Buying a new home is exciting. And nerve-wracking. Financially, and emotionally, there's a lot at stake. The mountain you’ve got to climb looks even bigger when buying property in a foreign location. It's not just the lack of familiarity with the market but the commercial and legal intricacies. Under this kind of pressure, it's critical to avoid the mistakes that lead to buyer's remorse.
I’m sure you’re familiar with the cliche that those who ‘fail to plan’ actually ‘plan to fail’. It is very appropriate in this situation. There are a lot of moving parts to your London property purchase and you will substantially increase the odds of success in your favor through:
Because once a buyer is on the property search merry-go-round they will be deluged with sales and marketing material from real-estate agents and property developers. For those who aren’t clear about what the end game looks like, there is the very real risk of making an opportunistic purchase that turns out to be not fit for purpose. Being diligent and thorough in the planning phase is absolutely critical to successful property investment.
As part of their homework, buyers coming into the London market are looking for advice concerning market trends, price history and neighborhood characteristics. Whilst a baseline knowledge can be built from online resources, nothing replaces the value of local knowledge. Real-estate agents are usually the go-to people for this advice and, generally, capably fulfill this function.
But don’t be confused. Estate agents are legally and morally bound to serve the interests of the party who engage their services – the property seller. Their role is to secure the best possible price and terms for the seller. They cannot represent the best interests of both the seller and buyer any more than a barrister in court can represent both the prosecution and defense.
The highly respected American statistician Nate Silver, founder and editor-in-chief of fivethirtyeight.com, wrote an authoritative book on the subject of data analytics. The focus of his narrative is about filtering out the noise to identify the signal or trend. From a real-estate perspective, this is challenging. The UK landscape is flooded with data about residential property from every conceivable angle, which is amplified and spun by property developers and estate agents who have their own agendas. On top of which the London property market is actually a whole series of micro-markets.
Astute buyers don’t allow their property investment to fall foul of data overload or ‘analysis paralysis’. They do their homework, take counsel from trusted sources and then execute decisively. Their decision-making is guided by knowledge of the macro and microeconomic factors driving the market. This builds confidence in understanding how different segments are performing and avoids the temptation of trying to pick the perfect time to enter or exit the market. That is a fool's errand.
Inexperienced offshore buyers can be seen arriving in London with a full book of property inspection appointments spanning three to five days. They will have done their online research on market trends, established which districts are of interest and nailed down viewing times with appointed agents. Typically, they will schedule six to eight inspections per day to maximize their time in the city with the expectation they will purchase a property.
There are several factors they will have either neglected or under-estimated:
On top of which real-estate agents will pick up the signs of a buyer being under self-induced pressure to get a result. Expectations need to be set realistically and the temptation of placing a bid on a property to justify the cost of travel and time invested avoided at all costs. That is a sure-fire way to generate buyer's remorse.
Lots of buyers have fallen prey to this syndrome, namely buying property on the strength of walking into the kitchen and falling in love with the granite benchtops, designer brand appliances and tap dispensing filtered water. Inherently there is nothing wrong in buying a property with quality fixtures and fittings. The problem occurs when buyers either pay over the odds or are otherwise blinded to what may be fundamental flaws in the property.
The merits of any property need be appraised on issues that are material to its true value, starting with the question does it have ‘good bones’? What are the room sizes and proportions? Does the floorplan work? Is the quality of the construction sound? This question is no less relevant to new-build properties. Older properties that have been refurbished could be hiding structural faults. Astute buyers know to look past a property's cosmetic appearance to gauge its real worth.
At some point, most home-buyers end up being home-sellers. It could be for lifestyle, financial or professional reasons. Whilst it might sound counter-intuitive the time to be thinking about selling is prior to buying. The key issue that should be top-of-mind at the point of purchase is the property's Unique Selling Proposition (USP). When it comes time to sell, what is there in the property's DNA to make it stand out in the market?
This is particularly important in the new-build market. For example, the buyer of a two-bedroom flat in a regeneration area doesn’t want to find that when the time comes to sell that, by default, price becomes the USP because of a glut of similar properties on the market. The key to creating a USP that enhances a property's profile in the market begins with location. A flat located on the upper floor with a view over parkland will always attract a premium over one located on lower floors that looks out over a main road. The temptation to trade-off location for price at the time of purchase needs to be tempered by looking down the path to its impact at the time of sale.
Some buyers errantly judge the success of their property purchase on one key metric: the discount negotiated off the asking price. There are two obvious flaws to this approach. Firstly, it suggests that the buyer entered into the negotiation without understanding the property's market value. Secondly, the asking price may have been inflated to allow for this very contingency, meaning that the buyer may still have paid over the odds.
Of course, not every sale follows this formula. The seller and their agent may have determined that the asking price should be pitched artificially low to encourage competitive bids to drive the price up. A more strategic approach to the negotiation process would be built upon the following foundations:
Understanding the relativity between market value and asking price will help the buyer determine the scope of the negotiation parameters. This minimizes the emotion and subjectivity which too often clouds the negotiation process. Understanding the seller's motivation is critical to determining what the price floor is and, potentially, securing the property on favorable terms.
When it comes to buying property, the conventional wisdom is that cash is king; that sellers will favor dealing with a cash buyer. The extenuating factor in today's market is that with interest rates at record lows the opportunity cost of using cash might not favor that strategy.
When it comes to securing a mortgage, the mistake that offshore buyers commonly make is not starting the process until they have successfully bid on a property. The problems with this approach are:
Critically, if the buyer is able to demonstrate that they have Mortgage-in-Principal approval this essentially puts them on the same competitive footing as a cash buyer. It is essential that the mortgage application process commence as soon as the property search starts to put the buyer in the most competitive position.
Within the real-estate industry conventional wisdom holds that most property buyers will exceed their stated budget. There is always a real-estate agent who is happy to help a frustrated buyer move up a price rung. This is a common affliction with offshore buyers who are anxious to secure a purchase and whose inexperience in the London market may give rise to false expectations. This further highlights the importance of planning before commencing the search proper.
Most buyers budget for the cost of professional services including conveyancing, loan application fees and property surveys along with statutory costs such as stamp duty. But if they are buying a leasehold property, usually a flat, they may be surprised to discover the full extent of the cost of ground rent and other service charges for maintaining common areas. Particularly for new-build flats this can run into several thousand pounds per annum. To prevent financial problems down the track, these costs need to be thoroughly understood pre-sale.
Let's be honest, most of us tend to cut corners to varying degrees in our financial lives. It could be having insufficient life insurance or pension savings. With a property purchase, it is not uncommon for buyers to target saving money on their ‘add-on’ costs. In this category, a popular option is to select a cheaper conveyancing option through engaging a property solicitor from outside London. On a purchase of this magnitude, this isn’t the time to be selecting a conveyancer who may not have the required local market knowledge.
Buyers will also chance their arm through not contracting a property surveyor to assess the condition of the property. This service is essential to identifying any structural or related defects that require repair or renovation. Understanding the costs involved might impact upon the price negotiated or even cause the buyer to withdraw their offer. Even on a new-build property, a survey will identify any snagging issues that require rectification. Ignoring this basic form of protection could lead to substantial extra costs and heartache.
Of course, this list of issues which lead to buyer's remorse is by no means exhaustive. We understand that buyers coming into the London market are generally financially astute and have experience in buying residential property. Yet, these fatal real-estate mistakes are common occurrences. Therein lies the bigger question. With so much at stake, why would you risk going it alone?