The Ripple Effect
Often in auction rooms you can see the auctioneer bidding against the wall, at first I thought I simply couldn’t see who was putting their hand up, as some of the bidders are not so obvious and simply nod their heads. It was only after a few times I realised they would be trying to push the bidding up to over the reserve. A property cannot sell below the reserve price, this is the minimum amount the seller wants for the property. If it’s below this amount the property does not sell. So in order to encourage bidders to rise higher they push them up by pretending there are other bidders in the room!
Perhaps the reserve of £1.1m was arrived at from our recent purchase of 92 Shirland Road, just across the road from no. 115, which was the one we were trying to purchase. In the end the property went for £1.15m which we felt was a good result at only 5% above the reserve price.
The auction was on Thursday last week and we have the standard 20 working days to complete. If we delay then notice is served and we have a further 10 working days, if we fail to complete during this time we lose the 10% deposit.
Most people think that ’s the end of the matter, it is not. If you lose your deposit and the seller sells the property in question for less than you had exchanged on it you are liable for the difference between what would have been paid and the actual price obtained.
This situation arose when many tried to drop their deposits on off plan purchases during the credit crunch. Deposits had been put down on off plan apartments at the peak of the market prior to the credit crunch. As the properties were off plan you normally exchanged based on a floor plan and a show apartment, and then completed a couple of years later. In this situation the prices had dropped drastically from the prices they had exchanged upon.
The developer was not content to let the matter go, as legally the buyer is obligated to purchase irrespective of the underlying value of the property. In this situation the developer had to take legal action to sue the purchaser into completion.
Our sale of 92 Shirland Road completed on Friday during the notice period. We had the standard 10 days notice but we only gave our consequent purchasers 5 days to ensure we had a good buffer.
Our purchasers were paying us £1.3m and they had managed to sell on the building for £1.515m. Their prospective purchasers required further time to complete the purchase, so they asked us why they can’t have 10 days to complete seeing as we do. We replied they could – but at a price.
The buyers spent hours of my time negotiating the premium we were charging for this extra time period, using all the usual reasons. i,e this is the first transaction – we will do many more, we cannot afford the premium you’re charging – it’s too tight for us etc. However a post dated cheque has no value my friend… so how about we do this deal and we’ll be generous on the next deals, how about that?
After trying to batter me into submission they went ahead and completed the transaction anyway, choosing to do the development themselves.
Central London is one of the few places where you can find a property bought, sold and resold again during a four week period.
As far as 115 Shirland Road goes we were happy with the purchase price, but we need to understand how we should play this in terms of what planning we should apply for.
By no means did we have the full information on the property, there were not even any floor plans on the building, we heard it’s 3,800 Sq Ft and it looked like 3,800 Sq Ft but we don’t know. Hence the first step will be to measure it! And then speak to the council regarding planning and the other issues.
Of course whilst this is going on we will be looking to sell the block as we did with no. 92. If we sell prior to completion all well and good but with property you must prepare for the worst case scenario, in this case we complete and develop the property.
We’ve just completed on a project in Bravington Road. This friday was the hand over from the builders to us. The block comprises of three flats and was purchased for £726k and we spent about £180,000 on refurbishing the property and adding a rear extenuation and a dormer so the total cost of the property was £900,000. We had Foxtons come and value the building at £1.275m to be sold individually.
Of course Foxtons have been known to over value prices just to get the instruction. A whistle blower programme some years back revealed some of their dodgy practices. They have also been taken to court over unfair rental agreements.
But in all fairness they perform and are aggressive when it comes to selling and renting. The model the company is run under to keep the staff enthused is impressive. Their drawings and presentations are excellent as well.
It’s good to use them on a tight leash. The valuer from the agency was known to me for several years, and so we have a relationship, hence I managed to get a slight discount on their fees. Normally they never compromise on their commissions. Even if we achieve a net resell of £1.1m it’s not a bad margin.
A similar property has come up down the road, it was sold by an executor. It went for best bids a few months ago and we lost it with our bid being £24,000 below the winning bidder, but the next highest bid.
However I recently had a call from the agent involved to ask if we would consider offering the same as the higher bidder as apparently this bidder was not performing and required bridging funds to complete.
I told the agent we were not going to increase our offer but we can exchange in 3 days from getting the paper work. They said they would get back to me. Half of me wanted to call them and say we will match the winning bid in order to secure the building, but luckily the agent called back and said it had been accepted!.
So we are hoping to replicate the same formula as we did with no98 Bravington Rd, though we will need to apply for planning on this one. When you purchase a property word gets around the market like a ripple, you will inevitably attract more of the same types of deals once you have done one.The Real Deal 1 bedroom flat at Downfield Close, Little Venice, W9 Purchase Price: £249,950
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* Most deals with any margin will be ones where you have to take a view, it’s rare you will have everything on a plate and it will be a good deal.
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