not to be undertaken lightly. As with all forms of investment, it has its risks. An investment property is much like a small business in itself, and all such ventures require time and effort, as well as bringing a series of legal and moral obligations regarding the condition of the property and the treatment of the tenant. If you have an investment property, you will need to fill out a self-assessment tax form, so you will most likely need professional financial advice. Such are the complexities that an article like this can barely scratch the surface, and if you take one message from this piece, it should be to find out much more before you go into property investment.

Why Invest in Property?

All investments are about making a return on your money, and property is no different. Property is ‘tangible’ – a real bricks and mortar place you can look around – in a way that other investment products, like shares or bonds, are not. We live in houses, we’ve looked for them, so we have a degree of intrinsic understanding about what makes a desirable home. And, the current climate not withstanding, we generally perceive that homes now are worth more than they were 10 years ago. While these are all good reasons as to why property investment is appealing, the real financial reasons for considering property as an investment are hardly alluded to here. To understand property investment more thoroughly requires the introduction of some technical terms.

Percentage yield

This is the amount of money that an investment generates against the cost of buying that investment, expressed as an annual percentage. For example, if you buy a flat for £100,000, and rent it out for £500 per month, that’s a rental income of £6000 per year, which is 6% of £100,000. This gives a direct point of comparison with other investment options, from government bonds and stocks and shares, to just putting the money in the bank. Property yields are reasonably easy to forecast, because there are always comparable rental properties available to gauge what tenants will ay for your particular kind of property – but it’s important to recognise that if the property is empty, even for only a few weeks, the actual yield will be lower than it seems. Knowing the rental market, and estimating for periods of vacancy, are important considerations. That said, while bonds and bank accounts may guarantee a low percentage yield, other investments like shares can be even more uncertain than property. You can, after all, influence the desirability or reduce the cost of property to make it attractive to tenants. Unless you are on the board of directors, you’re not likely to affect the performance or dividend payments of a stock-market listed company!

Capital Growth

The general perception, that property goes up in value over time, is borne out historically. Britain has had property valuations since the Domesday book, and the general trend is for land to increase in value at around 7% per annum, set against an average inflation rate of between 3% and 4%. In other words, in general property is getting more and more expensive. But there are major caveats to this. In the short term, the property market fluctuates. Falling prices, such as we have seen over the last 18 months, as happened at in the early 1990s, can have a devastating effect on anyone who needs to sell. If you can hold on in a falling market, all the evidence suggests prices will recover…  but not everyone can afford to wait for that. Property prices are also affected by local factors which buck the national long-term trends. If you owned farmland around what is now Milton Keynes, you will have seen your property value multiply many times over. If you own a row of terraced houses in a remote mining village in Wales, those buildings might not now be worth anything at all.

But, these warnings not withstanding, the general trend over time is for property values to rise. This contrasts with many other investment products. Take, for example, money in the bank. That £100,000 in a high interest account might produce a yield of 6%, guaranteed year on year. But the value of that £100,000 capital investment is constantly declining in real terms, as general inflation reduces the value of money. If the interest is re-invested at the rate of inflation (say, 3%), suddenly the actual return is only 3%.

With property, the capital value exists independently, and is linked by default to the housing market and the general economy. Property prices follow the market without necessarily having to re-invest the yield. That £100,000 flat will be worth £105,000 if the market goes up by 5%, even if you haven’t spent any of the yield on it. Indeed, capital growth is generally where property investors make their big returns… but it’s a long term strategy, not a get-rich-quick scheme.

Leverage

This is, perhaps, the most important consideration of all. How much does it cost to buy £100,000 worth of shares? The answer is simple – £100,000 (plus a few fees). Or to put £100,000 in the bank? Same again, but with no fees. But how much actual ‘money down’ does it cost to buy £100,000 of property? Even including expenses, the answer can be as low as £16,000. This is because you can get a mortgage to buy an investment property. And, while no investment ever comes without risks, the fact that banks will lend against the security of a building gives an indication that property is seen as relatively low risk. That intuitive sense, that a building is real, carries a lot of weight with financial institutions. Try borrowing £80,000 to buy shares and see how far you get. But with property, banks will generally lend at least 75%, and sometimes as much as 85% of the purchase price (even in this climate… time was you could borrow even more than that..!)

Borrowing money to multiply the effects of the growth of an investment is called leverage, or ‘gearing’, just as the gears of a car amplify the drive of the pistons into the turn of the wheels. Why does it matter? Because even though you only paid for a fraction of the purchase price, the yields and capital growth are based upon the entire property value. Let’s go back to that £100,000 flat, which we’ve bought with an 80% mortgage. It’s actually cost us £20,000, then. If property values go up 5%, the flat is now worth £105,000. It looks like a 5% capital growth. But..  it we only actually paid out £20,000. So that £5,000 increase is actually a 25% increase on our capital. That’s where the money is!!!

