Rising house prices fuel pressure tactics: How sellers are forcing up buyers’ bids
WEAK supply and high demand in the housing market mean prices look set to remain firmly on their upward trend, according to property experts.
By: Esther Shaw
FIERCE COMPETITION: Open houses are just one way of trying to get higher offers[GETTY]
New figures from the Halifax show an 8.5 per cent increase in house prices year on year, and a 2.3 per cent increase in the three months to April, while findings from property specialist LSL reveal house prices climbed by a record £1,200 in April.
According to LSL, average prices are now at a £263,113 peak – £54,000 above the recession low point in April 2009.
“This continued rise in house prices is a growing concern in parts of the UK, and particularly in London and the Southeast,” says John Penn from property specialist Intelliflo.
“While critics have warned that the introduction of Help to Buy has created a housing bubble in these areas, the main driver of the inflated prices is the lack of available properties in key areas of the country.”
There is some speculation that the new rules imposed by the City watchdog to tighten lending criteria (through the Mortgage Market Review) could cool things down.
But demand remains high, and the housing market isn’t showing any indication of slowing.
There are signs that the impact of the London bubble is rippling out to the rest of the country, with other regions also experiencing growth.
“It is no longer just London that is experiencing rises, it’s happening in many regions,” says Robin King from MoveWithUs.co.uk.
“We expect to see more of this as growth continues to spread from the capital.”
While rising prices are great news for sellers, the same cannot be said for buyers, as the limited amount of stock means many are now finding themselves having to compete for homes through open houses, sealed bids and gazumping.
These are high-pressure practices prevalent in London that are unlikely to be confined to the capital for long.
In high-demand areas, group viewings are becoming popular as this can result in a quick sale at a higher price for the seller.
“Open houses are now part of the strategy in this market of unprecedented buyer demand and acute stock shortage,” says Paul Smith from estate agent Haart.
“Open-house marketing has achieved 5 per cent above the asking price on average, and has resulted in a swift sale for hundreds of vendors so far this year.”
But open houses can make life very stressful for buyers who have to traipse around properties with often as many as 30 or 40 other people.
Hopeful homeowners then have to offer way over the asking price to be in with a shot – while often knowing they have little chance of getting accepted.
“Mass viewings often induce panic among potential buyers, and are, of course, designed to produce competitive bids,” says Suzanne Bowman, partner at law firm, Adams & Remers.
“The most popular London properties have all viewings strictly limited to a single two-hour slot on Saturday morning.
Competition is intensified, and buyers are then expected to submit their ‘initial’ offer by Monday morning, with ‘best and final’ offers being requested a few days later.”
The key is to do your homework first to check out the postcode and street, and check the price of similar properties.
But don’t be tempted to panic buy; after all, this is likely to be one of the biggest purchases you will ever make.
It is no longer just London that is experiencing rises, it’s happening in many regions
With sealed bids, rival buyers put in an offer with the hope of securing the property with the highest price.
However, there is a huge risk of overpaying.
“Find out exactly what is required by the seller,” says Bowman. “If the seller has agreed their own onward purchase, it is likely they will be looking for the buyer who can act the quickest, and offer the highest price.
"It also goes without saying that all sellers favour cash buyers.”
One way in which you can help your case is by producing a covering letter to help sway the seller.
“We have seen people win ‘best bids’ without having submitted the highest offer, because the seller thought they were the right person or family for the property, and who could move quickly to exchange,” says Bowman.
This is where the buyer and seller agree on a price for a property, only to have someone else come in with a higher offer before contracts are exchanged – an offer that the seller then accepts.
“Gazumping is on the rise,” says Nicholas Ayre from home-buying agency, Home Fusion.
“Sellers know that if they don’t see action from the buyer, such as booking a survey, there are plenty of other potential purchasers willing to jump in.
“As a buyer, the best way to protect yourself is by moving quickly and not giving the seller an excuse to look elsewhere.”
In a bid to combat gazumping, some agents will push “exclusivity agreements” with large non-refundable deposits as a way of securing a property for a buyer.
“But these do not bind the parties to actually exchange,” warns Bowman.
“At the end of the exclusivity period, the seller can still walk away – though they should have to return the deposit.”
A further option is to build in some kind of penalty on both the seller and the buyer.
But at the end of the day you need to accept that as a buyer, there is essentially very little that can be done to prevent gazumping.
This is where a vendor accepts an offer, but then asks for extra money at the last minute.
This tends to take place after the sale price has been agreed, and shortly before exchange.
This leaves the buyer in the difficult position of either having to find an extra few thousand pounds, or risk losing the property – along with solicitor’s and surveyor’s fees.
With the property market in its current frenzy, the key is not to lose your head.
“There are several question you need to ask,” says Ayre.
“Is the asking price what I really want to pay for that property? Can I afford to go higher? Is it the right house for me, in the right area?
“Remember that property is a longterm proposition. In 10 years’ time, will you kick yourself for not paying that bit more to secure the deal?
“Equally if that ‘bit more’ would ruin you because you simply can’t afford it, then do the sensible thing and walk away.”
While most of the tricks in the current market involve the seller calling the shots, property experts say there are signs that the most savvy buyers are now starting to play the agents at their own game when pressured into overpaying.
In a trend referred to as gazedging, some buyers are now hedging their position by agreeing a purchase, then using the cooling-off period between the sale and exchange to look for a better one.
“If a buyer sees a property they prefer, they may jump ship,” says Henry Sherwood from The Buying Agents.
“Most buyers in this position see the wasted legal fees as a small price to pay for not going through with a purchase they are not 100 per cent sure about.”