What to offer if buying Direct from Developer?

Roisinbunny

Any guidance on this would be appreciated.

I've seen lots of threads saying go in for the kill and offer 20-30% less when negotiating with an estate agent on a property. What is the situation when you are buying direct from the developer?

My sister is looking at a house on an uncompleted estate - buying off the plans - it's probably the 2nd stage of the development out of 4 and I'm concerned for her that she will be left either without a house/waiting 2 years for completion/paying over the odds when Phase 3 could be cheaper - phase 2 was cheaper than 1. It is a good area for her though, the house is good quality and the developer in question has been around for some time and she has her mortgage approval ready to go. What I'm trying to suss out for her is:

• What kind of offer she should put in and how she should negotiate?
• Any dangers of buying a house that is subject to the whole phase (14 units I think) being sold before construction starts? Apart from the obvious one that the builder goes bust and she is left living on a building site for years!!!!

I think I'll be getting the spare room ready for her just in case:(

the_syco

Roisinbunny wrote: »

My sister is looking at a house on an uncompleted estate

Look at how fast estates are getting built. Or should I say, NOT GETTTING built...

If the developer goes bust, well, I'm unsure what will happen. If she has her house, and the developer goes bust, she'll be living in a building site.

Roisinbunny wrote: »

it's probably the 2nd stage of the development out of 4

How many of the 1st stage have people living in them?

Roisinbunny wrote: »

I'm concerned for her that she will be left either without a house

This sounds like it could happen.

Roisinbunny wrote: »

paying over the odds when Phase 3 could be cheaper - phase 2 was cheaper than 1

To make something cheaper, they may cut corners. Cheaper built is not always a good thing.

Victor

In a country full of empty properties, why is she trying to buy one that isn't finished?

mikemac

The estate may never be finished. The developer could go bust any week.

Sounds very messy OP, while it seem a good deal look around for finished estates as well

Freddie59

mikemac wrote: »

The estate may never be finished. The developer could go bust any week.

Sounds very messy OP, while it seem a good deal look around for finished estates as well

And off the plans!:eek: Avoid, avoid, avoid.

The_Conductor

What was the max that phase 1 sold for? A rule of thumb is that the current price is probably between 40 and 50% less....... Its harsh, but tough......

Firetrap

OP, if I was your sister I would run screaming from the development in question. To be honest, the cost of the next phase would be the least of my worries. You're taking a gamble on the house being built and the estate being finished. Are there no suitable already built houses on the market that would suit her? At least if she does want to live in an estate, she can have a better idea of who's living there and what facilities are in place

AARRRGH

I agree with the other posters, this is a bad idea.

But if she really must buy this house, I'd offer 50 - 60% less than the asking price.

oil painting

Hi Op,

I would do a lot of homework before buying in such an estate, I live in a new half finished estate on the Northside, we are left in a tricky position where we have to pay management fees to a management company but we have no rights until the builder vests the estate to us, that could be for years! the management company can put up the fees if they want, they dont do the best job in our opinion and we as a committee have to work very hard to make sure they are doing all they can to keep the finances in order, you get people not paying their fees a lot and who knows what the place will end up like.


I think your sister should consider buying long term as to protect the investment as much as she can for the future, these estates are not worth pursuing IMO, I dont think i would buy into an estate with a management company again, its a nightmare- your all tied into it together. She is better off trying for a property where none of the above is an issue, it would be a much better investment.

Roisinbunny

Phase 1 was very popular, I think around 30 units and they sold fairly quickly. I think when she was looking originally the house was about 300k, this phase now is 240k? And it's slightly bigger. When she rang the developer she was told there is little to no scope for negotiation - they were very casual, very salesy. She is not worried really about Phase 3 being cheaper - it may well be but like ourselves she is renting a while and is just looking to settle down. She's not in it to make a profit.

