Home truths: The long deal aids gazumpers
Joe and Mary Bloggs have been on the home hunting trail for seven months. The couple were outbid on one house after another with high competition in their chosen location. But with four weeks to go before the expiry of their latest mortgage approval, they finally managed to become the preferred bidders on a nice semi.
Having gone "sale agreed" they got their solicitor on the case to ensure a speedy conveyancing process. But four months later the sale had still not closed. In the intervening period another couple, the Blaggs, called into the vendor. They want a house in the area and furnished a much higher offer. The vendors were tempted and went back to the the Bloggs to ask them to match it. They couldn't.
The vendors rejected the Bloggs' offer and went with the higher price. No contracts have been signed so everything is legal. The Bloggs have been gazumped and must now go back to their bank and reapply for new approval and hit the home hunting trail all over again. The story is typical of that experienced by so many home hunters in the current market.
For decades before and until the property crash occurred, the average time incurred in Ireland from sale agreed to sale completed was four weeks. Today, according to the Irish Professional Auctioneers and Valuers, that can take up to 22 weeks, or five and a half months. Even those agents who work in areas where property is most sought and fought after are finding slowdowns, albeit of a less serious nature.
Conor Gallagher of Gallagher Quigley in Dublin's Clontarf says three months from sale agreed to closure is normal.
"We still have a lot of what I would call "debt contaminated" property about. Anything that involves selling property for banks or receivers is likely to be drawn out longer by the difficulties involved in the paperwork," says Gallagher.
And consider too that the closure estimates above only includes sales which have actually reached fruition. Numerous deals which spin out over months end up falling through - like the Bloggs' efforts to purchase their preferred property. In the opinion of Pat Davitt of the Irish Professional Auctioneers and Valuers (IPAV) who has been campaigning to rein in sales processing periods, around one in five sales of residential properties (20pc) falls through. Up to 2007, he estimates the failure rate was as low as 5pc. Last year the IPAV launched a new initiative that sees its members encourage and guide vendors to compile all relevant documents at an earlier stage in the sale process.
Davitt adds: "The whole system has been complicated with the addition of new regulations and stipulations."
Since the property crash, the rash of factors which now apply treacle to the wheels include:
1. New regulations and taxes which must now be documented and verified by solicitors at point of sale. Since the crash we have introduced a residential property tax (RPT) for which receipts must be located and provided. If there are no receipts available then the vendors must apply to a process to reissue them which can take three weeks. Before the property tax we had its precursor, (LPT), for which receipts must also be provided. We also introduced energy savings ratings and so each house sold must now have a BER cert verified.
2. The banks themselves. They have been transformed from flagrant flingers of credit to abject sticklers for details and compliances.
For example, since the crash they require full-proof of settlement in matters of right of way, planning and septic tanks certification before handing over mortgage cash. Previously, for decades, they would have accepted written undertaking to address the issues going forward.
The banks are also sticklers as vendors of stressed properties which have debts attached. Although the crash happened a decade ago, many stressed properties are only now coming to market. Departed or hostile former owners create paper trail issues which are difficult to iron out.
3. Staff cutbacks all over mean it has become difficult to secure a "sit down" consultation with planners while overworked staff in stamp duty and land registry are having a hard time keeping up with the workload. Banks and offices of solicitors have also cut staff who are more thinly spread. Mary Halligan of O'Connor Property Consultants says conveyancing firms "always seem to have too much work on." She says house sales can take six months to process.
4. Outmoded practices. Ireland's process is still paper-based, although Government promised a year ago to bring in online conveyancing within two and a half years. Little progress seems to have been made. Meantime, many solicitors continue to insist on corresponding by posted letters.
With no end in sight, those hitting the home hunting trail today should keep in mind that the road is going to be a long one.