My Dream Home: the story after

Posted on by FIRE v London

Readers earlier in the year will be aware that I found myself buying my Dream Home, on something of a whim, at very short notice in January. My plan had been to put the old house on the market last Easter. Things haven’t gone entirely to plan, as I’ll recount.

First off the old house needed a bit of TLC. Nothing major, but not something I have to bother with on my other valuable assets. This took a few weeks, and prevented me selling the house at the start of the year.

Secondly, I got quite a significant shock when I got the house valued. This being London, the first and almost only step required to value a house in a given postcode is to measure its square footage. Measuring is a very slick process these days involving lasers. But I couldn’t believe my eyes when I got the plans back : they were 500 sq ft short. Shurely shome mishtake? Alas not. I’ve been labouring under a misapprehension for about fifteen years about the size of my old house.

500 sq ft in North London is worth over half a million squids so this was quite a blow. In many ways I’m glad I hadn’t realised this when I was looking at new houses, but I’m certainly relieved I didn’t stretch myself to buy a more expensive Dream Home. Certainly it is a good reminder of one of life’s most important lessons: Check Your Assumptions.

In any case I then had a few of the local agents visit to tell me how wonderful my house is, how exorbitant expensive it will be and how rapidly they can sell it for me. My original strategy was to deploy two agents who between them covered all three of the UK’s large property portals but in the end I ended up with a ‘pile it high’ agent and a ‘classy one man band’ agent both of whom were on the same two portals (Zoopla/PrimeLocation being the one that matters in my market).

The pricing of a house to sell is a fascinating process.

If the actual value of the old house was X (around £two million), most of the agents told me it was worth between 1.05X and 1.15X. But one reputable agent said it was worth 0.90X. The difference between 0.90X and 1.15X is a big spread- amounting to a few hundred thousand pounds. My old house is an unusual property; it is definitively not a terraced house or a flat in a big apartment block, so there are no perfect comparables. Reasonable people can disagree about its price by quite a large margin. Never mind estate agents, or buyers and sellers.

It is worth noting the Stamp Duty angle here.  The stamp duty on my place was likely to cost the buyer over £150k.  A buy-to-let investor faced over £200k.  These numbers are pretty scary but in point of fact are less than 10% of the purchase price; in this respect Stamp Duty has a much lower impact than the 10-14% it takes out of £5m-£10m houses in prime-ier bits of London.  So while I think Stamp Duty has hit my local market, I don’t feel as hard done by as a friend trying to sell in K&C.

As well as price, you then get into the thicket of Asking Price, Guide Price, Offers In Excess Of, etc.

In the end I went for a Guide Price of 1.05X. I wanted to pitch lower than some suggested in order to stimulate interest, but not so low as to make me bridle at any negotiation on price. The property duly went on the market just before Easter.

I had kept the old house largely furnished and in fact was regularly back there for a variety of reasons, so the house was easy to market convincingly.

We had a whole bunch of interest in the property. I didn’t count the viewings exactly but I would say it was about twenty. Mostly from the mass market agent.

We had an offer, in May, via the mass market agent. At about .83X. I ignored it. It came back plus £100k and was apparently right on the bidder’s affordability limit. I said no thanks.

June approached. The referendum loomed. It became clear in early June that nobody was going to make a decision on buying a £2m+ house just before the referendum, no matter how much of a formality Remain looked at the time.  I reconciled myself to not selling until July.

On Thursday 23 June, the Referendum happened.  Gnashing of teeth, renting of clothes, wailing etc began that arguably still hasn’t finished.

Then, bizarrely enough an offer came through just after 9am that morning, via the ‘classy one man band’. By this point David Cameron had just resigned, a few minutes earlier, the pound had fallen, and Messrs Gove/Johnson/etc had not yet declared an interest in the leadership election.

The 9am offer on that fateful morning after (Friday 24 June) was from a local couple.  For X less £100k.  This was about 10% below my guide price but was certainly in a zone I was prepared to take seriously. Especially in my emotionally weakened state.

What would you have done in my position?  Should I have taken this offer? If not, what should I have done? I’d be interested to see comments before I continue the story.

12 thoughts on “My Dream Home: the story after”

  1. If I understand correctly you had an offer on the table that was at circa 95% of ‘true current value’ in a market:
    – that was difficult to ‘value’ so it’s ‘worth’ was very subjective; and
    – had been on the market for circa 3 months with only 1 prior offer

    Looks like either a very illiquid market or the price was to high to me.

