7 Mistakes To Avoid While Buying Prime London Property
If you are planning to acquire a property in one of London’s internationally renowned addresses then you have one goal: to buy the finest property available on the best terms possible. In order to achieve this goal, you need to exercise the same care and attention you would when making a major investment.
Unfortunately the London property market is rigged against buyers. This is true whether you are born and bred in London or if you are based verseas.
Consequently some buyers literally throw away hundreds of thousands of pounds, and in many cases millions, by making a few basic mistakes. Fortunately many of these mistakes are extremely simple to avoid.
The Prime London Property Market
Prime Central London consists of a number of neighbourhoods including Knightsbridge, Belgravia, Mayfair, Kensington, Chelsea & Notting Hill. There is a stunning array of modern and classical architecture, which attract the most discerning buyers. Eaton Square, Chester Square, Egerton Crescent & Park Lane have been internationally desirable addresses for centuries. More recent developments such as The Knightsbridge, One Hyde Park and Montrose Place provide 21st century facilities – spas, concierges, underground parking & 24 hour security – for those requiring a family apartment or London base without the concerns of maintenance and other tedious issues associated with classical buildings.
Unfortunately, you can make some hugely expensive mistakes when acquiring one of these properties. Although the prime central London property market is mature, it is biased against buyers. However, if you understand how the London property market works, then you can use the system to your advantage.
Although it is incredibly obvious, very few buyers realise that they are at a disadvantage. This is because it is the status quo, the way buying and selling property has been handled for centuries. Many assumed that, with the advent of the internet and property websites, the situation would improve. In fact this has probably led to most buyers becoming more complacent and even less thorough in their search.
In fact research by The Financial Times has discovered that the average buyer only spends 96 minutes viewing properties before they buy – This is 43 minutes less than people typically spend deciding on where to go on holiday or which computer to buy.*
If you follow the same strategy, the probability of you finding the best property available is extremely low. In fact, relying on the internet could prove fatal as you will learn later. When buying property in London the 2% rule definitely applies: 98% of buyers do the same thing and so buy poor or average properties. Going along with the herd simply isn’t an option. Fortunately for you, you can be one of the 2% who turns this situation to your benefit.
Why Are Buyers At A Disadvantage?
The reason is simple: estate agents. The majority of property in London is sold through estate agents. This is hardly a revelation. The problem is that most buyers forget the real role of the agents.
It is essential that you remember the following:
• Estate Agents Are Employed By Owners – they are legally obliged to sell their clients’ property for the highest price possible, on the most favourable terms possible. They only have a “thin legal duty” to buyers.
• You Are Not The Priority – Each agent can have over one hundred buyers registered with him/her. As friendly as the agents may be, they are not concerned who buys the property as long as a high price is achieved for their client. Their focus is not to find you your perfect home, but to sell one of their clients’ properties to you.
• Each Estate Agent Can Only Show You A Small Percentage Of The Properties Available – The agents can only show you the properties on which they have been directly instructed. Therefore you need to be registered with every suitable agent to ensure that you do not miss out on the best
opportunities (it is true that some properties are shared amongst the agents. However, these tend to be the properties that they are having trouble selling).
• The Finest Properties in Prime Central London Rarely Reach The Open Market – You need to be able to source those exclusive “off market” properties that the average homebuyer never even knows exists.
This is why acquiring a home is rarely the enjoyable, exciting experience that it should be. If you follow the route that the typical buyer takes, you will find it an unbelievably time consuming and frustrating battle.
Of course, if you are based outside of London or are simply extremely busy, the problems are exacerbated: it is harder to discover all the relevant agents and to stay in regular contact. In addition it will also be very difficult to view properties.
Therefore the estate agents are more likely to contact other buyers about the best properties before they call you (it is a simple fact that they will be more likely to earn their commission by focussing on clients who are easy to contact and can view properties quickly).
Now you might be busy but you must find the time to carry out the necessary research to find the finest property in your criteria and ensure that you are not paying an excessive price. Most buyers fail to plan their acquisition.