It's just one of those things that she fell in love with the house the moment she saw it - it's very well constructed, good finishings and the area is perfect for her with lots of amenities. She seems really happy with it. This particular area was always popular - in the past people queued from the early hours of the morning to put down their deposits when the showhouse opened. How things change!

I think 50 - 60% sounds a bit wild! From what I am trying to work out from all the info on the news, papers, etc won't NAMA just take on all the debt of the developers anyway? Particularly when this is a larger developer. There seems to be no incentive for them to drop their prices - if they get into serious trouble anyway, in steps NAMA, clears their slate and they can carry on like nothing happened!!!!

The main problem I can see is the length of time it will take them to complete - they only really start the phase from my understanding when they get orders for a min no of units so for example my sister puts down her deposit, she has to wait for maybe 5 other units to sell before they start? It seems a bit funny, but I know very little about how these things work. Surely the builder has to give a completion date in the contract?

The_Conductor

1. The fact that people queued in the past to buy there means precisely nothing. Phase 1 of Adamstown in Lucan/Newcastle sold out immediately- with a 3 day queue of people camping out...... there are now over 140,000 vacant or unbuilt units there- and proposals to transfer the whole lot for social housing. Even mentioning prior queues during boom times- is pure sales pitch on the part of the developer- and means precisely zilch.

2. There is *always* scope for negotiation. A developer will say there is no scope- when they smell a sale. If you fall in love with a property- you are screwed.

3. Property prices have fallen roughly 50% from peak (and continue to fall at about 1.2% per month). If this is not factored into the asking price- factor it into your negotiations.

4. Whether or not phase 3 is cheaper- is wholly irrelevant. The risk is that Phase 3 will either be half built- or not built at all. There are half finished estates- some with wholly sold out phases- all over the country. Our population fell by over 68,000 in 2009, and yet we have over 4 years of vacant property on the market. If you imagine Phase 3 is coming down the road- you're deluding yourself. Perhaps if its on Ailsbury Road in Dublin 4- you might be right- but other than incredibly prestigious locations- its simply not going to happen.

5. NAMA is taking on *all* loans from lenders with a value of over EUR3m. This includes both performing and also non-performing loans. NAMAs remit is to get the performing loans to pay for the non-performing loans, and it also has a budget to complete non-finished developments- if this can be done on an economic basis. Very few of the valuations submitted thus far support continued development in any location- anywhere in the country.

6. If your sister pays a deposit and signs a contract- she is legally obliged to purchase the property at price X when complete- regardless of when it is complete. If the bank are only willing to give her a mortgage of 80% of the market value of the property when complete- and it has fallen by an additional 20-30% in the interim- she will have to find the shortfall somewhere- the bank is not going to give her the money.........

7. To be perfectly honest- regardless of how much your sister loves the area, its amenities etc- to put a deposit on an unbuilt property in the current climate- particularly when lenders simply aren't lending for residential property- is a massive massive gamble........ I'd rather buy a lottery ticket- at least I'd know that a portion of the money was going to charity........

Your sister seems to have precisely zero comprehension of the risks involved with her proposed purchase- and is getting totally suckered by the developer into the bargain......... If this was 2005-2006, I might understand (and still think it crazy), but its not........ Your sister needs urgent and impartial financial advice. She is being totally charmed by the developer- and is liable to get herself into a whole lot of trouble.

markpb

oil painting wrote: »

we are left in a tricky position where we have to pay management fees to a management company but we have no rights until the builder vests the estate to us, that could be for years!

This is an important point. If an unfinished estate has a management company, it's a huge risk. Only a small number of builders pay service charge for unfinished/unsold units which means the management company won't have enough money to pay for it's services. Things can go seriously downhill once that happens and your sister will have no comeback.