    Your pricing was also set in a world where:
    – debt is historically very cheap;
    – S24 is soon going to put the brakes on the ‘BTL business model’. It should have already but I don’t think many know about it yet even though it starts to taper in next year.
    – PE ratios against median London salaries are now somewhere near x20 which are historic highs.
    – Basel 3 is fast approaching and may reduce bank lending multiples.
    – Brexit, particularly if it’s hard, may see quite a few less banker’s (of course the old money will still be there) with the salaries able to ‘afford’ such a thing.

    It’s not me giving up the £10/100,000’s that comes with ‘true value’ but from where I sit I would have had their arm off and pushed for an exchange very quickly.

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    1. You do understand correctly. And you are right that from what I’ve said so far there is nothing to indicate that X is the right value of the house. It is just a mark in the sand.

      Thanks for being the first to reply!

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  2. If exchange/completion were instant, I would have sold it. But given the timing of the offer (the very morning after the referendum!) and that it’s always “subject to contract” I would be hesitant. The timing indicates lowballing, at least in their view. They presumably considered fair value much higher, say 1.05x and never showed a bid before in anticipation of the referendum result. The only reason to rush with a bid at that time would be if they thought they were getting a bargain. Presumably they wouldn’t be alone in that thinking, which is probably the reason for the absence of bids before, as opposed to overvaluation. Hitting that bid would set a ceiling to the final price. If they thought at some point later, prior to exchange, that they weren’t getting a bargain after all, I would expect gazundering or walking away. Which means that I wouldn’t have access to the sale proceeds (or even knowing whether there would be any) until much later, which means I would effectively be short an option, at a period of increased volatility, i.e. when options are more valuable.

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  3. I’m not in the central London property market, and it’s one I consider risky, since it’s more sensitive than RUK resi to factors such as tax policy, bank balance sheets, exchange rates, banks’ performances (and hence bonuses) and global macroeconomics and political instability (which drives the wealthy toward safe havens).

    Having said all that, were I in the fortunate position of being a seller of a premium London freehold in the wake of the Brexit vote, and not under any financial pressure, I would be sorely tempted to hold my bollocks and put the price up. Reason? A good proportion of the buyers might hold assets, and perhaps also receive income, in currencies other than Sterling. And whatever your view of the EU vote, it was clear that a decision to leave the Union would drive down the value of Sterling and hence make your property markedly cheaper for inbound American and German investment bankers.

    I wait in suspense to hear what you did, and how the story turned out. My guess is that your sale has just competed at north of 1.0x your deemed fair value.

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  4. Hi FvL,
    I was wondering what was happening with the old pad! Its a really tricky one, as partly it depends on how much you really need the cash. It would also be good to know what the rental value could achieve (not something I would encourage doing but…).
    If it were me, 10% below is too much below, so I would have refused – on the assumption I am not desperate for the cash. When I was in a relative hurry to sell my old pad (I could have done BTL), I still refused offers that were too low, and in the end got an offer that was only about 2.5% less than the asking price. Its a real pain to understand what the market value is, even Zoopla is a finger in the air.
    I wait with interest!
    London Rob

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    1. Hello Rob – thanks for the comment. Good question about my need for cash. At that point in June, I was feeling relieved my investments / debt / gearing situation had improved significantly since January, so my fears of perhaps needing the cash had receded.

      I wasn’t sure about rental values but assumed I’d get 3-3.5% gross yield, based on Zoopla/et al. comparables.

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      1. Hmmm, my impression is that gross rental yields are more like 2.5%, which if true would mean that either the place is worth a lot more than X, or that the realistic achievable rent will be less than your assumption.

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      2. That’s interesting. You may well be right. I tend to think the best yields are on 1- or 2- bed flats, and that larger properties e.g. family homes get lower yields. I have a better feel for X than I do for the right level of rent.

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      3. Ultimately whilst you may get a better yield in another asset, and its less overhead, does this give you a bit more diversification? If you are sitting in a comfortable position without needing to sell thats a great place to be as you can choose if you want to sell or not.
        I wait with interest to see the next step!
        London Rob

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      4. @LondonRob – Overall I am too long property. I have interests in four residential properties, as well as investments in commercial properties too. I’m much happier with liquid public market investments than property investments and thus all other things being equal I’d prefer to sell the old house and reinvest in the markets.

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