Selling in a pandemic. Sellotape required
Can I sell my property at the moment? Should I try and sell my property if I need to move? Probably the two questions in the property industry forums and articles that I have seen the most frequently since the lockdown started nearly 4 weeks ago, and two that in context no one has ever needed to ask before. After all, the government has never officially suspended the housing market, and the range of answers has prompted me to offer an independent view to those who might be looking for some nonpartisan advice.
I won’t be popular with some Estate Agents for saying this, but the short answer is no, definitely not unless you have less interest in the traditional priorities that sellers have, which I will come on to. It is not actually in the interests of those Estate Agents either to encourage people to place their properties on the market, unless that is, both parties have had a very frank conversation about the potential challenges and compromises that are inherent in doing so. I do accept that these discussions may take place and some sellers will now still be placing their property on the market for sale eyes wide open, but there is a groundswell of Agents who are claiming it is business as usual, when it is anything but.
Let me frame this in context of how it started and what the implications are for selling now in the Spring of 2020. On 26 March, at the request of financial institutions the government put the housing market in its own lockdown. Lenders needed breathing space to configure new underwriting guidelines, and with staff working from home they could simply not cope with the normal volume of mortgage applications. The house selling and moving process is a very labour intensive industry, involving tens of thousands of people, many of whom need to visit the properties being bought and sold, hundreds of thousands of viewings take place every year, thousands of EPCs and surveys.
It’s very much a people business and one where viruses can be easily spread with the amount of interactions taking place. The government (HMG) wanted everyone in lockdown if they were not considered a key worker and buying and selling property was rightly not seen as essential. Moreover, lenders wanted to understand and define the new meaning of risk, as businesses started to immediately lay off staff and issue stock market warnings of impending failure. Not an environment most banks feel comfortable lending people hundreds of thousands of pounds when they might lose their job next week. Exceptions to this moratorium were offered to those who had already exchanged contracts, but ironically many removal firms took government guidance on social distancing within 24 hours of it being offered and cancelled most people’s moves.
HMG quickly then offered clarification and requested that Estate Agency offices should close immediately, no viewings should take place, in exchange for a 12-month business rates holiday. Banks then started pulling mortgage offers and rates that had already been issued as the scale of the pandemic in the UK became clear and the housing market for the first time ever literally ground to a halt. Barely any mortgage underwriters working, and even if you could get in the queue, all the best rates had been pulled. Estate Agents all closed. Many councils closed, or staff redeployed, meaning searches could not be applied for. Surveyors at home. Buyers and sellers in lockdown. Removal companies closed. Solicitors at home, workloads greatly reduced. Almost mission impossible conditions to buy and sell, but where there is a will there is a way.
Estate Agents, conscience that their very survival depended on being able to try and pull some sales together, started offering virtual viewing services where the vendor streamed a video of their property and answered any questions, however encouraging deals to come together in this way, is in my view a fools paradise. I come back to one of my first points. If the seller knows all the risks, then it is a free market and they can choose to do whatever they wish to, but I don’t believe too many of these conversations would have taken place. So why would be a bad idea to agree a sale now to a buyer if they want to go ahead and buy? Several reasons.
Firstly, and Estate Agents valuation would inevitably be less optimistic because of the circumstances we find ourselves in. Market forces, prices and values are driven my confidence. When confidence falls, people build in margins of safety and pay less for things. Estate Agents know this and build in their own margins. Who can say since the 23 March they are feeling confident about the UK economy at the moment? The last man standing at that party is always the Chancellor, and even he has said the next 6 months are looking pretty grim for everyone. Look at the stock market. The greatest plunge since WWII as every investor on the planet sold their stocks to one degree or another, and business issued profit and cash flow warnings. In times of low confidence, it is never a good time to sell anything.
