How to buy property in a time of covid19
April 2, 2020
Few of us will be buying or selling property in coming weeks, given the practical challenges and the need for caution.
But there will be owners who are motivated to sell. In some instances, they have already bought a replacement home and are keen to offload the current residence to avoid bridging finance.
Others have well laid exit plans they are loathed to change, especially if they are moving location for work or retirement. There will also be investors who decide they must reduce debt and obtain cash.
In contrast, no one ever needs to buy property. It can always be put off for another day.
But there are tens of thousands of prospective buyers out there who have been toiling away for months without success. A portion of those will see this market as an opportunity to finally purchase, and possibly for a price materially lower than they might have expected in say February. Then there are the brave and cashed up souls who will enter the market because they think they can secure a once-in-a-generation bargain. Their attitude will be that it is times like these where fortunes are made. They may well be right.
Consequently, there will be transactions in coming weeks, even if volumes settle at a level as low as 10-to-20 per cent of the typical seasonal level.
This is not a column for personal financial advice – I’m not qualified to provide that – but I will give my opinion on who should consider buying in this market. Quite simply, only transact if you feel secure in your job and/or have a pool of cash or other liquid assets as a safety net and life insurance.
If you pass that test – or fail it and are just crazy brave – the next step is adapting to the way property is likely to be transacted in coming weeks.
Following a prime ministerial decree last week, we know that public open-for-inspections and auctions are out. That makes the buyer’s search, filtering and negotiating processes tricky.
Agents are already responding to this scenario by listing more properties via private treaty or sale and offering others as 'off-market' sales. The latter is where an estate agent approaches a few known buyers and seeks to conclude a transaction without the usual mass marketing techniques. And it will be fascinating to see if online auctions take off.
Rightly or wrongly, many buyers are wary of building a rapport with estate agents for fear of blurting out key information that would put them at a disadvantage in negotiations – such as their budget limits.
Today, with the likely rise of off-market transactions, it is vital for buyers to overcome any reticence. Prospective buyers should contact the major real estate agents in their area to advise them that they are ‘in the market’ and to explain the type of property they would like to be contacted about.
Buyers must recognise that private treaty and especially off-market deals are far less transparent methods of transaction than auctions. The risk of overpaying is greater because one can’t see the competition and hear their offers directly. The agent is the conduit, a very powerful position.
As always, doing the homework on where fair value lies by looking at recent comparable sales lowers this threat. But in this volatile market, a genuine comparable sale might only be defined as a transaction in the last fortnight or even week. Absent those very recent records, it may be necessary to apply a conservative discount of say 10 per cent on similar sales in 2020.
So, in the immortal words of Hill Street Blues’ Sergeant Phil Esterhaus, let’s be careful out there. Richard Wakelin