Cashflow

If you borrow money, it comes at a price. The interest rate of your loan shows how much you have to pay each year just for the pleasure of having that money to spend. Bank rates vary with the times, and at any given point there are an array of deals available – hence the importance of talking with an independent financial advisor to find the best and most suitable one. Investment property is treated like a business for tax purposes. The rental income is taxable income, but it can be offset against the interest you pay on the mortgage for that rental property, and it describes the actual cost or return you make from a property.

If the rent pays the interest and nothing else, it is ‘cashflow neutral’. If you have money left over, you have a positive cashflow. The amount of profit you make as a percentage of the actual money you spent is your ‘cash on cash’ return, expressed as an annual percentage. If you need to top up a shortfall, that is ‘negative cashflow’. If you offset those losses against other areas of income to reduce your tax, that’s ‘negative gearing’. And if this hasn’t already convinced you to hire an accountant, then the fact that the tax laws change with every budget really should!

Comparative values of investment

To illustrate why property can be a great investment, consider the table below. To make things as simple as possible, we will ignore any purchase costs, fees, tax, and so on…and let’s assume everything is 5% – the rate of inflation, the growth of the stock market, the share dividends paid, the increase in the property market, the cost of a mortgage. In practice, of course, all of these things are different, so it’s important to stress that the table is purely illustrative, and that financial advice should be sought before making any investment.

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In the right hands, and with proper advice, property can be a fantastic investment. Like all investments, it has its risks, and you should seek professional advice, and become as knowledgeable of the factors which can affect the market, and of the legal and tax implications, before you buy. If you want a more detailed consideration of the pros and cons of property investment, do lots and lots of research. The introductory books listed below will give you a starting point. Talking with estate agents, financial advisors and accountants will also help. Good luck!

Selected Bibliography

“Rich Dad, Poor Dad”, by Robert T Kiyosaki and Sharon Lechter, published by Time Warner, 2002.

“Real Estate Riches: How to become Rich using your banker’s money”, by Dolf de Roos. Rich Dad’s advisors series; published by Little, Brown 2002. Various other editions in existence. Available on Amazon.co.uk second hand for 1p.

“Beating the Property Clock: How to Understand and Exploit the Property Clock for Maximum Gain”, by Ajay Ahuja, published by How To Books, 2004.

“Successful Property Letting – How to Make Money in Buy to Let”, by David Lawrenson, published by Right Way Plus, 2008.

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Planning your move

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The physical process of moving house can be a huge task! We acquire possessions as we go, filling the space available. Only when it comes to packing it all up and moving it all out do we notice how much we have accumulated.

First step- How much do you have? 

Before you choose how to move, you need to know hove much you have to move. What’s in the attic, the garage, the shed? How many possessions do you have? Do a thorough inventory. Take a pen and paper to every room, nook and alcove. Write it down. When it’s done, you’ll be happy to consider the next stage: throwing things away! There is no better time to have clear-out. Be ruthless. Ask yourself- how long since i used it? Will i (ever) use it again? Do i want to make room for it in new house? As soon as you decided to move, start sifting and sorting getting obvious junk out of this way.

Who’s going to do the moving?

Address this early. There are three basic options: do it yourself, hire a ‘man with a van’, or instruct a professional removals firm. If you are moving by yourself, be prepared for a lot of hard work. You’ll need to hire a suitable vehicle. Consider the size of your largest objects, the volume of boxes and other items you need to move. If moving a short distance, you may get by making several trips in a day but remember, you will have to unpack at the destination to empty the vehicle for a return trip. You will need help at both ends. You will have time pressures if someone is moving into your old place, or if you have to wait for the previous owners to vacate the new home. You’ll need kids and pets out of the way. You’ll want insurance in case things are damaged in the move. You can expect a very long, hard day’s night. Moving yourself is often the cheapest, but it is not to be undertaken lightly.

An intermediate step is a ‘man with a van’ (and it invariably is a man!). Agree i advance how much assistance you need with fetching and carrying. Ensure your quote includes VAT and any extras. Ask about insurance. Check all eventualities, such as what happens if the driver is ill.

Although professional removals companies are expensive, their skill and effort are well worth it. Get several quotations. Be absolutely honest as what has to be moved, and be clear on who is responsible for what. Are you going to do all the packing? Who will fetch things down from the loft? A professional firm will ask for an inventory upon which to base their estimate. Be thorough. Don’t forget about the attic and garage, garden furnishings and pot plants. If you miss things off the list you will still have to pay for their removal, and it will cost more in money and time if the removals’ firm hasn’t brought a big enough van or sufficient staff. As with all professionals, your decision as to which company to use depends not just on the lowest fee, but on the reassurance you receive about service quality. Often the best way to choose is by recommendation.

If you are moving from a city to a small town, you may get cheaper quotations from a local firm in the smaller place, as they have opportunities to book a return journey. There is more chance of them finding another client moving from a small town to the big city than vice versa.