Roisinbunny wrote: »

the house is good quality

Out of curiosity, how does she know it's good quality, especially since it's being built of the plans? Assuming she's had a chance to look at the existing houses, does she have a written guarantee that exactly the same materials will be used and has she had a professional snagger examine them? I'd wager the show house is well furnished and she has come away with the impression it's well built without having any reason for this belief. Show houses can be very compelling, I know from experience.

smccarrick wrote: »

If your sister pays a deposit and signs a contract- she is legally obliged to purchase the property at price X when complete- regardless of when it is complete. If the bank are only willing to give her a mortgage of 80% of the market value of the property when complete- and it has fallen by an additional 20-30% in the interim- she will have to find the shortfall somewhere- the bank is not going to give her the money.........

There's a very sad example of people who pre-purchased in Vantage, Leopardstown during the boom and are now being chased by the developer and their solicitors for funds because the banks won't release the full mortgage for the agreed price. Read these posts to see what can happen. Those people are still in limbo.

AARRRGH

Roisinbunny wrote: »

I think 50 - 60% sounds a bit wild! From what I am trying to work out from all the info on the news, papers, etc won't NAMA just take on all the debt of the developers anyway? Particularly when this is a larger developer. There seems to be no incentive for them to drop their prices - if they get into serious trouble anyway, in steps NAMA, clears their slate and they can carry on like nothing happened!!!!

That's not what NAMA is.

The government are using NAMA to take loans off the banks books, with its aim to free up the banks so they can return to a healthy state.

The loans are not being written off - the developers still have to pay them back.

...

Ireland is totally ****ed, and is just going to get worse. I agree with Morgan Kelly that Iceland will be doing better than Ireland by 2015.

If your sister wants to ensure that she is not trapped in negative equity for years, she needs to be realistic and start ignoring *anything* that happened during the property bubble. That means one bedroom apartments should be between 50k - 100k, 2 bedroom apartments should be between 80k - 120k, and three bed semi-detached houses in relatively depressing areas around the fringes of Dublin should be under 150k.

Wages are going to keep dropping, our population is going to keep dropping, and there are going to be hundreds of thousands of empty homes. It's going to become near impossible to sell unless your home is in a decent area at a cheap price.

I know it is hard to think like this, as the bubble has warped our opinion on property and money, but the reality is Ireland is a tiny economy with a tiny population and waaay too many homes.

mrgaa1

smccarrick wrote: »

5. NAMA is taking on *all* loans from lenders with a value of over EUR3m.

is it not €5m?

Roisinbunny

AARRRGH wrote: »

That's not what NAMA is.

The government are using NAMA to take loans off the banks books, with its aim to free up the banks so they can return to a healthy state.

The loans are not being written off - the developers still have to pay them back.

...

Sorry, my understanding was that the larger developers were going to engage in a type of debt transfer to NAMA with all sorts of favourable terms and interest rates?

I do take all points on board however. Smccarrick, believe me I have seen her agonise over this decision for years, always holding off, listening to everyone's input. I did the same and I'm determined to take the plunge and buy before the end of 2010. As for her getting urgent and impartial advice? One of my closest friends was nearly talked into an investment over 50k just before Anglo went bust by his friendly financial advisor. (Not blaming the advisor particularly, but he sold it like it was solid gold and nobody had a feckin clue what those gangsters were up to). You can't trust anyone in this country of cowboys so you have to take a risk with everyone you have dealings with.

She does have a large list with the specific spec. She has spoken to people living in the estate to get feedback (no negative feedback re dealings with the builder, even though some are in negative equity and could have given it).She has done as much homework as she can. The rest is just a gamble really isn't it?

We seem to have been born into the wrong generation and I can't see this mess being cleared for many many years to come:mad: Best advice I can think of right now is to increase your pension contributions or start your pension (god forbid if you haven't started one yet) - because the country will not have a BOB to give us when our time comes.

The_Conductor

mrgaa1 wrote: »

is it not €5m?

I think it was lowered to take more commercial loans on board- without hitting residential loans....... (I stand to be corrected on this- I haven't seen the final version of the legislation)