Should they take low offer?

ILikeBananas

My sister and her husband bought a house in Crumlin in 2005 and paid something like 350K.

The house is very nice but the area is a bit dodgy. After the birth of their first child they decided to try and move.

6 months ago they went to an auctioneer who valued it at 230K so they put it on the market at that price. There was some initial interest but no offers. After a month or two they dropped the price to 220K. After another 2 months there were still no offers. The estate agents told them they'd have to drop it to 200K, which they did.

The lower price attracted a bit more interest and two weeks ago they received their first offers from two different people. One was 150K and the other was 170K. They rejected both and the higher bidders have now come back with an offer of 175K.

Is this a reasonable offer given the state of the property market?

Victor

It would be consistent with the estimated average 50% drop in the market. "Reasonable" may be utterly dependent on them.

If there is a mortgage on the property, the may need the bank's permission to sell.

Snakeblood

ILikeBananas wrote: »

My sister and her husband bought a house in Crumlin in 2005 and paid something like 350K.

The house is very nice but the area is a bit dodgy. After the birth of their first child they decided to try and move.

6 months ago they went to an auctioneer who valued it at 230K so they put it on the market at that price. There was some initial interest but no offers. After a month or two they dropped the price to 220K. After another 2 months there were still no offers. The estate agents told them they'd have to drop it to 200K, which they did.

The lower price attracted a bit more interest and two weeks ago they received their first offers from two different people. One was 150K and the other was 170K. They rejected both and the higher bidders have now come back with an offer of 175K.

Is this a reasonable offer given the state of the property market?

What are their expectations from the sale? Will they clear their debts? Do they have any sort of time constraint on them?

The problem is that there won't be an upswing of 3 or 4% a year (in my (and the central banks) opinion). Things will get worse for the next year or two at least, and there's no particular reason for an upswing after that. I'd jump now if I could.

mari2222

Take the price on offer and move - presumably they will buy a property that has also dropped in price since the "highs"

Mr Kite

Bite their hands off for 175k, It will look a good deal in time.

Idbatterim

it seems like a reasonable offer the way things are now, this is crumlin we are talking about! god knows what similar houses will be going for in 1 or 2 years!

swirlser

Its an unfortunate example of those who really got burnt from buying in the mid 2000's.

Honestly, Id suggest they take the 175k offer very seriously. It will no doubt sting, but Id be willing to bet large that in a couple of years they will actually be grateful they got out of there when they did. Also they will be moving on into a new place with the same buying power as those bidding on their prop now.

stargazer 68

Have to agree with the rest of the posters. Mate of mine was selling his house and didnt take a reasonable offer. Ended up having to sell it a few months later for 20K less!!

leeroybrown

Take the offer. It's a dropping market and will continue to be so for the foreseeable future. People just don't have the money or credit to buy houses. If they refuse they'll likely sit on it for another six months and end up back asking themselves the same question but for 150k next time. For example, I know someone who's in the process of buying a house for €120k less than the owner's lowest asking price was when they enquired 18 months ago.

It's pretty simple. Even if they end up with a chunk of their mortgage to service afterwards they can pay off a huge chunk of it, reduce the cost of it and get out debt free an awful lot sooner than they otherwise would.

Mr. Presentable

Depending on what they owe the bank - I expect it greatly exceeds €175k - they may have to demonstrate to the bank an ability to pay off the mortgage when they sell.

Master and commander

My advice would be to not sell and hold onto it. The market is in the toilet now but it will come back up, eventually. If you sell you are basically chucking 175k down the pan.
You can rent it out to tennants, and then you can rent in an area in which you want to live. Presumably you wont get a mortgage for another house? The rent you recive will pay your rent out and you can continue to hold the house as a long term investment and hope it recoups some of its market value in the medium to long term.
It all depends though, are you stuck for money, are your jobs secure or do you own a business, how much money do you make?

If i were you i'd be hanging onto it if at all possible in the hope of a rising market in the future, not so much for a profit but for limiting how much loss you are in. It's an ill wind that blows no good.

Dades

Master and commander wrote: »

If i were you i'd be hanging onto it if at all possible in the hope of a rising market in the future, not so much for a profit but for limiting how much loss you are in. It's an ill wind that blows no good.

The hope of a rising market in the future is not a viable reason to hang to a house in a slightly dodgy part of Crumlin.

The way things are going it could be could be ten years before the market has stopped dropping, bottomed out, and returned to the point where they might get offered €175k again.

The last thing they need is a rental property (in a slightly dodgy part of Crumlin) and all the hassle that goes with it. Any rent they receive will NOT pay the rent of a new place out, assuming they want a bigger house in a better area, and that they have to pay income tax and all other rental outgoings out of it.

The old house is a noose. If they can get out now - they should do it and breathe a sigh of relief when the SOLD sign goes up.

leeroybrown

Master and commander wrote: »

My advice would be to not sell and hold onto it. The market is in the toilet now but it will come back up, eventually. If you sell you are basically chucking 175k down the pan.