Therefore they actually spend more time than is necessary, fail to find the best properties and end up making an average purchase at a high price. Fortunately, you can avoid these issues by following seven simple steps to ensure that you make an astute acquisition.
STEP 1 – PREPARATION
I am not going to pretend that the process of preparation and planning is exciting.
In fact it is remarkably dull. However, the results will be exceptional. Fortunately for you, most buyers do not treat the purchase of a home as a business transaction. Consequently they are ill prepared. You must not make the same mistake. You must be in a position to act swiftly when you find your perfect home. If you are not then it is likely that you will suffer the frustration of losing it to another buyer.
This is down to some very basic preparation:
• Have your finances in place – However you plan to finance the acquisition, you have to ensure your financier is aware of your plans so that he/she can move quickly when asked. As a rule, you will need to put down 5-10% of the purchase price as a deposit on the exchange of contracts. The balance is paid upon “completion”.
It is possible, although rare, to “exchange” within hours of seeing a property.
If you are planning to buy an investment rather than a home there are also ways to reduce the income tax exposure. (But that’s a much more involved topic).
• You must have this organised prior to making an offer otherwise there will be delays. Any unnecessary delays may cause you to lose your ideal home.
The vendor can pull out of the agreement at any time especially if the transaction is taking too long. And this is important, the agreement is not legally binding until contracts have been exchanged. Why take this risk?
• Prepare for SDLT – Stamp Duty Land Tax is payable by the buyer on the purchase of a property. It is currently 4% for transactions over £500,000. The government has recently announced that this will be increased to 5% from 6th April 2011 for transactions over £1m. Again this can be legally avoided although many solicitors do not offer this service. This is simply because it is not their area of expertise. Therefore it is essential that you choose your solicitor carefully.
• Instruct a solicitor – It is essential that you use a solicitor who specialises in London property transactions. You would not rely on a criminal expert to work on a corporate case, so do not instruct a solicitor who is not a property (“conveyancing” is the technical term if you like jargon) specialist. Again they must be available to act as soon as you are ready to make a purchase. Therefore, you should have instructed a solicitor to act for you before you even start looking for a property.
There are money laundering laws which require solicitors to check identifications and the source of funds before a transaction can proceed (this will be more complicated if a specialist structure is being used). Have everything in place so that you can avoid unnecessary delays.
• Instruct a surveyor – In most cases a survey will need to be carried out. You need to have two or three surveyors prepared to act for you at short notice.
• Be available – You may need to view properties at short notice. Obviously this may not always be possible, but if you have people whose opinion you trust, ask them to view properties for you.
STEP 2 – REFINE YOUR PROPERTY CRITERIA
One of the main reasons why buyers waste huge amounts of time is that they are not truly focussed on what they want. If you do not have a clearly defined picture of what you require, you will spend hours looking at unsuitable properties. When we first meet our clients we spend considerable time discussing their requirements to ensure that everything has been considered. You obviously need to know the basics like the number of bedrooms, bathrooms, whether you need a separate dining room, budget, etc. However, you also need to consider:
- • The condition of the property
- • Length of lease
- • Will you require a lift?
- • Views and orientation
- • Architectural styles – both internal and external
- • Service charges
- • Will you require a garage, swimming pool, gym, media room, etc?
One of the most revealing questions we ask is: “What do you want to avoid?” This will help you paint a clearer picture of what you want and therefore reduce the amount of time wasted on viewing unsuitable properties. You will also quickly be able to assess whether your criteria are realistic and modify them accordingly. Too many buyers spend months trying to find “a needle in a haystack” when in fact the needle never existed in the first place.
STEP 3 – DO NOT RELY ON ESTATE AGENTS OR THE INTERNET
I have already mentioned this, but it is worth repeating: The majority of properties are sold through estate agents, but buyers forget that this immediately puts them at a disadvantage:
• Estate Agents Are Employed By Owners – they are legally obliged to sell their clients’ property for the highest price possible, on the most favourable terms possible.
