Beverley Kirby gave up trying to buy a house on her own in London’s Chelsea area after twice getting burned by owners reneging on agreements to sell to her. The night before Ms Kirby was due to sign for one £4.5 million (S$9.5 million) house a year ago, she was trumped by an offer that was £500,000 higher. The aborted deal cost her £4,000 in fees and left her with a few months to vacate the apartment she had sold.
‘I was getting desperate,’ said Ms Kirby, who bought and sold seven other homes previously with her former husband. ‘There was madness in the market. People had no ethics at all.’
That experience, along with the surge in prices for a dwindling number of top-end properties for sale, led Ms Kirby to hire Robert Bailey, a type of broker known as a buying agent. Mr Bailey is one of several hundred operators in a field that barely existed in the UK 15 years ago. He found her a home that wasn’t advertised. Ms Kirby moved into it in early April after Mr Bailey helped her carry out refurbishments and get planning consent to use the top of the garage as a roof terrace.
The agents are a response to a flaw in the British real estate system that favours sellers, said Phil Spencer, who hosts property-search shows on UK television with fellow agent, Kirstie Allsopp. Typically, potential UK homebuyers register with ‘estate agents’, who show them properties but are ultimately paid by the sellers.
In the United States, both buyers and sellers usually hire brokers, though only the sellers pay commission. These fees are shared by both sets of brokers. ‘A buyer has nobody to help them with the biggest financial decision of their life,’ said Mr Spencer, 40.
The new breed of advisers charge the potential purchaser a retainer plus commissions of as much as 2.75 per cent of the sale price. It’s a cottage industry largely used by the wealthy because it’s too expensive for most people with budgets of less than about £500,000.
Buying agents have proliferated in the luxury markets of London and southern England as a weaker pound lured overseas investors. They do everything from locating the home and negotiating the price, to arranging legal and survey work and researching potential pitfalls such as noisy neighbours. They are prized largely for speeding up the process to reduce the chance of getting ‘gazumped’, a British term for being trumped by a higher bid before signing contracts.
‘Over the past five years especially, there has been a quadrupling in the number of buying agents in the prime central London market and their numbers increase all the time,’ said Noel de Keyzer, head of house sales at broker Savills plc’s Sloane Street branch in the city.
There are fewer luxury properties for sale in prime London neighbourhoods even as demand is rising. Residential purchases in the Westminster and Kensington & Chelsea boroughs, where average house prices exceed £1.3 million, are down 23 per cent from the average since 1996, according to London Central Portfolio Ltd, which buys and manages prime rental property investments.
About 100 properties worth at least £20 million have been purchased since 2006 – a category that’s less than 10 per cent of the prime central London market. Most deals of that size are now handled by buying agents, Mr de Keyzer said. The scarcity of prime homes for sale lifted prices in central London by 23 per cent since a year-long slump ended in March 2009, Knight Frank LLP estimates.
Agents have to court private banks or wealth managers to generate new leads to sustain the deal flow. Dozens of individuals, many former brokers, have set up on their own as overseas buyers flocked to London. ‘All you have to do is two or three deals a year and you earn as much as you did before,’ said Johnny Turnbull, who has worked independently since 2006 after heading the London arm of Prime Purchase, Savills’s buying-agent arm.
Some independent buying agents say rivals owned by brokers have a conflict of interest because their companies represent both the buyer and the seller. ‘They’re trying to milk the fees at both ends,’ said Francis Long, who set up buying agency Hanslips 12 years ago.
Savills and Knight Frank say there are ‘Chinese walls’ and enough transparency to avoid conflicts, and that few customers have problems with the arrangement. Buying agents rely on relationships with brokers, developers and owners to get their customers first in line for a home.
Source : Bloomberg – 18 Aug 2010