Advice Needed On House Purchse/offers

[pdg]

Look!!!  The asking price is LUDICROUS!!  Offer around £120K  -- because THAT is all it's worth .... TOPS.... in fact ....offer less!!  It probably cost the present owner about £110k just a few years ago!!! Why should it be worth anymore that about £10k more than this!!!! YES!!! That is the question to ask!! And there are no answers!!! "Inflation" has apparently been around 2-3%!!!  So why should it be worth much more than a few £1k's more than a few years ago!!!! SIMPLE!!! And anyway.....  IT IS WORTH ONLY 3.5 x YOUR SALARY!!! + a few £1k! DEAD SIMPLE!!!!!!   Can people just NOT understand this????!!!!!

<{POST_SNAPBACK}>

First time poster. Long time lurker.

IMHO dont get pushed around here either by the vendor, EA or your partner. You will be doing yourself and her a favour to wait a few months.

My wife is sick and tired of renting like myself and very keen to buy now but over the last few weeks I have pointed her towards a few key indicators and some sensible thinking so that she is now reluctantly accepting that if we wait a few months longer we could be in a better situation and feeling in charge rather than feeling ripped-off and under pressure.

[DonnieDarker]

£275 a week rent, for a one bed.

Jeepers. I would love to see your flat!

[London-loser]

Maybe I'm being naive here (and I mean this genuinely!), but unless the house drops below the level of your deposit, don't you effectively take that money with you when you move?  So, you would never really "lose" your deposit.  Does that make sense, or am I just thinking in a completely weird way?

<{POST_SNAPBACK}>

Let's suppose you buy it for £270k and put down a £65k deposit. Then the price drops to £200k.

Then you move to another property... what you take with you is the £200k you get back less the £205k you have to re-pay on the mortgage - i.e. you take a £5k debt (assuming an interest only mortgage, if you have a repayment you might take a small amount of equity depending on how many years later you move).

OK, hopefully the place you move to has also dropped at least £70k so you benefit from this but the alternative is that you rent and then move in to the other place you would have moved to with a fat deposit rather than negative equity (assuming the lenders will allow you to move with negative equity).

I'd suggest you consider other people's comments on rent (are you paying over the odds now as it seems) and also bear in mind the interest you lose each month on £65k in addition in your calculation of rent v mortgage etc (you can decide to expect 0% or less on your deposit but I wouldn't).

[Van]

Maybe I'm being naive here (and I mean this genuinely!), but unless the house drops below the level of your deposit, don't you effectively take that money with you when you move?  So, you would never really "lose" your deposit.  Does that make sense, or am I just thinking in a completely weird way?

<{POST_SNAPBACK}>

When you take on a mortgage, you are effectively taking on a 25 year contract for debt, fixed at whatever mortgage size you need at the time. The value of the debt is fixed, but the value of the asset (ie the house) can rise or fall. When you move house, you take whatever equity you have, and renegotiate the debt.

Okay, so say you buy the flat for £267k, with a £202k mortgage (you have a £65k deposit - we'll ignore transaction costs). You have locked yourself in for £202k of debt for 25 years.

If house prices then fall 20%, the flat is now worth £213k. You still have a £202k mortgage on that flat. You only have 11k equity to "take with you" if you ever have ambitions of anything larger than a 1 bed flat. What has happened to your £65k deposit? *puff* - it went up in a ball of smoke when house prices fell.

If prices fall 25%, that would wipe out your deposit entirely and leave you in negative equity - flushing your entire 65k deposit down the drain.

When you move, you take whatever equity you have in your house (the difference between your mortgage and the house's market price) with you. So if house prices fall and wipe out your deposit, you have no equity to take with you. You have not moved up the property ladder at all. You've just bought at the top of the market and trapped yourself into a 1 bed flat which you can do nothing about except try to pay off more of the debt faster.

Don't think it can't happen.. it has happened and is happening again. Like I said above, the value of the debt is forever fixed - the value of the asset can rise or fall. Personally I think prices will fall more a lot more than 25%, too.

You are both obviously high earners, but again it seems that this is not a great advantage to being financially clever. I would strongly recommend you work out various scenarios and figure out the numbers for yourself. The difference to your financial wellbeing between buying at the right time and the wrong time will shock you, I guarantee.

Good luck.

Edited May 3, 2005 by Van

[hudmb]

I understand. Thanks for your clear explanation

[Guest prudence]

Maybe I'm being naive here (and I mean this genuinely!), but unless the house drops below the level of your deposit, don't you effectively take that money with you when you move?  So, you would never really "lose" your deposit.  Does that make sense, or am I just thinking in a completely weird way?

