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Why isn't my property selling? (Top 5 Reasons) How is the property market doing? Myths about selling your house (Top 9 myths) Property Links
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Top 9 myths about selling your house by Graham Brown In a contracting market, information is power and any vendor needs to take in upon themselves to be educated and informed about the real nature of the market. There are plenty of "Pub financial advisers" with an opinion on the property market. There are also many "financial advisers" who have an opinion but unless they are actively investing in property on a daily basis, they're only interested in selling their clients yet another policy or financial product.
Any solution needs to be global. You can't, for example, sell your property to free up capital to pay of your most pressing debtors then declare yourself bankrupt. Whilst any financial situation can be improved (usually through basic discipline and taking stock of reality), it takes time and there is no "magic wand" to resolve a condition that has taken potentially years to create. So stay informed - here's my top 9 myths that "pub financial advisers" perpetuate about property today (and I'll get to 10 when I think of one more to add!) 1) Property is your biggest investment Perhaps the biggest lie of all time. Anybody that's made (real) money through investment will tell you to buy assets and create a passive income. The house you live in is not an investment but a liability. When someone else lives in your property and pays you a rental income that's an investment (assuming you make money out of it - see point 4). For starters, you think you own it but try defaulting on your mortgage and see what the bank has to say about that. That's why your property will be on their balance sheet and you'll be paying for it. The bigger your house, the larger your liability. 2) The interest rates are due to fall, the market will pick up
Without going into too much detail, when the BofE gets nervous (e.g. when banks such as Northern Rock start defaulting on their loans), it will hike up the LIBOR to protect the market. In "booms", the LIBOR falls. So it means that even though the "official Base Rate" may be 5.5%, the LIBOR could me 7%. In short, yes falling base rates encourage more borrowers but it takes time to trickle through to the market. In a cooling market it could be months or even years and is certainly not worth "banking" on. 3) If I sell at £170,000 and my property's worth £200,000 I've lost £30,000!
Property values are a reflection of what people are willing to pay for the properties. They are also relative. If my property is worth £150,000 and falls 5% in a year and yours is worth £140,000 - it's also going to fall 5% in a year. That means when you come to buy my property, our prices are relative. Better off being with liquid cash in a falling market. 4) This property has great rental potential! It's certainly true that rentals up are on the up, you only need to count how many Polish builders have moved to your area to understand that the pressure on housing is increasing. However, few properties today pay enough rent to be able to cover the mortgage. What does that mean? It means the days when everyone got rich on property just by buying and sitting on their "buy-to-lets" are over. Your average £200,000 flat may rent for £900 per month but what is the mortgage payment on that? Interest only - you're looking at at least £900 pcm. Add on to that insurance (£10 per month), service charges (anywhere up to £100 a month in some flats), annual repairs (pick a number). On top of that you may have to pay an estate agent at least 10% a month to find a tenant. Most properties bought today by your average investor will lose that investor 10% of the rent a month. On £900 pcm that's £90 per month! How many of those properties can a landlord afford to have? Once again, I'll reiterate that the boom days of the 90s when everyone could buy a buy-to-let are over. If you're selling in the hope of an investor buying that property they certainly aren't going to offer market value for it in order for it to work. Just to break even they're going to offer at least 15% below your asking price so they aren't losing money on it. As a seller, it means that what could have been attractive 10 years ago has changed. You need to consider "who" is your target buyer in the light of this market movement. 5) I've spent £50,000 on this property that means it's worth £50,000 more! Sadly this is rarely ever the case. Go to House Prices and find out what the maximum sale price for houses on your street is (called the "ceiling price") and that's the figure that your buyer's surveyor will base his estimates on. I spoke to a couple last week who spent £12,000 installing a new kitchen and bathroom in a 2 bed flat valued originally before the refurb at £185,000. They had a first time buyer whose offer fell through because the surveyor came back with a valuation of £180,000 (go figure!). Needless to say a shock to both vendors and the buyer, but something I'm seeing a lot more of in the last 6 months. If the ceiling is £250,000 and you spent £50,000 extending a £240,000 property, chances are that you won't recoup your money. When was the last time you saw a property investor building a conservatory onto a bungalow? Professional investors will focus on putting in basic yet presentable kitchens and bathrooms and spending a maximum of 5-7% on the property to keep it within the street ceiling price.  