If you are moving appliances, you will need electricians and/or gas filters to disconnect and reconnect them. Being without a cooker for a week could be a problem! If you need carpet fitters, either to move your own carpets and/or to put in new flooring at the destination, you’ll want them booked too. Moving caret is rarely worth it, but putting down new carpets will ideally be done before furniture arrives.

When you have a confirmed completion date, call your van hire or removals firm, and any skilled tradesman you need, and get written confirmation that you are booked in.

Packing to a plan

Start early – it takes longer than you think. You need a few things in advance. Boxes are vital! Supermarkets recycle boxes almost immediately, but if you are polite they may let you collect almost-empty boxes from the shelves. fruit boxes are ideal for smaller items like books. They are sturdy, built to stack, easy to carry, and hard to over-fill. For bulkier items, you may need to buy packing boxes. Removals firm have solid cases to hire. Get plenty of old newspaper – it’s good for wrapping fragile ornaments and crockery, and as a lightweight filler to keep things still in transit. You need duct tape. Made with cloth, it binds almost everything and is very handy. You’ll also want scissors, sreing and labels.

Have a plan of your new home. Use the agents details for room dimensions. If there’s no floor plan, draw your own. Before you move, sketch out on graph-paper where your large items of furniture will go. Number each room. On the day, blu-track numbers to each door. It may be obvious to you which is he main bedroom, but when the old furniture has gone to your helpers see he house for the first time, a number system is easier. When you pack boxes, label the room number it is going into, and a short description of the contents. With a hundred such boxes stacked together, you’ll be glad of a ready-reference. Number the furniture, too.

Use the four-box method. Pack things you don’t use, and get rid of items you don’t want, well in advance. As you fill boxes and empty your furniture, create a schedule of condition. Make notes, and take pictures, of each piece of furniture. Have the removals company confirm the condition of your belongings before the move. If there is damage in transit, you’ll have a record of the original state of the items. The removals’ company will be happy to know there will be no claims for pre-existing marks and scratches! A word of caution: flat-packed furniture is not built to be moved. You” either need to dismantle it, or you can expect some damage, regardless of how carefully it is handled.

Once you get within a couple of days of the move, live like you do on holiday, out of suitcases and an overnight bag. Pack away everything except your immediate requirements. Clothes and spare linen between the furniture in the van. Throw away rubbish, and don’t mix things up. Removals porters take everything, including rubbish if it’s ‘bagged up.’ It’s better than throwing away wanted items. Equally, you don’t want to take your clothes to the tip because you’ve got the black bags muddled.

Having planned where things go in the new house, pack the van accordingly. Move boxes and small items first. Leave large items until later, and save big furniture in the rooms furthest away from the front door until towards the end. That way, you move big items through an empty house. As they’ll be unpacked in reverse order, you can do the same at the destination and put furniture in the right place from the start. Then, you can unpack the boxes into the furniture as you go.

Have your beds loaded last of all. They are big and can be heavy. You don’t want them carried through a home with boxes in the way. When you arrive, unload them first while the pathway is clear. You” have somewhere to rest your head at the end of this long, hard day.

 

When an offer is accepted

 

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‘Sale agreed’. It’s what buyers and sellers alike are hoping to achieve… an offer accepted, a deal done. But in many respects this is, to borrow a phrase, ‘the end of the beginning’. The time it takes between accepting a deal and the ownership of a property legally changing will take weeks, and may take months. Until contracts are exchanged, your agreement to the sale is not binding, and the weeks after the sale is agreed can be the most frustrating and worrying part of the whole process. If you know what to expect, it is easier to prepare for it.

Sale Agreed – the next step

Once a sale is agreed you will immediately be asked which solicitor you are using. This is because confirming the sale is a legal process (called conveyancing), and from now on the matter is in the hands of the lawyers. The estate agent will send out a document called the ‘Memorandum of Sale’, which has the buyers and sellers details, their agreed price, a list of what is included in the sale, and contact details for the solicitors on both sides. Nothing else will happed towards the sale until this document is sent out, so its better to be ready with a solicitor in place before you reach this stage.

What the solicitors do

English law operates under the principle called ‘Caveat emptor’, which means ‘buyer beware’. In other words, it is the buyers’ responsibility to make sure everything is as they expect it to be. This is what the buyers’ solicitor has to do, by raising a series of enquiries and checking the information on record about the property being purchased.

The list of documents and searches that need to be done varies from area to area, but will invariably include many of the following:

  • checking with the water authority that the mains water and sewerage systems are provided, and that the owner of the property does not have to pay for their upkeep
  • checking with the Local Authority to make sure there are no approved planning consents in the area which would affect the value or rights of the home-owner
  • checking with the Land Registry to make sure that the title deeds to the land are in order, and that the seller is the rightful and legal owner of the land or home they are selling
  • checking with the Highways authority to make sure the road is an ‘adopted highway’ – in other words that the government, and not the homeowner, is responsible for keeping the road in good order
  • checking for local geographical, geological or environmental information – this can include reports on the likelihood of subsidence in former mining areas; flooding in river basins; on radon gas emissions in the area, or on the safety of old land-fill or contaminated sites.
  • Checking for ‘covenants’ or ‘easements’ – that is, restrictions on the use of a property written into its title deeds, or rights of access granted over the land, or rights of access over other people’s land to the property itself.

