Why are house prices so high? It could be the secret sellers bidding off-market
March 2021 : The Sunday Times
The property market has reached fever pitch, with tales of competitive bidding and gazumping rife. No wonder that an increasing number of sellers are seeking to avoid the fray by promoting their properties discreetly to VIP buyers only.
An estimated 84,630 homes were sold off market in Britain last year. Instead of being promoted via glossy brochures or online listings these sales were sealed after being viewed by just a few carefully selected buyers plucked from the black books of estate agents and buying agents.
This year off-market sales are at a four-year high, with almost one in ten homes in Britain and one in five in London selling this way, with those costing £1 million or more the most likely to be traded under the radar, according to research by Hamptons, an estate agency. Meanwhile, Knight Frank says that 7.1 per cent of its sales in the past year were off market.
However, in some parts of the country and in some price bands agents say that almost everything is selling below the radar. “In the £15 million-plus country market the vast majority, about 14 out of 18 deals, last year were done privately,” says Crispin Holborow, a country director of Savills Private Office.
Anthony Payne, managing director at LonRes, property analysts who run a service for brokers who want to share anonymous details of off-market properties, says it has £1.5 billion worth of off-market homes listed in central London — a sign of “an exceptionally strong market”.
Notting Hill in west London is tipped by most agents to be the hottest of the hot London markets right now, with homes backing on to communal gardens most sought after and most likely to change hands away from the glare of publicity.
Off-market sales are common among wealthy buyers worldwide. In celebrity-rich Los Angeles they’re known as “whisper listings”. In Britain sellers seeking privacy will invite only a select few — some bound by non-disclosure agreements — to view their homes. The reasons can be varied, but mostly it is to do with privacy, with few celebrities or business owners wanting either to advertise their floorplans and household contents or to draw attention to divorce, death or debt.
In the past year the pandemic has added a few more reasons to sell your home discreetly. “I haven’t bought a house on the market for six months now, we are only dealing with off-market sales. The main reason is that sellers don’t want people with Covid wandering around their sitting rooms,” explains Toby Milbank, director of the Search Partnership, a Yorkshire buying agency. “They want to let as few buyers in as possible and to know that those who do have been checked out and are serious and able to buy,” adds Jamie Jamieson, a buying agent in Norfolk.
At a time when there are 16 buyers chasing every property for sale, according to the estate agency Jackson-Stops, it is no wonder that sellers are cautious. Hannah Aykroyd, a prime London buying agent, puts it another way: “There is so much appetite [to buy] at the moment that sellers don’t need to come to the market.” And many buyers are cash-rich buyers who have sold family homes or businesses.
Carol Peett of West Wales Property Finder is more pragmatic: “The market is so frantic that it frightens people. Houses are selling in hours — and there is gazumping — and many people, buyers and sellers, particularly older people, just don’t want anything to do with it. I was buying a holiday let for a client and had secured it with an offer £75,000 over the [£700,000] asking price, then on the day we were due to exchange the seller asked for £100,000 more.”
In the past quietly putting out the word that you would sell to the right buyer was a good way of testing the price before you went to open market. Now, though, most off-market homes are selling before they get anywhere near an estate agent’s window. Alex Woodleigh-Smith, of AWS Prime buying agency in London, tells of a recent off-market sale in Chelsea, west London, in which the buyers exchanged contracts on a £8.75 million house on a Friday having viewed it on the Thursday.
There is so little for sale that buyers will happily pay a premium for something that others don’t have access to. “You’re not going to get a property cheap off market,” warns James Greenwood, chief executive of Stacks Property Search, a national buying agency.
Even though each property is shown to only one or two potential buyers, there can still be bidding wars. Holborow tells of a small country estate being sold off market that was pushed from £8 million to £13 million by two buyers trying to outbid each other.
If an agent has put a reasonable price on the property then a 5 per cent premium is acceptable, according to Greenwood. However, some sellers use off market to test how high they can price before launching to the open market, and at the moment many are getting away with it.
It is particularly difficult to know whether you are paying over the odds on truly private deals in which an owner is selling direct, without the aid of an agent or adviser. Tom Hudson, head of country sales for Middleton Advisors buying agency, says: “These private deals are rare and hard to transact. Everyone thinks their house is worth more than it is.”
“I’m not particularly a fan of off market. I prefer an open and transparent market. Having more people involved gives you the best view on price and best indicator of market value,” Greenwood says bluntly.
However, Richard Winter of Surrey Property Search says: “You might see it as paying a premium, although others would argue that you are simply paying not to have to bid against four or five other people and risk gazumping before the contract is exchanged.”
Not all properties are best suited to off-market sales. Some sellers would do better, as Greenwood says, to encourage a little open-market competition.
“The top end of the property market is like the art market — if you have a rare and sought-after gem that you know will go for a premium price then you can sell it to a trusted contact, but if it is a more normal property then you need to take it to the open market and whip up some interest, you need to generate competition to get the best price,” explains Philip Harvey, a partner at Property Vision, a national buying agency.
What is considered a rare gem varies by area, though. Milbank says he could sell a five-bedroom house with ten acres and a tennis court on the edge of a North Yorkshire village within easy reach of Harrogate or York for between £1 million and £3 million ten times over, but that there are only five of these in the county. Meanwhile, Jennifer Campbell, a rural estate agent for Baird Lumsden in Scotland, has a waiting list for ten-bedroom baronial mansions with 50 acres for about £1.5 million.
For those keen to gain access to these gems you need to “badger the hell out of your estate agent, show you are as keen as mustard and with the finances to match”, says Greenwood. Alternatively employ a buying agent with a good contacts book to act on your behalf, although again you will be vetted and will need to prove you have access to finance before they will sign you on.
It is not unlike being given access to an exclusive club. As Winter says: “Ultimately, buying off market is about being made to feel special — you are paying a premium for access to something other people don’t have.”
What are buying agents?
While estate agents represent the seller, buying agents are the professionals who act for the buyer.
They can sniff out properties that otherwise might never come to market and are often the first person an estate agent will call to tip off about an upcoming sale. They can also approach possible sellers directly, bypassing estate agents.
Buying agents advise buyers on price, help to negotiate deals and help to push through the selling process.
Agent fees range from 1.5 to 3 per cent, with some requiring a retaining fee upfront. Not all buying agents are equal, though; you need to check that they are registered with the property ombudsman, the Information Commissioner’s Office for data protection and HM Revenue & Customs for anti-money laundering checks. Also, ask about details of past deals.