Those two chaps who on Channel 4's "million pound property experiment" made money out of property because, as they say, "a rising tide raises all boats". They could have stuck a bath in the kitchen and converted the upstairs into an indoor pool and still made money in a property bubble that saw prices appreciate 20% in a year. Those days are over and many amateur "developers" are coming unstuck with their purchases of designer italian kitchenware, Agas and imported Scandinavian water features for the garden. If you're going to renovate your home do it either ~Bear in mind also that surveyors make the final decision about what your property is worth. Their survey determines how much a lender will lend to your buyer. If they think it's worth £190,000 it is, unfortunately, irrelevant what Carol thinks your property is worth because the lender will always follow the surveyors advice. 6) The agent says another one in this block sold for £250,000 last week If you're on with an agent, or considering it, it pays to inform yourself about the true nature of their claims. Go to House Prices and find out the official Land Registry records of what has sold in your postcode. You'll also find your own transaction in there for useful reference. On numerous occassions agents have told me that a property is worth X because another "done up" sold for X last October. I've even been on the phone and checked their claims online whilst they are telling me. A young girl (obviously new in the game) claimed properties on one road were selling for £300,000 last Summer when I could see for myself that the maximum for that street was £235,000 as late as Autumn same year. Always pays to be informed. 7) If I sell to someone at £170,000 and it's worth £200,000 you're making £30,000 out of me! Typically "pub financially advisers" will warn acquaintances about "selling your property cheap" because someone's going to "make a killing on it". Let's consider 2 facts carefully here: Remember, money is neither gained nor lost on the value because it's merely paper value and in a contracting market it's far better to have money to spend then have it locked up in an asset that's falling in value. 8) Agents say the market is picking up Last week an agent told me that they sold 99% of their properties last month. "Great" I said, your agency must be stars because all over the UK, property values are falling. Just read these newspapers for verification: So ask any agent that tells you they sold 99% of their stock last month exactly how their bucking this trend? When an agent's "busy" in a cooling market it means they're "busy taking on new properties" not "busy selling them". When properties don't sell, vendors rightly shop around with multiple agents meaning a greater supply across all agents. Similarly, more owners are forced to sell when financial difficulties increase or repossessions loom. Just take a look at any auction catalogue to see that the property auction business is doing very well right now! Why? Because banks are repossessing properties like they're going out of fashion and selling them off cheap through the wholesale market. The number of times my poor Mum has been told by the agent not to switch or "give up" hope on her 4 bed family home because "the market will pick up next week". Agents will say this to stop her taking it off the market or going to a more aggressive agent. They'll even send people round for viewings who aren't really interested in buying that property at all, but will deliver the impression to the vendor that they're actually doing something (see below) 9) We're getting loads of viewings right now - we're bound to sell this house If only it were the case! In a boom market, you can expect a ratio as low as 2 viewings per offer. I remember looking at prospective investments on a Friday afternoon that were gone by the Saturday morning when the first viewing snapped it up. Great for everyone including the agents. But that was back then when it was relatively "unheard of" for a property to be on for 3 months. Now if a property sells in 3 months you're doing very well indeed. 2008 ratios have changed dramatically - you can consider 20 to 1 or even 50 to 1 as good going. Consider the following back-of-envelope statistics I've provided based on my own (unscientific but adhoc observations): That leaves the remaining 5% who can are on the market to buy. Now consider the following: So yes, you're going to get lots of people shopping round but bear in mind that they're probably viewing on average 30 to 40 properties as well as yours and are more likely to go with the one that gives them the best offer. |
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Graham Brown Property registered in the United Kingdom, 22B The Coda Centre, Fulham, London SW6 6AW Copyright (c) 2001-2008. Graham Brown Property. All rights reserved. |
