-Originally published in the Sunday Business Post, October 14 2012
The market is not always a fair place to be, there are winners and losers. Sometimes, the winners are not those we would like to see triumph. This week we experienced one of those rare glimpses into the buyers behind the statistics. In the fallout of the largest multi-lot auction ever seen in Ireland, we heard the success stories of cash investors who bought up bank or Receiver properties at prices well below market value (although, a few did pay over the odds for their so-called ‘bargains’).
It galls people, particularly struggling first-time buyers or those suffocating under the weight of inescapable negative equity, to see may who contributed to the crash, benefit so profoundly from it.
First-time buyers, those buyers most in need of quality homes, bargain prices and a bit of built-in equity that comes from buying below market value, rarely succeed in this arena. There are just enough success stories to encourage more to follow suit, but not enough to disprove distressed property buying as a myth or urban legend for first-timers. The truth behind the mortgage statistics for these auctions is that most mortgaged buyers who bid have the resources, either through personal or family resources, to fund the purchase in the event that the mortgage lender does not come up with the goods.
The reality is, there are opportunities for first-time buyers, families trading up and particularly investors to buy genuinely good properties from the banks, Receivers and even Nama, however, would-be buyers will have to work for their bargains and there is risk attached.
The only advantage or perceived advantage to buying a distressed property is the price, but the disadvantages are many. The first stumbling block for buyers is access to the properties, not all available stock is marketed publically. The open market properties are listed on property sales websites, mixed in with tens of thousands of private sales – the opportunity will not be readily identifiable during a quick surf on-line. Awareness of local prices will certainly make it easier to spot one of these bargains out of a list of similar properties, our new national price register will be a great help here.
Once identified, buyers will soon learn that receiver properties are not always available to view, in fact, I have waited for period of up to six weeks for keys just for a first viewing. It is worth noting here that many investors, particularly those overseas, will often purchase without either viewing or surveying – the best advice in this instance is not to even try to compete. Very few bargains are worth this level of risk.
The next disadvantage is delay. If time-wasting is to be quantified, the overall deal costing might be very different. If the property is still with the bank or receiver, it is likely not to have been valued yet, in this scenario, any offer will take four to six weeks for a response. The most frustrating delay is when the property has been handed over to an estate agent with instructions to ‘test the market’. In this instance, even an offer of the guide price (or in excess of) is not likely to be accepted. The reality is, any offer will be used as leverage to attract further, competing, bids. This is not in the best interests of the buyer and the best option in this situation is to put a strict time limit on the offer and mean it.
The principal disadvantage of receiver properties must surely be the incomplete title. Title issues are so much more than a headache for the buyer’s solicitor, they might and most likely will cause problems when it comes time to sell the property. Cash buyers can afford to be more flexible about their approach to the various issues than can arise as they, or rather their solicitor, will not need to certify good title to any bank. However, it is worth considering that any future buyer may have to. By accepting unsatisfactory title at the time of purchase, the new owner may unwittingly be tying themselves to a property that, in the future, may only be sold to a cash buyer. This will, of course, affect value going forward. Be careful, this is when a bargain becomes a bad buy.
Many of these disadvantages can be turned around if the potential for a killing exists. Together with cash, patience is a must for buyers of bank properties. Ultimately, it is for the buyer to ensure that their effort is well rewarded.