Home Truths: Seven foibles of home buyers
I knew a guy who spent 10 years home-hunting in Dublin from 1996 to 2006 before finally buying in that year (Yes I know!). Every time I met him through the decade he told me he'd been looking at houses at the weekend, but they were all overpriced.
If he found one he liked he'd seldom offer more than the asking price. But through those years, most homes sold for well over asking. Despite saving hard and despite the banks throwing money around like confetti, property inflation diminished my friend's spending range in those years from a four-bed house to a three-bed semi to a two-bed terrace. He asserted that sooner or later "it would all end in tears".
But after a decade of tyre-kicking, he bit the bullet - right before the crash. He found himself in massive negative equity which he's still dealing with.
Someone else I know bought an apartment in Birmingham in 1989. The UK market crashed soon after and he too ended up in negative equity. It took 10 years for the property to recoup its value. I talked to him in 2000 and he told me he was going to sell and break even. I urged him to hold on to it because the cycle was going up. He sold it. Within five years it had doubled in value.
While we can't expect to call the top or bottom of the overall market, there are signs that manifest themselves again and again (they're talking about "soft landings" in Sydney right now) and repeated mistakes buyers always make. Wily investors who know how to make money in the property market are only able to do it because others make big mistakes. For every poor eejit who bought a house for nonsense money in 2006, another walked away with a fat stash having doubled or trebled their investment.
When it comes to the micro details of buying a house, the same mistakes are also made, again and again. Unlike calling the end or beginning of the market, these mistakes are avoidable. But if people didn't continue to make them, estate agents often wouldn't make a profit. So here's just a few:
1. Chasing the market
In a rising market the bidding process for a house is a bit like clay pigeon shooting - you always aim ahead of the target.
If a house is asking €190,000 and your limit is €195,000, place a bid but don't linger. You'd be better off committing to a bidding process on a home asking €180,000 to €185,000. Otherwise you'll go on bidding unsuccessfully for prolonged periods while your buying power is diminished by inflation. Vendors make this mistake in reverse in a falling market.
2. Opening up to the estate agent
How many house viewers blurt out their life story to the vendor's estate agent who is there to sell to you - to interview you, find out if you're serious, whether you've got the cash, can you move quickly and how much money they can screw out of you. Buying a house is a bidding process and essentially a game of poker.
3. My cousin's husband is a builder
If you are spending €200,000 on a property, make sure you get a proper survey done. Don't skimp on this. Your cousin's husband might say the house is "grand" but he won't be legally liable when that thin crack in the gable end starts opening up.
4. Buying What You Can Purchase Rather Than What You Can Afford
There's an attitude in Ireland of spending all you can borrow. Life gets more expensive as it goes along, especially when children start hitting university age. Too many buyers don't allow for this and end up sitting at home eating beans for decades, wishing they bought a cheaper property.
5. It's Not Your Home (Until The Contracts Are Signed)
Estate agents benefit most from deluded emotional involvement - the phenomenon of home viewers arriving in a property, liking it, coming back for a second viewing, liking it more and from that point somehow believing this is 'their' home.
Deluded ownership projection means your judgement is impaired when bidding. It means you will pay over the odds if you buy and become distracted from other potential properties which might be a better option if you lose out.
6. Being Too Picky
Like choosing a partner, those who are too fussy get left on the shelf. No home will have exactly what you will need - even if you build it yourself.
People have walked away from good houses for such ridiculous reasons as "the carpet is manky" or "the kitchen presses are dated". Realise what is changeable at low cost as well as what can't be fixed.
7. Not doing the homework
If you'd researched the planning records for the area you might have discovered that the meadow behind your house is about to be developed into six storey blocks or the previous owner had been turned down three times for the rear extension you are planning to add when you move in. It's not rocket science.