As published in the Metro Herald 23 June 2011
Most house-hunters will have experienced the frustration of seeing new owners moving into the local area and streets that they have been watching diligently for several months or maybe even years and ask themselves “how did I miss that opportunity?” The short answer is that no opportunity was missed as no opportunity was ever offered. It is most likely that the property in question was sold quietly, or off-market, away from the standard glossy brochures and websites.
This will confirm what many buyers will have long suspected; that not all properties available for sale are marketed openly or offered to buyers generally. While there is no reliable data to determine what proportion of sales are off-market, anecdotally, suggestions are that it could be as high as 30 per cent.
Certainly, this type of transaction has been common among investors of both commercial and residential property but home buyers in the past rarely got the chance to compete. However, the marketplace has changed. With more people needing to sell, the competition to attract buyers is fierce and sellers understand that the key is to attract decisive, finance-ready buyers. Sellers in a hurry cannot entertain endless rounds of Saturday viewings and tyre-kickers so the targeted approach will often win out.
Home buyers tend to feel uneasy about this; they feel it reaffirms the stereotypical criticisms of old-boyish behaviour and underhandedness within the property industry. In practice, it is not unethical or suspect. Unlike State bodies like Nama, private sellers are under no obligation to dispose of property publically and there are many genuine reasons why a seller may opt for a quiet sale. These reasons may include privacy concerns, marital breakdown, court ordered sales or perhaps the property has some complication that would not suit a mortgaged buyer so the seller will actually target a few potential cash buyers directly.
We saw 82 bank properties sell in a matter of hours at the first major non-Nama auction last April and a further 120 are expected to go in July. These 200 odd properties were selected from a potential 1,300 properties, this means that the remaining 1,100 still need to find buyers. There is no way to release that volume of property in a reasonable time period without flooding the market (and this is before Nama looks for its slice of the action). It is inevitable that a large portion of these properties will need to be sold off-market.
By far the most active off-market sales that we are seeing in the capital at the moment are those financially vulnerable homeowners who are narrowly escaping negative equity but can no longer maintain or service the property or mortgage. In this scenario, the mortgage is in serious arrears with legal proceedings threatened. The owners are looking to dispose of the property themselves but due to local over-supply, they are unlikely to raise immediate funds by selling in the open market.
The position here is that these properties that are still within the legal control of the owners but in reality, the mortgage company has effective control and is pulling the strings. This results in a unique point of opportunity for the buyer, the seller and the bank. The seller wants and needs to sell. The bank wants and needs to recover funds. The buyer wants the property and needs to secure the lowest price. As there is no court order in place, there is a real chance of negotiation where both the bank and the property owner can mitigate their losses if they co-operate to discount the final sum due. This is not a vulture technique; it offers a fairer solution for sellers than repossession, where they would find themselves without their home and still owing the entire value of the mortgage plus interest and legal fees until such time as the bank gets around to organizing a sale.
So, what can buyers do? The sources of off-market property are many and varied, buyers need to pay attention and engage with the world around them. Property has always featured in Irish conversation, this has not changed. Would-be buyers can learn a lot by listening. Ireland is a very small country and local knowledge is worth as much as any property report. When buyers are visiting their chosen areas, they should make an effort to talk to residents out tending to their garden or walking their dog! This might offer some interesting leads or point buyers in the right direction.
Local estate agents are also a rich source of off-market information and properties for a number of reasons. Firstly, they have detailed knowledge of their ‘patch’ or specific area. Secondly, they carry out valuations independently for banks and other lending institutions so they know when a property is sale agreed and then subsequently falls through, even if was previously listed by another agency. The third reason is also the most important – valuations that are requested by homeowners themselves. This private valuation may be may needed in the course of a financial review, or where the joint owners are separating and must deal with the property. However, a private valuation is most commonly requested in advance of the homeowners placing the property on the market. Buyers who make themselves available and seek out property at this time may well be granted access to the property. If it is suitable, there is time to strike a good deal with little or no competition from other buyers.
One word for caution for buyers looking to expand their search options: be prepared to make a quick decision. These properties are generally available below market value but only for a short time frame. Essentially, the buyer will be financially rewarded for a quick decision an early closing.
Carol Tallon is the author of the Irish Property Buyers Handbook 2011 and Managing Director of Buyers Broker Ltd.