Some of this information is covered in the Home Information Pack. Some can be applied for directly from the relevant authorities. Some has to be requested from the sellers’ solicitor. All of it will take time to collect and confirm, and may cost money for the documents themselves. These extra costs are called ‘disbursements’, and are usually in addition to the legal fees themselves. A conscientious solicitor will make sure that every legal detail is confirmed and cleared before going ahead with a purchase. The seller’s solicitor should provide any information as quickly as possible.

Mortgages and Surveys

Although these two things are separate, the former always demands the latter, so it is easier place them together. If you need a mortgage, you should already have a mortgage approved in principle, but you will need to provide the exact details of the house you are buying and the price you are paying to turn that principled agreement into a firm offer. The mortgage lender will insist on conducting a survey on the home, to make sure that it is really worth the amount agreed. The property is their security on the loan – of you can no longer pay the mortgage, the lender has to know they can get their money back from the sale of the house. You will have to pay for this survey – usually in the region of £400 – but the work is being conducted on behalf of the lender, so you have no redress if the surveyor gets it wrong.

A mortgage survey is the least rigorous kind of survey. The surveyor will be a qualified professional, and will spend a couple of hours checking the interior and exterior of the house, but they will not do a detailed structural analysis. If everything is fine, the survey will give the go-ahead to lend the money. If, however, there are things of concern to the surveyor, it is quite possible for the survey to insist on more detailed, expert reports on issues such as the roofing, the potential presence of asbestos, or the state of any damp or timber problems in evidence in the property. Again, further reports may well involve more expense to the buyer.

In the worst case scenario, a mortgage survey might conclude that the home is not worth the agreed price, or that work must be done to the property before the full amount of the  mortgage is paid. If this happens, it may be necessary to renegotiate the price, or to come to an agreement with the seller as to what work is done when, and who pays for it.

Many buyers, with or without a mortgage, want greater assurance of the condition of the home they wish to buy. There are two further survey options available. A Homebuyers’ survey is commissioned and paid for by the buyer, and the surveyor is legally answerable to the buyer if they miss anything fundamental. This survey is more in-depth and thorough than a mortgage valuation survey. Sometimes, a mortgage company will accept a Homebuyers’ survey, but always address this matter directly or through your IFA before it is commissioned.

Be aware, also, that surveyors are cautious about their legal obligations. It is not uncommon to find phrases in a survey which convey little information but which protect the surveyor against the charge of overlooking something that is discovered later. Many surveys contain phrases like ‘the condition of the roof suggests that it may need replacing within the lifetime of the building’. This doesn’t actually say if the roof will last for five years or five hundred years, but it does protect the surveyor against legal action if the slates start to fall once the new owner moves in.

The most expensive but most rigorous form of survey is a full structural survey. A structural engineer will examine in detail all aspects of the construction of the property. While the cost may be double that of a mortgage survey, this kind of report should bring reassurance, or identify problems if they exist. Given the cost of any property, buyers should seriously consider getting a full, detailed report on their purchase.

A survey takes a few hours at most, but booking the surveyor might mean a delay of a week or two, and waiting for the surveyors report is a principle cause of delay for mortgage offers. It is important, then, to address these issues at the first opportunity.

The role of estate agents

In the strict, legal sense, the Estate Agent has no role or responsibility once the sale has been agreed and the Memorandum of Sale issued. In practice, though, this time is when a good agency really earns their keep. Solicitors are notorious for working to their own time. Lenders have hundreds of applications for loans. IFA’s have a limit to what they can do for each client. Buyers have their own sales, and often their own sales agents. Property chains can involve dozens of these professionals. Usually, it is your agent who will chase and harry all of these people into line to look after your sale or purchase. Remember that the other professionals – from lawyers to brokers to lenders to surveyors – are not working for the agent. There is only so much an estate agent can do when you, or another person in the chain, is the actual client of the solicitor. Nonetheless, a good agent will keep you, and everyone else, informed of exactly what is going on, which documents are needed by whom, and why there is a delay should one occur.

Incidentally, cheap estate agents usually keep their fees low by cutting back on this kind of work, or even cutting it out altogether. While a handful of sales progress with no complications, with no gaps in communication between the professionals, and with no hiccups or hold-ups, in practice this is rare indeed. When problems do occur, a good agent will anticipate and solve them without you even knowing, but a bucket-shop agency will most likely lose the sale. Cutting costs can really become expensive when this happens, as any fees you have paid for your own surveys etc. could be lost, and you will have to go through the stresses of finding a buyer all over again.