General Elections are classic low confidence barometer. Three months before any national vote, you can pretty much rely on an artificial hit of about 15% to property prices for anyone brave enough to sell, as people factor in their concerns about getting a type of government that would leave them poorer afterwards and for people buying property, that is usually a Labour government. The day after an election, that 15% returns almost overnight, assuming the right party won. Look at Boris Johnsons’ win in December, later named the “Boris Bounce” for the housing market. Exactly these cold winds before December the 13th preceded the tropical high pressure that arrived later that week. This 15% manifests itself in a slightly lower Estate Agent valuation and a buyer’s much lower offer. We are in a deep trench of low confidence at the moment. 20% might more be the mark for anyone looking to sell right now. Some commentators think it might soon need to be 30%, albeit I think that is too high.
Before I move onto “Secondly”, please be reassured that this low-pressure price reduction I call artificial, simply as the lockdown which will probably last three months does not allowing normal market trading and forces to operate. This creates a perverse buyers’ market, but as with pulling down on an elastic band, or squashing a stress ball, when the equilibrium is allowed to return, the shape of what was there before returns pretty quickly. Weeks and weeks of pent up demand, peoples’ lives on hold will mean that any fall in prices will be negated in a matter of weeks, perhaps even days, I have seen it happen that quickly.
So secondly, even if a seller and buyer come to agreement on price and in good faith want to proceed with a transaction, how can any apparent confidence felt by the buyer be relied upon? They may want to do the deal but there are too many curve balls, too many unknowns, yet to be revealed that could radically change their view. Don’t forget they haven’t even viewed the property yet. Whilst an iphone video might give them a basic idea, only an onsite visit can give them the detail they need on its conditions and the feel of the property. Inevitably a seller won’t highlight any negative points in any video that a buyer will find themselves on inspection. Some deals won’t survive a physical viewing after lockdown and will fall through.
For those that survive, can they then get a mortgage agreed? If they have an AIP, can they rely upon it not being pulled at some point as their bank changes their lending criteria? Will they still have a job, or will their husband or wife still have a job? Will they have been furloughed, or forced to take a pay cut? Will their business have gone bust? Will they be ill with Covid 19? The reasons all these things matter, when they don’t normally is for two reasons. One, we know the scale of the economic shutdown is going to affect most people. Two, the agreed deal is going nowhere, which brings me on to my final point, as to why selling right now is not to be contemplated.
Thirdly and crudely, what’s the point in agreeing to sell a property to someone who can’t make any progress in trying to buy it? No lending, no searches, no surveys, very few solicitors, none that will start new cases, the deal will be as new when the lockdown finishes as it is the day it is agreed? How can a seller make any commitments on an offer themselves up a chain with foundations like these?
So, back to the traditional priorities of a seller. Why sell now to a buyer at down to 80-85% of your property’s value, to that buyer who has zero ability to make any progress to exchange contracts, and after all those delays who has no idea whether they will be willing or able to pursue it any further when the market resumes?
Unless a seller is desperate to sell now or has an urgent life reason meaning they have to, best practice and advice to them should be to get their property ready for sale anywhere from early-summer to early autumn as physical viewings will likely still to be banned until at least mid-May. When the market resumes, that stress ball will get back into shape quickly. Better price, better buyer, quicker progress.
When I was negging deals on the front line, I used to tell my sellers I would get them the best price possible, from a willing and able purchaser that would match their own timescales. Getting any of these in the current climate is possible, as is winning the lottery, but the chances are very slim. Before I put any deals together even in decent markets I used to test the metal of my buyers, almost to the point of putting them off buying the property, so they could convince me as the Agent that they really did want to and were capable of doing so.
I used to tell my team, there was no point in agreeing deals with shallow foundations, or as I said then, that were held together with Sellotape and a bit of blind luck, and it is that kind of transactional behaviour that has always given Estate Agents the poor reputation that they had started to shrug off more recently. Their value to their clients is always their expertise and advice they offer, far superior to online agents that sets them apart and justifies their higher fees. This pandemic could change all that if they are not careful, and those that are advising their sellers to list now, may well regret it later.