• You Are Not The Priority – Each agent can have over one hundred buyers registered with him/her. As friendly as the agents may be, they are not concerned who buys the property as long as a full price is achieved for their client. Their focus is not to find you your perfect home, but to sell one of their clients’ properties to you.
This does not mean that you should avoid the agents. One of the biggest mistakes that buyers make is insisting on only seeing “off market” properties. This is partly because they are in contact with the bigger agents and therefore assume, wrongly, that they are seeing everything openly available. There is also the view that “off market” properties are more prestigious. Indeed this is often the case. However, the agents do hold properties “off market” themselves.
Nevertheless, the agents will be your main source of properties. However, you cannot rely on them to contact you. You need to ensure that you are at the top of their list of “preferred buyers”. This will be essential as you want to be the first to hear about the best opportunities when they become available. Therefore you need to:
• Register with every estate agent in your target area – Remember the agents can only show you the properties on which they have been directly instructed.
Therefore you need to be registered with every suitable agent to ensure that you do not miss out on the best opportunities – at the time of writing there are 196 estate agencies in prime central London. At the time of writing there are 223 estate agencies in prime central London. If you only register with ten agents you are immediately reducing the probability and likelihood of success.
• Do Not Rely On The Internet – Over 75% of people start their search online, because it seems like the most efficient way to source properties in such a fragmented market. Unfortunately, they are severely hindering their chances of seeing the best properties: The Sunday Times reports that “The best property that comes to the market sells almost before going onto the Internet”.(November 29, 2009).
Indeed Savills reported that 46% of properties on its books at £2+ million are ONLY available privately and Knight Frank reports more than 30% of sales of £2+ million homes and 52% of the £5+ million are off-market properties.
YOU MUST CONTACT THE AGENTS AT LEAST ONCE A WEEK TO BE THE FIRST TO SEE THE BEST PROPERTIES
• Provide a clear list of criteria for the estate agents – they will see that you are serious and focussed on the search. The clearer the requirements the less of your time will be wasted. However, you have to strike a balance – be careful not to be too exact otherwise the agents may omit to tell you about suitable properties.
• Let the agents know you are in a position to move quickly and that you are well organised. Ultimately they want any sale to go through quickly and easily so that they can earn their commission. Show them that you are prepared and will act professionally.
• Build a good relationship with the agents. Call them at least once a week and do not rely on email, which is impersonal and will be deleted and forgotten.
• View properties whenever possible or have a representative view them on your behalf. However, if you do not think a property is worth viewing explain why to the agent, so that he/she gets a better picture of what you want.
• Always give feedback on a property the following day – again very few people do this and it will make you stand out.
Of course, if you are based overseas, you must be careful not to constantly call the agents if you know you are not going to be in London to view the properties. The agents may begin to think that you are wasting their time (they make their living by selling properties so will understandably focus on those buyers who are actively looking) and then will not be motivated to call when you actually are ready to view. So you need to judge how often you should call them - perhaps just call twice a month for updates until a month before you arrive in London. Then follow the steps outlined above.
Again this advice may seem simple, but too many buyers rely on websites and email hoping that technology will make life easier. It is easier, but not effective – if everyone else is doing this how do you expect to gain an advantage and have first refusal on the best properties?
STEP 4 – SOURCE OFF MARKET PROPERTIES
London’s finest and most exceptional homes rarely reach the open market.
Many homeowners want to sell their homes discreetly and want to be assured of a smooth and professionally handled transaction. Here are some strategies that you can use.
1. Place adverts in suitable publications like the Financial Times describing the type of property you require. Remember you need to attract the readers' attention so make sure the headline stands out and make sure you position yourself as a strong buyer. This can be an expensive way to find a property as you may have to place numerous advertisements and are not guaranteed success.
2. If you have a very specific area you are targeting – walk the streets to identify potential properties and write a letter to the owners.
3. If you are looking for a property with a concierge or porter visit suitable buildings and speak to them. Porters are a great source of information and if incentivised can ensure you hear about upcoming sales.