Eventually! It'll take a long long time and it'll drop quite a bit further beforehand too. You own a house for one of two reasons - it's either your home or it's an investment. This house is now an investment and a pretty poor one at that. The losses are already there and thinking that hanging onto the house in some way mitigates them is a deluded view. If selling is possible (bank and buyer permitting) then getting rid of €175k of mortgage debt is a sensible option. That €175k will cost much more than that with interest included to service it over it's lifetime.

It's pretty simple. Calculate how much holding onto the house (excluding past losses) will cost in the long-term and how much getting rid of it will cost. Then look at the difference and decide if that's an investment you'd be willing to make in that property. We've limited information here but I'd say that it's most likely not.

I'll add that I know quite a few people who are stuck in massive debt holes because they couldn't be decisive enough to cut their losses and run when they had a chance.

noxqs

Cut losses. Full stop.

It is a loosing proposition that in order to get out of one hole, is to dig another hole even deeper and jump into that.

Renting out a house in negative equity in the hope it will eventually recover while taking out another mortgage is an incredibly unwise action.

It's akin to a gambler who keeps playing and ends up borrowing money to play more to try and recoup losses. We all know how that turns out.

The rent will no doubt not cover the mortgage repayments AND RA/RS is being cut which will further put pressure on the rental market. The house prices hasn't bottomed out and there is a snowballs chance in hell that when we do hit bottom it will start recovering at a rate which will return the price of the house to a level that is anywhere near where it started off (that is, within 20 years or so).

Sorry, that's just the facts. House prices growing faster than inflation in the next 2 decades? Not a chance. There will be no rally in house prices in Ireland. And that, is a good thing for the economy overall. Bad for those stuck in it.

For the sake of argument:

100,000 - Peak price. 50% off from peak (optimistic).

How many years will it take until it recovers to 100,000 assuming 3% annual growth?

24 years is the answer.

And 3 % growth is from BOTTOM, who knows when that is, and who knows if we will see 3% annual compound growth (optimistic). Who wants to be a landlord for 24 years only to be back to square one?

Tigger

i offered 220k on a house 2 years ago and was rejected
its on the market now for 185

i'm waiting...

ILikeBananas

Thanks for the responses everybody. They've had a good think about it and have decided to accept the offer.

desertcircus

Master and commander wrote: »

My advice would be to not sell and hold onto it. The market is in the toilet now but it will come back up, eventually. If you sell you are basically chucking 175k down the pan.
You can rent it out to tennants, and then you can rent in an area in which you want to live. Presumably you wont get a mortgage for another house? The rent you recive will pay your rent out and you can continue to hold the house as a long term investment and hope it recoups some of its market value in the medium to long term.
It all depends though, are you stuck for money, are your jobs secure or do you own a business, how much money do you make?

If i were you i'd be hanging onto it if at all possible in the hope of a rising market in the future, not so much for a profit but for limiting how much loss you are in. It's an ill wind that blows no good.

Rent on a two-bed in Crumlin would be lucky to hit a thousand a month, and is unlikely to cover the rent anywhere nicer - because why on earth would it cost more to rent somewhere worse? That means they'd be paying off mortgage plus the difference in the two rents. Sell up and they'll be paying half the remaining mortgage (350-175) and rent on the new place, and more importantly, they'll be shot of further losses.

Holding onto property in the hope the market will pick back up is suicide. There is absolutely no reason for anybody to think the market's going to start back up again - banks are still being far more careful with their lending, young people with qualifications (the next generation of buyers) are getting the hell out of the country, interest rates will only go up, and there's still a massive overhang of unsold property. If all of these changed, then it'd still be a somewhat risky proposition; with them all pointing the way they are, there's no reason for prices even to stop falling.

ILikeBananas

Well they accepted the offer but it's after falling through. The buyers had mortgage approval for that amount but when they went to finalise the deal the bank withdrew it. They have since tried with another bank but were denied there as well. Is this sort of thing common nowadays?

Mr. Presentable

Yes. The banks believe the property is overvalued, most likely.

Da GOAT

Tigger wrote: »

i offered 220k on a house 2 years ago and was rejected
its on the market now for 185

i'm waiting...

To add, I offered 200k & 220k on a 275k house mayeb 1.5 years ago. They took it off the market but the whole area now is listed as circa 200k now. Thank **** it was rejected.

stargazer 68

The house next door to me is for sale for 260 (July) - just checked the website and it has been reduced to 225!! :eek:
These were going for nearly 500 a couple of years ago

leonidas83

ILikeBananas wrote: »

My sister and her husband bought a house in Crumlin in 2005 and paid something like 350K.

The house is very nice but the area is a bit dodgy. After the birth of their first child they decided to try and move.

6 months ago they went to an auctioneer who valued it at 230K so they put it on the market at that price. There was some initial interest but no offers. After a month or two they dropped the price to 220K. After another 2 months there were still no offers. The estate agents told them they'd have to drop it to 200K, which they did.

The lower price attracted a bit more interest and two weeks ago they received their first offers from two different people. One was 150K and the other was 170K. They rejected both and the higher bidders have now come back with an offer of 175K.