Ready to exchange

The exchange of contracts is the point at which an agreed sale becomes a legal commitment. The solicitors for both sides will put together the contract of sale which specifies the amount to be paid, and all of the details regarding the land, property and goods included in the sale. Buyer and seller leave a signed copy of the contract with their own solicitor. When, and only when, both sides are happy that everything is agreed, checked and in place, then the signed contracts are exchanged. From this point on, there is no backing out.

The contracts that are exchanged will agree a completion date – that is, the day when the money has to be handed over and the property legally changes hands. This can sometimes happen at the same time, or it can be agreed for several months in the future. On occasion, a contract can specify a deadline but allow for an earlier completion in advance by mutual agreement. Exchange of contracts confirms the sale will go ahead; completion is when it actually happens.

Completion

Until completion, the seller still owns the property. For the buyer, and the buyer’s solicitor, it is vital to have the money ready to transfer. Most solicitors won’t exchange contracts until this is confirmed. It can take several days for the mortgage company to release the funds, and it will cost money to send money immediately, so make sure there is enough time for this to happen. Failing to complete on a purchase on the agreed date can carry heavy financial penalties. Fortunately, it doesn’t happen very often.

Many people choose to move house on a Friday, which makes this an extremely busy time for lenders and lawyers. If at all possible, avoid completion dates on Fridays for this reason. The keys to your new home won’t be handed over until completion happens, and it might run late into the afternoon if you pick the busiest day of the week. This can cause problems for removal firms, and might end up with you working late into the night to get boxes and furniture out of one place and into the next. Worse, if anything goes wrong or there are last minute delays, the offices will close until the Monday, and you may just find yourself with nowhere to go. Although this worrying prospect is a rarity, it’s best avoiding the possibility by picking any other day on which to complete your sale or purchase.

When the money is received from the buyer by the seller’s solicitor, the sale has completed. The solicitor should tell the estate agent, buyer and seller. The estate agent can then release the keys to the new owner. Congratulations! You’ve just moved house!

Gazumping – What is it, and why does it happen?

imageThis often-used jargon term has fallen out of favour with the downturn, but when prices pick up it will doubtless once again become part of the vocabulary of buying and selling property.

The word describes the situation when a seller, having already accepted an offer from a buyer, then changes to accept a different, higher offer from a different buyer. Making a higher offer on a property that already has a ‘sale agreed’ is called gazumping: the unfortunate buyer who misses out on the home they had agreed to buy has been ‘gazumped’. This is not just bitterly disappointing – it can be very expensive, because the first buyer may already have spent hundreds of pounds on legal fees, mortgage applications and surveys. Their money – and ‘their’ new home, with the dreams and aspirations that went with it – are irrecoverably lost. They are back to house-hunting, poorer but no wiser, as it could just as likely happen again.

This, of course, happens more often in an upward market, when buyers are competing for desirable properties – although it can take place at any time if a ‘new’ buyer finds their dream home only after the original sale has been agreed, but before it has been transacted, or if a potential buyer suddenly finds a buyer for their own home, and so is newly in a position to make an offer.

How can it happen?

Gazumping is possible because there is no legal status to an agreement to buy and sell a home in England and Wales. It is only when contracts have been exchanged that a property sale becomes binding in law. Until that moment, the buyer and seller have nothing but each other’s word to rely upon, and either is perfectly entitled, by law, to change their mind and pull out of the deal.

Can it be stopped?

No. As an act of good faith, the buyer (or the estate agent) will usually ask the seller to take their home ‘off the market’, and to display a ‘sold’ or ‘sale agreed’ sign. Estate agents will stop promoting the property, and will usually stop taking viewings on the home. It’s sometimes thought that estate agents encourage gazumping, but in practice it is the opposite… agents are usually happier for an agreed sale to go ahead without complications. Gazumping undermines this, and can cause mistrust all round. For the agent, who earns a small percentage of the final sale price, the difference between the offers makes only a very small change in the fee, so there is little reason why an agency would want to encourage it.

But, however much an estate agent might not wish to see a gazumping bid, the agent is legally obliged to pass on every offer made to the seller. It is an obligation of the Estate Agents Act 1979 that an Estate Agent has to pass on every offer made on a property – even if it is already ‘sale agreed’. The agent may refuse to undertake more viewings, and may make it clear that the home is sold, but until that contract is exchanged, the agent has no choice if another buyer insists on making an offer.

That’s when it becomes really complicated. The estate agent is working for the seller, and is both legally and morally bound to give the best advice and service in the seller’s interest. The buyer is not the estate agent’s client. A gazumping offer will be higher – often significantly higher – than the original offer. Also, the new prospective buyer may well be in a better financial position – less dependent on a mortgage, or perhaps even a cash buyer with no house of their own to sell. The agent has to give the best advice to the seller, and sometimes there is a clear case to go with the new offer. Indeed, even if the agent feels that it is better to stay with the first agreement, the seller may be swayed by the prospect of more money. More often than not, the gazumping offer will be accepted, even if the original buyer has already incurred costs and set their hopes on their new home.