4. Contact developers directly – They may be happy to sell to you instead of placing the property on the open market for a number of reasons, e.g. theysave on marketing costs or an early sale might help their cashflow, etc.
5. Inform friends and family that you are looking for a property – many of our members require complete discretion so this approach may not be suitable for you either. However, if this is not an issue you may be surprised how often a friend of a friend or even a business acquaintance will know
someone who is considering selling a property.
Unfortunately buying off-market property can put you in a weak position when negotiating if you have to make the initial approach. You may have to pay a premium to acquire the property, if the owners had not planned to move. For some of our members this is irrelevant as they only want the home of their dreams and the best of the best.
However, if you are a skilled negotiator you should be able to counter this problem.
STEP 5 – ARGUABLY THE BIGGEST MISTAKE YOU CAN MAKE
I am often asked what is the biggest discount I have negotiated on a property. Unfortunately, this misses the point completely. The size of the discount is only relevant if the property is fairly valued in the first place. Negotiating a discount of 20% is no good if the property was 50% overvalued in the first place.
ACCURATE INFORMATION IS ESSENTIAL IF YOU WISH TO MAKE AN ASTUTE ACQUISITION – if you have a good feel for values then you will spot the bargains and be able to move before anyone else. You will also avoid unwittingly overpaying.
Unfortunately, the property market is opaque. The information available is often incomplete and out of date. For example, you can visit ww.landregistryonline.gov.uk to discover what properties have sold for in each street. Unfortunately this data will not tell you the size, condition or lease of the property. Therefore the information is of limited use.
You can also visit www.primelocation.com or www.globrix.com to see what is currently on the market, but again these only show guide prices rather than purchase prices. Therefore, you need to be very careful when assessing the value of a property and carry out as much research as possible. You may need to visit numerous homes in the area to get a feel for price. You should also speak to all the agents, with whom you are in contact, to find comparable data and ask if they can provide the old details for houses they have sold.
Remember that the agents are paid to achieve the highest price possible for their clients so you must take their information with a pinch of salt. They should not lie to you, but do not use one piece of comparable data as concrete proof – just because one house has sold for a high price does not mean that it was the right price – the buyer may not have known what they were doing (we see this happen every week). Conversely do not be put off if you see one other comparable which is much cheaper. The buyer may have found a fantastic deal and does not necessarily make your potential acquisition a bad one
Double check all information and find as many comparables as possible. Only once you have a good idea of what similar properties have sold for can you start making an informed decision on what you should be offering to acquire the property.
However, the most important information is often related to the owners of the property themselves. Some useful questions include:
- • How long has the property been on the market?
- • How many viewings have you done in that time?
- • How many offers have you had?
- • Why do you think you have not had any offers?
- • How did you calculate the asking price?
- • What price do you think they would accept?
- • Why are they selling?
- • What have they said about the lack of offers?
- • Where are they moving to and have they found somewhere to buy?
The better the relationship you have with the agent, the more information you will uncover and they may let slip a vital detail. This could make all the difference in the negotiations.
An Important Note On Short Leases – Many buyers are put off acquiring short leases, because they do not understand the leasehold system and/or believe short leases to be inherently bad. Nevertheless, short leases can be very good acquisitions. However, this is a highly specialised field – some leases cannot be extended and valuing short leases and calculating the cost of the lease extension is extremely complicated. This is not something you should attempt yourself. Take help from a specialist.
STEP 6 – LEARN TO NEGOTIATE
Negotiation is a skill which can be learnt, so do not worry if it does not come naturally to you. We could write a book on the subject and we strongly suggest that you read as much as possible if you have little experience of negotiating.
However, we will offer a few simple tactics, which will give you an edge over most sellers:
The key to a successful negotiation is to have as much information as possible. For example, if you can discover that the vendor must move quickly, then you know that price is not the only motivating factor.
1. Keep asking questions throughout the negotiation – one piece of information could make an enormous difference.
2. Before you enter the negotiation you must commit to a ceiling price which you will not exceed. This will be based on the data you have accumulated and the discount or premium you are willing to pay. If you stick to this, you cannot “lose” the negotiation even if you do not come to an agreement.