<{POST_SNAPBACK}>

As soon as the price of your property starts to fall so does the value of your deposit. Only when you have lost all your capital does the lender start to lose his. You could have answered your own question applying a modicum of commonsense. You were unable to do even that, so it seems to me you are ideal prey for estate agents at the moment. Watch out.............

[hudmb]

As soon as the price of your property starts to fall so does the value of your deposit.  Only when you have lost all your capital does the lender start to lose his.  You could have answered your own question applying a modicum of commonsense.  You were unable to do even that, so it seems to me you are ideal prey for estate agents at the moment. Watch out.............

<{POST_SNAPBACK}>

There's no need to be rude. Everyone knows lots about certain subject and little about others. I'm sure that you are no different. I'm new to all this and am just asking for constructive advice.

[munimula]

We can't have kids, so there's no danger there.

If it's also any help, we have quite a large deposit to put down on this, about £65k.  Does that help the situation at all?

PS - the estate agent wanted to know what our deposit was - I refused to tell him.

hudmb

<{POST_SNAPBACK}>

Are you seriously considering a mortgage of £200K!!??? That's crazy.

If a similar property costs £200K in 3-5 years time (highly likely) and you've got £100K saved in 3-5 years time you'll only need a mortgage of 100K. That's a 100K smaller mortgage simply for waiting 3-5 years. Factor in the interest and you would save a considerable amount over the 25 year mortgage term. Buying now is financial suicide.

The writing for a crash is on the wall and for all the rubbish that is spouted about london being immune is nonsense

[hra]

It is share of freehold

It has outside space

Gross internal floor space ~ 694 SQ FT / 65 SQ M

Study - 13'9 X 6'3

Kitchen - 11' X 6'3

Master bedroom - 13'9 X 11'9

Reception - 17'6 X 11'9

Bathroom - 10'3 X 7'

Now, the bathroom has a window, but the study doesn't.  One of our plans if we move in would be to swap these around, therefore making in a 2-bedroom property.  Apparently, it cannot be sold as a 2-bed property because the "study" does not have a window.

Does this help?  hudmb.

<{POST_SNAPBACK}>

Posted this last week but it disappeared: here is the gist.

Quite apart from all the other posters' misgivings, the sheer layout of the property doesn't exactly give it "wow factor" either IMHO.

If the property has been priced on the basis of a potential conversion to a 2-bed flat, then even if you managed to re-arrange the plumbing and sanitation (costly and messy esp. in a lower-ground-floor flat), dealt with all the new building regulations, found some way of ventilating the now windowless bathroom, and didn't get ripped off by rogue tradesmen - you'd still be left with a somewhat compact 2nd bedroom of merely 7' wide, 10'3 long at the end of the day.

Also you're still left with a 6'3 wide kitchen too - so presumably not much scope to use it as a kitchen/diner or breakfast area and take pressure off the main reception room.

I hope you're not claustrophobic.

[hudmb]

OK - we have an update. We contacted the estate agent and sent them this last night: -

=====

Dear xxxx,

Thanks for getting back to us.

I think we'll wait. £267k for that property is a very generous offer. We've consulted with friends, family and professionals who all agree it was a fair offer.

However, we do have some comments (hopefully useful!) for you in light of the vendor's response.

In your telephone conversation, you said that it was acceptable to offer 5% below the asking price in xxxx Road. Later in the conversation, we picked up on your point about the property being overpriced and asked what you thought the asking price should be be. You eventually said "...around the £280k mark." Now, if my calculations are right, 5% below what you think the asking price should be (i.e. £280k) is £266k. We offered £1000 more than this. Surely, it's in your (and the vendor's) interests to communicate this to the vendor in order that her expectations are a little more realistic? Is this something you are prepared to do?

Would the vendor buy her own property with a 95% mortgage in the current climate? I suspect not. Therefore, no one else will. The price has to be more realistic and so does she. She will have to price competitively and negotiate flexibly. A disappointing sale price today may well be attractive to her in a few months time. She clearly hasn't had any interest in the property which is another indication that it is indeed overpriced. Furthermore, if she is not in an immediate position to sell why is the property still on the market?

We have also researched and paid for information relating to property prices in xxxx Road, going right back to 1994, when the property was purchased, until Q1 2005. Again, £267k is a very generous offer compared to many other recent sales in the road/area.