Is this a reasonable offer given the state of the property market?

Tbh, nobody really knows which way the market will go. There are more signs the market will deteriorate further rather than improve in their short to medium term but it wont fall to the levels some people think it will either

It sounds like they have garnered some interest in the property now and their is now more than one interested party. This is always a very good thing when it comes to selling, if their auctioneer is any good he will be able to promote and sell the property alot better now. The auctioneer should be contacting any other parties who previously expressed any interest and informing them of the new developments.

All of this also depends though on the position of your sister and her husband as well though. Do they feel they need to move out immediately or would they willing to stay another few months or years rather than take the hit now?

My advice would be to see how this plays out with the interested parties, sit on it for a month and if no further improved bids have been made, agree to sell it and take the hit then if the need of your sister to move is great

Bullseye1

I really feel sorry for these people. Hopefully they get to move shortly.

Isn't it hilarious that the banks are now doing their job by assessing mortgages instead of throwing money at people. The banks should be made share in the negativity equity as far as I am concerned. I appreciate the banks were not the only reason for the property bubble but they were a major player. It was their negligence in handing out huge mortgages on inflated properties which has is where we are.

Snakeblood

Dovies wrote: »

The house next door to me is for sale for 260 (July) - just checked the website and it has been reduced to 225!! :eek:
These were going for nearly 500 a couple of years ago

I had an apartment in ctiywest I put up for sale about a year after I got it (2007). It was supposed to be 245, I got it under the affordable housing for 150, I advertised at 150, then 130, sold (unbelievably to me) at 125 to the council, now places around there are going for 99 or so.

Lost deposit and all savings but am blessing myself now, I could have been 25 grand in debt (at least).

leeroybrown

ILikeBananas wrote: »

Well they accepted the offer but it's after falling through. The buyers had mortgage approval for that amount but when they went to finalise the deal the bank withdrew it. They have since tried with another bank but were denied there as well. Is this sort of thing common nowadays?

Loan-to-value ratio is the biggest factor in assessing the risk of a mortgage. If the bank thought the property had a lower valuation than the price they'd be taking on a lot more risk.

Bullseye1 wrote: »

Isn't it hilarious that the banks are now doing their job by assessing mortgages instead of throwing money at people. The banks should be made share in the negativity equity as far as I am concerned. I appreciate the banks were not the only reason for the property bubble but they were a major player. It was their negligence in handing out huge mortgages on inflated properties which has is where we are.

As it stands right now any mortgage forgiveness by the Irish banks results in reduced liquidity which in turn results in the state having to burden more debt on the taxpayer. I do have some sympathy for someone who overstretched to take out a €400k 30 year mortgage but not to the point where I want the rest of us to pay for it.

iguana

ILikeBananas wrote: »

Is this sort of thing common nowadays?

Very common. A lot of people are getting mortgage approval in principle but are being refused when they actually look to draw it down. Many sale agreeds are falling through because of this.

Bullseye1

leeroybrown wrote: »

Loan-to-value ratio is the biggest factor in assessing the risk of a mortgage. If the bank thought the property had a lower valuation than the price they'd be taking on a lot more risk.


As it stands right now any mortgage forgiveness by the Irish banks results in reduced liquidity which in turn results in the state having to burden more debt on the taxpayer. I do have some sympathy for someone who overstretched to take out a €400k 30 year mortgage but not to the point where I want the rest of us to pay for it.

The banks were private entities when handing out these 100-110% mortgages to people. They were essentially baiting people to get onto the property ladder before it was too late. Now that property prices have gone the other way banks should take a hit along with the mortgage holder.

Villa05

desertcircus wrote: »

Rent on a two-bed in Crumlin would be lucky to hit a thousand a month, and is unlikely to cover the rent anywhere nicer - because why on earth would it cost more to rent somewhere worse?

For me this is the money quote.
We are advised that one should not spend more than a 1/3 of their income on accommodation. At €1,000 rent per month, the person should be earning an after tax income of €36,000 p/a. This is well above the average salary in this country and it only gets you a house to rent in a dodgy area. This is an indication that prices are still far too high

indiewindy

Villa05 wrote: »

For me this is the money quote.
We are advised that one should not spend more than a 1/3 of their income on accommodation. At €1,000 rent per month, the person should be earning an after tax income of €36,000 p/a. This is well above the average salary in this country and it only gets you a house to rent in a dodgy area. This is an indication that prices are still far too high

Yes, and most of it caused by rent allowance distorting the market.

magneticimpulse

Idbatterim wrote: »

it seems like a reasonable offer the way things are now, this is crumlin we are talking about! god knows what similar houses will be going for in 1 or 2 years!

There are 3 bedroom houses on daft.ie going for 55k in areas like Crumlin now. The higher end places in Dublin like Ballinteer are now at 350k and they are still not being sold.

175k is a really good value in todays prices if they can get it. I would suspect 150k would even be a good price (unfortunately for the people you know trying to sell but its the reality). Prices still going down.