3. Never make your first offer the asking price or your ceiling price. You want your first offer to be declined – if it is accepted you know you probably
could have acquired the property for less. The owner is also more likely to renege on the agreement later, thinking that he may be underselling the
4. Always ask for more than you think will be accepted. This may be in the form of a low offer, but you should also ask for additional items to be included, e.g. The Aston Martin in the garage, some of the artwork, antique chandeliers, snooker table etc. The point is that you do not expect or necessarily want these items, but you can concede them later in the negotiation to appear flexible.
5. Make any increases in your offer in decreasing increments – e.g. £5m, £5.5m, £5.75m, £5.9m. This will give the buyer an indication that you are coming to the end of your threshold. Also if you make large increases in your bid the seller may think, rightly or wrongly, that you have more money available and may demand more.
6. Always ask yourself: “What can I offer the seller that would be of huge value to them, but little loss to me?” For example, a swift exchange with a delayed completion, paying in dollars rather than sterling, etc.
7. Always seem reluctant to buy and make it clear that you will be happy to walk away from the negotiation at any time. If the owner is keen to sell (or the estate agent needs the sale to hit his/her sales target) then they will not want to run the risk of losing you! Of course you need to take the market as a whole into account. If there is strong demand but little supply then the seller will have the upper hand and you will need to tailor your approach accordingly.
8. If a seller agrees to your offer but later changes the terms, ask for somethinggreater in exchange. For example, you agree a price of £8m with a
quick exchange and normal completion, then later they ask for an extended completion. You need to demand something in exchange –“To be able to give you the extended completion we will only be able to pay £7.5m.” They may or may not agree to the reduction, but it will stop any further chipping” in the negotiation.
9. When putting forward your offer always put it in writing. Make sure you list all of the items so that there can be no confusion or arguments later in the process. Make sure that any offer is made “subject to contract and survey” and always insist on an exclusivity period “from receipt of a full set of papers” in which to exchange contracts. For more details you should contact your solicitor, who should be able to advise you on this.
This is a very brief and basic list of tactics, so you should really read more on the subject of negotiation. However, if you put these ideas into practice you will have a far greater chance of concluding a successful negotiation.
STEP 7 – THE AGREEMENT IS NOT LEGALLY BINDING UNTIL CONTRACTS HAVE BEEN EXCHANGED
Remember that agreeing the price is only the first phase. 25% of purchases fail between the completion of negotiations and the exchange of contracts. The legal process can be extremely drawn out and the longer it takes the more likely it is that the deal will collapse – the seller might receive a higher offer or think that he is selling for too little.
Try and demand a period of exclusivity to avoid other buyers trying to increase their bids. This can be structured in various ways and should be discussed with your solicitor before you include it in your offer. However, we advise against putting down a non-refundable deposit as the risk is often not worth it and we have never had to go down this route (obviously there are situations where a nonrefundable deposit may make sense. However, these situations are rare).
Ultimately, it is your responsibility to make sure everything proceeds smoothly.
You need to co-ordinate your financier, solicitor and surveyor. Remember your solicitor will probably not see the property so you need to give him or her as much information as possible and flag any potential points of concern. You also need to ensure that the other side is acting swiftly. If they have a solicitor who does not specialise in property you need to ensure that the estate agent is on top of the situation.
There may be numerous third parties involved as well including managing agents, The Grosvenor Estate, English Heritage, the local council etc. You need to ensure that your team is ahead of the game and that the seller’s side is providing the information in a timely fashion. If you do not, you must be prepared for the frustration of losing your ideal home.
Remember yours will not be the only house purchase your solicitor, surveyor, financier will be involved with, but you need to make sure they are focussed and efficient when handling your case.
Fortunately, most problems can be resolved if handled efficiently. The key is to have a good team in place (see Step 1) and good communication.
(“(The Author is the managing director of Mercury Homesearch, a property research agency. If you require more information on the prime central London property market, he can be reached at email@example.com)