If the vendor gets what she wants from another buyer then we are genuinely happy for her.

I'm sure you know, but many first time buyers refuse to be dominated and pressured into a sale and we are no different, though I suspect there are a few out there who still believe the hype!

We look forward to hearing from you...

=====

And we received this reply this morning: -

=====

>Thanks for your comments, let me know how your search goes. If any

>thing comes up I will let you know.

>

>Kind regards...

=====

Is this standard estate agent behaviour not to even attempt to get into discussions/negotiations? They are probably relying on us coming back with a counter-offer, but we are not prepared to do that. Any comments?

I just thought I'd keep you up to speed with the whole process!

All the best.

[Phaedrus]

...

=====

Is this standard estate agent behaviour not to even attempt to get into discussions/negotiations?  They are probably relying on us coming back with a counter-offer, but we are not prepared to do that.  Any comments?

I just thought I'd keep you up to speed with the whole process!

All the best.

<{POST_SNAPBACK}>

What do you expect from them? They are in the business of selling property and pocketing big fat commissions for all their "hard work". You have made it clear to them that you are not interested in the flat at that price, why do you think they would waste their time entering into debate with you over the points you raised?

I personally think you made the right decision walking away from this. Be happy with your decision, let go and move on.

[Guest prudence]

You sound disappointed that they haven't come back to you - why? Are you that desperate to line someone else's pocket and take the fall yourself. Be patient, stay in your rental a bit longer and then buy when even the vendors have to realise that the buyers are now pulling the strings. This particular vendor has no one else interested in the flat. So just sit back and watch what happens. If you lose it to a mug you've had a lucky escape. If it just festers on the market go in down the line with an offer that makes them realise how stupid they were not accepting your last one...........

[hudmb]

You sound disappointed that they haven't come back to you - why?  So just sit back and watch what happens.  If you lose it to a mug you've had a lucky escape.  If it just festers on the market go in down the line with an offer that makes them  realise how stupid they were not accepting your last one...........

<{POST_SNAPBACK}>

No, we're not disappointed, just curious about the process. That's what we intend to do - sit back and watch.

Edited May 4, 2005 by hudmb

[GonnaBeMessy]

Sounds like you've worked it out

[TheLittleGuy]

hudmb, don't let it get to you. It's natural to get annoyed when you think your reasonable offer has been rejected out-of-hand, but there's nothing you can do.

The Estate Agents job is to seek the best deal for his client and accept her instructions. Remember she will be paying him, not the eventual buyer. Right or wrong the EA may believe he can get a better price for his client.

Really it doesn't really make a lot of difference to the EA if it sells at 267k or 275k. He'd be happy to with the lower price; the commision would not be much less and he'd get the property shifted. However, most agents will be trying to avoid big reductions on principle as they won't want prices to be seen to fall in their area.

Arguing with an Estate Agent about a rejected price is futile and, if you're still interested in the property, counter productive. If they think you're difficult to deal with they wont come back to you if/when the price drops. It's best to simply smile and let them know that you'd be very interested if the price drops in the future, but that in the meantime you'll be looking elsewhere.

[theChuz]

I wonder what a quarter of a million pounds in pound coins look like

[Guest muttley]

hudmb,you are right to stick to your guns over the price ( and I agree with the concensus that it was a genorous offer) However,I would question the wisdom of your last correspondence,which will have simply antagonised the EA.(Unless that was your intention)

When you enter into a negotiation you have to find an area that both parties are happy with.In other words you have to let the vendor think he is getting a good deal too.In this negotiation the lowest price the vendor was willing to accept was higher than the highest offer you were prepared to give.Therefore,no deal.

[hudmb]

Hi,

I thought I would post an update to the situation. We received our daily property email alert this morning and lo-and-behold, the property has suddenly dropped from £289k to £280k.

Is this a sign that we have done the right thing by standing back, or is this a tactic by the EA to get us to reconsider our offer?

Bearing in mind that our last offer (£267k) was based on what the EA thought the property should be on the market for (i.e. £280k = 4.64% below the asking price which the vendor rejected).

I'm not saying that we will reconsider, I'm just curious about the process and what other might do in a similar situation.

Any thoughts/advice?

hudmb.

Edited May 6, 2005 by hudmb

[AteMoose]

The estate agent has probably used your offer to persuade the home owner that there property was vastly over valued. If somone else offers an equally low offer and they recieve no intrest in the property they will probably lower again....