Is it wrong?

Legally, definitely not. Morally… that’s a hard question. Certainly the original buyer gets a very rough deal. But it’s also very hard to expect the seller to turn away a bigger, better offer. Many sellers do feel a personal or moral obligation not to break their original agreement…  but, if the gazumping offer is tens of thousands of pounds higher, that is a very hard decision to make. It’s not necessarily fair to expect anyone to sacrifice such a large amount of money just to keep to an informal agreement with no legal status. Remember, too, that both the new buyer and the seller get what they want, even at the expense of one disappointed party. But it’s clearly not a very nice situation for those negatively affected.

It’s interesting to note that in Scotland, where the buying process is different, the acceptance of an offer is the close of the legal process, so gazumping can’t happen. Perhaps it would be better to extend that system south of the border. But, until the law is changed, gazumping will be an occasional part of the picture when houses are bought and sold. Just don’t blame the estate agent!

Making and receiving offers

 

maison-et-objet-paris-2015-market-for-the-home-2.0.jpgThere are two ways to look at a prospective house sale. The first is antagonistic. The buyer wants to pay the lowest possible price. The seller needs to get the most money they can from their sale. These two camps are in opposition, and if both bring this attitude to the negotiation, it can be very hard to satisfy both parties. The other perspective is collaborative. The buyer wants to buy, the seller wants to sell, and both sides are looking to achieve the same objective. Adopting this attitude will make things much easier to resolve. Both perspectives are, in some sense, true, but the first way can lead to intractable problems and stubborn negotiating that gets in the way of agreeing a sale. A constructive approach offers a ‘win-win’ solution, where everyone is happy with the deal.

The buyer’s perspective

Before making an offer, know exactly what you can afford. If you need a mortgage, speak to an Independent Financial Advisor (IFA) and get a Mortgage Approval in Principle (AIP). This will let you know how much you can borrow, and how much you can expect pay back each month. If you are a cash buyer, or are getting your money from other sources, you need to do the same calculations to truly know your financial position.

Remember – buying a house is only a means to an end. For most people, the aim is to build a new life in a new home. If you find the right house, focus more on the outcome and less on the negotiation itself. Of course you want the best deal, for less money. It’s natural to offer low, and to do your utmost not to pay more than you have to. But it’s hard to weigh the value of finding the right place. If you buy with a mortgage, you only need a little extra cash to make a much better offer. For example, if you are borrowing 80% of the purchase price, £5000 more will only cost £1000 in cash, plus a little extra each month. Some buyers get so caught up in ‘doing the deal’ that they lose sight of how little it will actually cost to improve an offer. Concentrate on what you are trying to achieve in the long run, rather than worrying about ‘winning’ the negotiation. If you find the home you want at an affordable price, you are already a winner.

For investment buyers, it’s almost the exact opposite. You should only be looking at the numbers. An investment property is a business, and you should try to dismiss the emotional appeal of a particular house. There, it comes down to the maths of whether you will attract tenants, and whether the rent will cover the cost. Even so, being direct and honest about your position, rather than trying to haggle, will give you a much better chance of achieving your goals. Investment buyers, though, should be willing to walk away if the numbers don’t work.

The Seller’s Perspective

Constantly ask yourself ‘what is it you are trying to achieve?’  If you are buying a new home with the proceeds from the sale, you should have a good idea of how much money you need to make. If you receive an offer which is too low, perhaps you can make a lower offer on the home you need. If there’s a chain, it’s easier to ask five people to take £2,000 less than for you to accept £10,000 below your price.  A good estate agent can help a lot in these cases. If you want a quick sale for personal or practical reasons, it can be better to accept a reliable buyer at a lower price, than to hold on in hope of something higher that may never come. Knowing your own priorities will help guide you towards the best decision.

Naturally you want the best price. The Estate Agent is working for you, not for the buyer, and although agents want a sale, their advice on the state of the market and the quality of the offer should be taken very seriously. If you are holding out for more, it’s useful to have something in reserve. Including furnishings in the price can give the buyer the justification for a higher offer. Buyers want a deal, too, so have something extra to give in order to get what you need.

It can be good to be flexible or creative. A buyer may be able to afford a larger mortgage but may not have ready cash available. If your home is just over a stamp duty threshold, perhaps you can offer to pay the duty, so that the buyer can offer more for your home but has less cash to pay up-front. Maybe you can offer to pay the removal costs out of the sale price. In both cases, the buyer can use the money saved to add to a deposit, allowing them to borrow more for a higher purchase price. If it costs you £5,000 in stamp duty to get £10,000 more for your home, you have clearly done well out of the deal!

