Vendors of tired homes need to cut expectations

Thus far, many estate agents have noticed a slight fall off in numbers viewing properties, and a slight slow down in the pace of offers. Conversely others have noticed no change whatsoever and are busy out the door right now.

Estate agents are optimistic sales people not economists, but most privately expect some sort of gradual slow down from late this year or else early in the new year. So far sales haven’t been impacted, although prices aren’t automatically ratcheting up each time.

But there has been an exception — for tired homes which need upgrading and come with much lower BER ratings.

These homes have already seen their values eroded through this year thanks to the surging cost of building materials and labour which are necessary to upgrade them. Now the threat of surging heating costs in particular mean buyers are even less prepared to look at older and colder homes. Government has compounded this by announcing its plans to ultimately penalise those burning fossil fuels going forward (most Irish homes are still heated by gas and oil).

This week I was contacted by three different vendors concerned that their estate agent was not doing their job regarding their house sales.

Reading about surging property prices et al, they were somewhat surprised to see their homes experience a lukewarm response from buyers. In one case there has been no offers at all. In another case there’s only been one.

I looked into it and in all three cases, it seemed that the agents appeared to be doing nothing untoward. All seemed to have pitched their asking prices intelligently. All had used the usual channels to show these properties off online. All photographs were reasonably well taken. What they hadn’t done was brought their prices down after no bites.

And all three properties are family sized estate homes in suburban Dublin which are very dated and in need substantial money spent on them. All have sub C level BER ratings.

Therein lay the plight of all three.

So if you’re selling a house right now that is in need of a lot of work, you really do need to forget about the prices that have gone before so far this year. Those in the property register achieved for similar homes back in May, March and February are now completely irrelevant.

The value of your home has already been shrinking all through this year, even before interest rates, fuel inflation et al start to impact.

As I said, that’s linked to surging construction materials and labour costs. Wood is up 60pc for example and insulation tiles are up 80pc. Other building components have increased by less, but seldom below 15pc since January.

What it means is that the house in need of work in February that was worth €300,000 and needed €80,000 spent on it, now needs €130,000 spent on it. The refurbished house was worth €400,000 in February. And the upgraded version of this house is still worth €400,000, for now.

But vitally, the unworked version is today worth €250,000 and not €300,000. So if you’re still trying to sell at €300,000, don’t be surprised if you’re getting no offers. If you’ve been on the market since February at that price then taking it to €280,000 or €275,000 is unlikely to help much either.

The fundamentals of the Irish property market are in themselves not necessarily particularly bad right now. Banks are not overextended. And while prices are high, supply is still very low indeed relative to housing needs.

But it’s everything else around the globe that looks decidedly hinky.

It’s not only about the inflationary concerns and fuel/heating crisis caused by the Ukraine War. Aside from record inflation in Europe, increasing interest rates and the surging cost of building materials and labour being experienced; there are also other real heavyweight global economic concerns looming.

Like that of a threatened US stock market crash. There’s also a teetering Chinese housing market which, if it falls, will be the mother of all property crashes (think ghost cities, not ghost estates!).

The bedlam that ensues could suck the rest of the world in depending on how much European and US interests have invested in Chinese real estate. These woes might never happen, but all those bad ducks are busy getting themselves all in a row.

What we do have for certain is increasing interest rates after a prolonged period of them being on the floor. That’s a definite for cooling buyer power and property prices across the board for all types of homes.

The threat of the wider market being affected by the global climate in the year ahead means there is an urgency today to sell your sub C BER home before more general factors impact and a general malaise is added to your particular one.

If your home isn’t selling then you need to reprice, or you’ll end up getting even less than that in a few months time. Estimate the true market value of your home as it might be fully refurbished (your agent will tell you this) minus the updated cost of doing the work today and then minus 10pc. That’s a good guide.

If you hesitate, with fuel/heating inflation and interest rate hikes yet to truly impact, you could end up in an even worse situation in the coming months, and chasing the market downwards.

Buyers who know they have to spend twice as much on home heating and 10pc more on food, petrol and just about everything else going forward, are going to increasingly factor that in, along with increasing interest rates, to what they’re ultimately prepared to spend on a home.

It makes sense that as time has rolled on this year, they’ve been increasingly more open to homes with higher energy savings which require less work.

In the case of the three properties whose owners enquired, all responded to my suggestion of price cutting with: “But we need to get X amount! We won’t be happy with less.”

I explained that their needs and feelings amounted to diddley squat and could cost them money going forward. Also if you’re not prepared to take less for your sub C BER home that won’t sell, take it off the market and stop wasting everybody’s time and your own. The market has always dictated the price, through the ups and through the downs. That’s one thing that never changes.