[hudmb]

The estate agent has probably used your offer to persuade the home owner that there property was vastly over valued.  If somone else offers an equally low offer and they recieve no intrest in the property they will probably lower again....

<{POST_SNAPBACK}>

I see. So you think the EA is trying to get the vendor to be more realistic? Clearly if the "going rate" in our area is 5% below asking price (as the EA said), then any new buyers are going to offer less than what we did (i.e. £266k)!

hudmb.

[BandWagon]

Hi

I was a seller last year. Put my flat on the market in Clapham, in September. By then I had noticed sentiment changing, but it was the fall-off in mortgage volumes that scared the hell out of me, faster than they fell in 1989.

The estate agents did a great job, but there were just very few "proceedable buyers". I took 92% of asking price, a bit low, but I decided to take the pain up front.

There is a a saying in the retail industry, the first cut is always the smallest, ie if you have to discount goods, do it hard up front, don't keep the stock hanging around for years not selling, the pain just gets worse.

This is the problem with current sellers, they expect that they can individually hold up the market. The trouble is that there will always be forced sellers, and property developers who will sell at whatever price the market determines.

It is the amateurs who think they determine the price, not the market.

If I was in your position, I would seriously re-evaluate my desire to buy. The economy is heading for some very hard times.

If you still want to buy, become an expert on the local market. Get the estate agents to work their asses off. Make them take you to see at least 50 properties, they can show you 4 in an hour, do this over a few weeks, with a few agents. Make them WORK!

Get to know the market better than they do, and get a feeling of the lowest price people will sell for. Don't do a "Phil Spencer" and offer 4% off asking, take at least 15% off.

Get your mortgage approved up-front, there are still buyers out there, but most of them are trying to sell their own places. Make yourself the perfect buyer ("proceedable" in estate agent speak), be flexible on the completion date (easy if you're renting). And buy from a distressed seller, my guess is you will start to see many of them appearing this year and next.

Also, buy the worst property you can find in the best location. This is within reason, I look for good size rooms and nice flow, but ignore the things that are easy to change, the wallpaper, carpets etc.

I have a friend who bought a very nice 2 double bed garden flat in w14 recently, paid 250K for the place. It did need minor work, but he did it himself weekends.

See if you can beat that!

Edited May 6, 2005 by BandWagon

[Van]

Welcome to the House Price Crash

This is what it's like - you'll see a few % come off here and there. Not noticeable to most casual observers, but let it run for a few years and you end up with some pretty big falls.

It's simple - no one is biting at £289k. Whether the EA is trying to entice you specifically or is simply trying to generate more interest overall is a moot point, really. The EA knows that the asking price is unrealistic, and has talked the vendor into a reduction. Instead of putting properties on for 5% above market price and waiting for the market to catch up, vendors now have to chase the market down. The froth is slowly being blown off. This has been ongoing for almost a year now. Give it another year, and I'm sure even the thickest of EAs will finally get this message.

It's a slow process. Consensus on market direction doesn't come about quickly, but when it does it will fall under its own weight. Even back in 1997-1998, people in negative equity were handing their keys back, blissfully unaware that prices were about to rocket. It took a few years on the way up, and it'll take a few years on the way down too. Meantime, just sit back, build that deposit, and keep an eye on your local market every few months.

[hudmb]

Thanks BandWagon/Van - very constructive comments

Edited May 6, 2005 by hudmb

[DonnieDarker]

And we received this reply this morning: -

=====

>Thanks for your comments, let me know how your search goes. If any

>thing comes up I will let you know.

>

>Kind regards...

=====

Is this standard estate agent behaviour not to even attempt to get into discussions/negotiations?  They are probably relying on us coming back with a counter-offer, but we are not prepared to do that.  Any comments?

I just thought I'd keep you up to speed with the whole process!

All the best.

<{POST_SNAPBACK}>

You're dealing with Foxtons, aren't you.

Yes, this is standard behaviour from them. They are bullies and reasonably efficient ones. You've shown you have some spine so they will focus their attentions on bullying those who don't know better.

Walk away from this one. To be perfectly honest with you, by your own admission you're not going to be having a family so you really do have the luxury of time. You can afford to rent what must be a luxury pad at the moment so sit tight and keep saving. You're in a a "no lose" scenario, so wait and watch the market. Rememer every month prices stand still is MAKING YOU MONEY.

[Guest prudence]

Foxtons probably set the highest asking prices of all the main estate agents. Be very careful when dealing with them.............