Unproceedable offers

This is when a potential buyer makes an offer, but can’t go ahead with a sale until they have a buyer. Sometimes, the obstacle can be a link much further up the chain. They are hard to evaluate: on one hand, it’s great to have a potential buyer lined up, but on the other you might be waiting for months before everything comes together. If you receive an unproceedable offer, you may be willing to accept the price, but it is usually a good idea to leave your home on the market. The estate agent of the person who has made the offer has almost certainly told them it will be easy to find a buyer. It may be true, but be sceptical to guard your own best interests, and ask your own estate agent for their opinion. At very least, suspend marketing only to a deadline to give your prospective buyer some time to complete the chain.

If you want to buy a home but haven’t yet found a buyer, it’s still worth making an offer. First, you will have some idea of whether your chosen home is affordable. Second, you virtually guarantee that the estate agent will keep you informed of any other offers or developments. Most important, you have a real idea of how much you need to get for your own home. If your unproceedable offer is accepted, you may be able to take less for your own home to complete the chain. But be quick – even if you have your heart set on a home, you can’t expect the seller to wait forever.

A last word on negotiation

For both sides, remember that negotiation is only the means by which you both arrive at an agreement that suits everyone. The more honest and collaborative the process, the less likely it is to break down later on. You both win, or you both lose – very rarely is this not true. Be honest with yourself, and know your own mind and financial position. Be prepared to compromise or to walk away. It’s easy to get caught up in the detail, but is it really sensible for a deal worth hundreds of thousands of pounds to fall apart over a couple of hundred quid? From the minute an offer is made, both buyer and seller want the same result – ‘sale agreed’!

 

 

Viewing homes

 

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This is when it starts getting serious! The only way to truly appreciate a home is to see for yourself. Going round a few places will help you focus in on what really matters to you – but it will get confusing if you don’t get organised!

What to take on a viewing

A little preparation goes a long way. If you are seeing several homes, either one after another or over a course of a few weeks, then taking notes is the best way to differentiate one from another and to remind yourself which is which.

Take a digital camera. Take a picture of the front door and house number on your way in, so that you remember which home is which. Your photos will be separated by the front door.

Take a clip-board, with the agent’s details and a note pad. Jot down your observations as you go from room to room. Try to ignore the possessions in there – you aren’t buying the current owner’s lifestyle or furnishings. Decoration can be changed. Concentrate instead on the space, the natural light, the layout and the ambiance. Don’t forget to note which house the notes relate to.

Take your list of ‘must-have’ and ‘like-to-have’ things. Tick them off as you go. If you’re not sure, ask the agent. As you see more places, you may want to write a list of questions to take with you for each viewing. Again, identify the list to the home, so you don’t get them mixed up.

Most of all, take an open mind and some imagination. You may be impressed or appalled by what the current owner has done with the property, but none of that is your concern. Can you mentally empty the rooms and fill them with your things? If so, you can make a true judgement of whether the house will suit you.

Feedback and Second Viewings

All sellers, and their estate agents, like to have feedback from a viewing, even if it isn’t complementary! If you really didn’t like somewhere, the temptation is to ignore those messages from the agent asking your opinion. But don’t succumb. It’s not just that it’s polite and courteous to share your thoughts. It can also help you work out what’s good for you, and will give the agent a better understanding of your needs. Sometimes you might dislike something in a home which the agent can reassure you about, and you may reconsider a home you’d previously rejected after finding out a little extra information. More often the process of working out and explaining why one home didn’t do it for you, will help you understand more about what you really want. It will certainly help the agent to pick out homes that are more suitable. Giving feedback – even negative feedback – is always a good idea.

If you are taken with somewhere, though, add it to a shortlist for second viewings. Now is the time to do some proper research. Go and see the house – from the outside at least – at different times of day. Does the garden really catch the evening sun? Is there anywhere to park when everyone comes home from work? If you are going to live there, these things will matter, so it’s better to know before you buy!

For a second viewing, you should prepare a list of questions. You’ll want to know the council tax and utility bills. Test out the walking times to the shops and to town. Ask to see guarantees for works done. Look over the neighbourhood and think about whether you’d feel safe and secure. Don’t be afraid to ask about cracks in the plasterwork, stains on the ceiling. Ask about the neighbours – if the owner knows them by name and knows a bit about them, that speaks volumes. If not, the silence might tell you all you need.

At your first viewing you need to look past the décor to imagine if the house could become your home. On second look, though, you should be planning on the changes you would want to make, to decide whether it is worth the time and effort it will take. If there’s lots to do, that might well be reflected in the lower price you are willing to pay, even if the cosmetic details you want to change are not things that would lower the asking price.

In general terms, it’s worth visiting a place three times before you can be sure it will work for you, but if on second viewing your enthusiasm is confirmed or strengthened, then don’t hesitate. It’s better to make an offer, even a low one, early on, to make sure that your serious interest in the property goes on record. At least, then, you can be sure that the agent will tell you if someone else is interested or puts in a bid. You might even get the house for less than you expected.

Finding a new home

Whether you are a first time buyer, or if you are moving for the umpteenth time, finding a new house is a challenge and an adventure. Buying a property is a very large transaction, but it’s not just bricks and mortar… it is the place you will call home.

