Last week I received a call from an agent we work with, his words were ‘this is the best deal I have come across, you need to do this deal’.
Now agents are agents, they want to do a deal, in fairness we have some trust and relationship with this particular one, having done some transactions previously.
At the time he mentioned the deal to me, I simply did not have the time to go and look at the property, so he had it tied up with someone else. A couple of days after the deal was agreed with another party, I did manage to see the property. It was as he had said, and more. The property was on one of the best roads in Notting Hill, a wide tree lined road with a large garden on one end. This flat was a studio flat on the fourth floor of a purpose built building. The view from the flat was almost in the centre of the Square, being on a high floor this almost looked like it was your garden from this vantage point.
The studio was a nice studio; I don’t really see how nice or for that matter how bad a studio can get. They’re smallish and they have four walls. There wasn’t much work to be done in the property, a few thousand pounds just to tidy the property up would be enough to achieve a rental of £350-375pw.
The block was done up very nicely with nothing outstanding to be done, to my vision anyhow. This is not always the case with London blocks, there are many with high service charges and low service. It seems to be the case that the freeholder or the managing agents almost take it for granted that the owners of these properties have money and therefore the excessive service charges will be accepted.
The service charge on this block was only £1,500 pa; and it was a share of freehold with a parking place. It’s not that often I get excited about a deal, but I did on this one.
The property would be valued at £550,000 conservatively, and that’s if you can find one with a share of freehold, low service charge, parking space, in a premier road in a premier location and over looking the garden at a discounted price of £450,000.
There was one small caveat, and that was the deal had to be completed in 7 days. The money had to be in the sellers account before the start of the tax year. There was some reason for this which I didn’t fully comprehend.
Though the deal was agreed with someone else, it didn’t take long for me to persuade the agent to swap buyers. We have done deals previously and he knows we will be able to execute in the time allocated. It remains to be seen if the contract contains the standard ten-day notice period. This means if we don’t complete after exchanging the deal in 7 days the seller’s solicitors have the right to issue a notice which gives us notice to complete within 10 days, failing to do so we lose the ten percent deposit.
What’s important in a transaction which requires this speed are the lawyers from both sides, they can make or break a transaction. The agent in this situation had the foresight to check the lawyers on both sides and ensured the seller used a firm and a lawyer recommended by him, for the firm is only as good as the person you’re dealing with within it. He was happy with our choice having dealt with them on previous occasion.
Some lawyers seem to get off on finding fault with the lawyer they’re dealing with. I guess it comes down to human nature, this is how they feel good about themselves and establish their supremacy. We saw this situation occurring in one of the deals we are doing a joint venture on. Both lawyers then focus on seeing how many brownie points can be scored rather than the focus being on how to close the deal. This dissipates energy, instead of getting the deal over the line, the issues get clouded.
The client generally listens to his lawyer and accepts his perception of the situation rather than the reality. Luckily in this situation we were able to rein our lawyer in as he had some opinions and commentary of the other side’s lawyer. The seller in this scenario is a commercially savvy property dealer so he was able to see through the fog.
He confided later to me his lawyer doesn’t actually like 70% of the lawyers he deals with, if he listens to him all the time most of his deals would fall apart. So he retains the ultimate decision making power on the transaction.
It is important when doing deals you do not abdicate your power, you delegate it. The lawyers are there to advise and execute, not to take the ultimate decision.
I only got the contract in on Monday morning. I’m assuming the contract is in the lawyer’s office, but surprisingly the deal took longer to place than what I had anticipated. It should really have flown off the shelf, it didn’t. Why?
One reason of course is it’s a cash deal, the second is the time period of seven days. But the real reason I believe, is the volatility of the world market currently. This is causing nervousness in the property market.
The truth of the matter is this nervousness exists in the minds of people and nowhere else. In 2008 when the FTSE fell more than 30%, UK property prices only fell by 16%, bear in mind this was the worst crisis in decades. In 2016 at its lowest point the FTSE fell by 10%, yet house prices have continued to rise.
It’s not always necessary if there is volatility in the markets it spills over into the property market. In recent years we witnessed what was termed as a ‘flight to safety’ where due to uncertainty in the global economy demand for London property was increasing. As funds looked for a safe place to stay.
In truth at the higher end of the property market there is some damping of prices, however this property is right at the bottom end in terms of size and price. The volatility reduces the lower you go. At this level I do not envisage any reduction in price, I see prices only increasing. I would be bold enough to say this property would be worth £600k within a twelve month period.
We were able to secure this deal, in a competitive market, due to the relationship we have developed in the location over the years. Our edge is our ability to execute in a short time period, which is why we are able to get a regular flow of deals.