We can’t, of course, tell you what kind of home would be suitable for you, but we can give you some pointers and advice as to how to go about it. These suggestions may give you a little structure to help your decision-making, and that such a framework can be useful with such a daunting prospect as choosing a home.

Work out your finances

This should always be the starting point. You need to know how much money you have to put down on a new home. If you are buying outright in cash, this is your budget. If you need a mortgage, this is your deposit, and will make a big difference on how much you can borrow. Work out your monthly income and outgoings. Be honest and precise. Taking out a mortgage isn’t just about how much the bank will lend, but also about what you can afford to pay each month. Remember that interest rates can go up, so at very least consider fixing your mortgage for a period of time. In these uncertain economic conditions, be brutally honest as to the possibilities of your work circumstances changing for the worse. If you depend on overtime which might be cut, or if your industry is suffering redundancies, you really need to think long and hard about whether the time is right to make such a weighty financial commitment.

If you are sure, speak to an independent financial advisor to get the latest deals and mortgage products available. Ideally, get a mortgage agreed in principle before you start to look for houses. However you are intending to pay for your new home, it’s vital that you know exactly where you stand financially before you even begin to search. Your budget is the first thing to determine the criteria for your new home.

Make a list!

Writing things down is a great way of organising your thoughts – especially if you are house-hunting with a partner. If it’s on paper, you can organise your priorities, and between the two of you can recognise the things that matter most as a couple when your individual opinions are different. A good way to start your list is to make two columns – ‘Must have’  and ‘nice to have’. Then break your page into headings – the house, the location, the wider area. You may want to break these down into sub-headings – bedrooms, garden etc. Exactly what you put in your framework is up to you, but you’ll end up with a grid, waiting to be filled, that looks something like this:

 

MUST HAVE

NICE TO HAVE

HOUSE

Bedrooms
Two Three – spare room/study
Reception Rooms
Must fit sofa/suite in lounge Separate dining area would be good!
Bathrooms
Must have a shower Would like a downstairs loo
Garden
Courtyard at least, with room for shed Decking or lawn
Parking
1 off-road space Garage? 2 spaces?

LOCATION

Road
Not on a main road Cul-de-sac
Schools
Within 15 minutes drive of school Ideally within walking distance
Work
Within 30 minutes drive of work Ideally within 15 minutes drive

WIDER AREA

Motorway access
Less than 15 minutes to M5
City access
Bus route Walking distance
Suburb
East of the city St Leonards/Newtown

When your grid contains all the things that are important and relevant to you, then you can start to fill in the spaces. This will give you a real sense of what things matter, and how flexible you can be. Again, the details are all down to you, but your grid might look like this:

Now you have a clear plan of what you’re looking for. It’s worth noting that not everything in each column will have an equivalent – perhaps being near the motorway would be nice, but not vital. Maybe being within walking distance of school is essential, and nothing else will do. Either way, though, work down each column on its own and number your priorities. You will end up with two lists, in order, of things that your new home must have, followed by things it would be nice to have as a bonus. They won’t necessarily be in the same order, so your list might read;

These two lists together give you a comprehensive checklist to evaluate any potential new home you see. It may be that no single home ticks everything on each list. Perhaps you find somewhere which has a spare room in St Leonards, but which has no shower. Or maybe there’s no off-road parking, but you’re within walking distance of school and the city. By comparing like-for-like against your checklist, you can compare how homes stack up against your needs. You may also find that your lists change a little once you see what’s out there.

Finding homes to view

Now you know what you want, and how much you have to spend, you can start your search in earnest. The best and simplest way to search is on the internet. There are lots of different internet portal sites, where estate agents advertise the homes they have for sale. The biggest and best of these is http://www.rightmove.co.uk.  There, as with most portals, you can specify criteria such as price and the number of bedrooms, and get a selection of homes which meet your basic requirements. From there, reading the descriptions will let you check off things against your list. You should be able to narrow down the number of potential houses to a manageable shortlist of up to a dozen. From there, it’s relatively easy to book some viewings and start to see exactly what you can expect for your money.

If you are dead-set on a particular area, it’s worth driving or walking around looking for signboards. You can, for a snapshot, browse through the local paper, but compared to the internet this is haphazard and time-consuming. It’s always a good idea to register with as many local agents as there are, because they will take responsibility for informing you when new properties come on the market. Every agent, like each portal site, will ask you questions about your budget, how many bedrooms you need, and which areas you prefer. The narrower your criteria, the less homes you will see, but the more closely they’ll match your needs. If in doubt, start broad, and get more specific as you learn about the availability of local homes. It would be a shame to miss something great because you’ve been too precise, but once you’ve got a sense of what’s available, you can focus in on exactly what you’re after. When you start doing viewings, you can build up a rapport with the local agents and they will know to call you as soon as something suitable comes up for sale.