How to Negotiate an Overseas Property Bargain

The volume of people logging onto Homes Overseas, to search the property listings, for example, has jumped up by close to 60 per cent over the past couple of months.

With overseas property prices having suffered huge falls around the globe, due to the economic crisis, now is increasingly seen as a potentially great time to negotiate a once in a lifetime overseas property bargain. But this can sometimes be easier said then done.

Local property knowledge
Negotiating techniques can often vary from country to country, and that “which may seem cheap abroad, compared to UK property values, may not be inexpensive, in contrast with local property prices”, says Kate Faulkner of Designs on Property.

This is why it is important to have good local market knowledge, or access to someone who does, in order to secure the best possible deal. Colin Murphy, director, Tuscana property agency, says: “It is vital to have somebody that you can trust on the ground, with knowledge of the local property market in which you are trying to buy into, as they will have an understanding of what true local property market value is.”

Local property market value
But how do we determine what is genuine market value? James Oliver of Find and Build, a property search agency and building firm, comments: “Prospective buyers should always look at comparable property prices within the given area that they are looking to buy, as this will give them a greater idea of local market value, and place them in a stronger negotiating position.”

Comparable sale prices should be as up to date as possible, and it may be necessary to factor in recent price falls, as well as potential future capital depreciation. For example, property firm, Iberian International, are currently offering homes for sale in Spain with the option of paying an initial deposit now and the rest of the balance in two years time. This would effectively tie a buyer into purchasing a residential unit at today’s sale price. However, recent data from BBVA, Spain’s second largest bank, estimates that average Spanish property values will depreciate by around 20 per cent between now and the end of next year.

If BBVA’s projection is accurate, anyone buying a home in Spain now, could find himself or herself seriously out of pocket, and potentially in negative equity, by the start of 2011. “Always factor in future property price growth or losses, and not just today’s market value,” says Faulkner.

The art of negotiation
“Assess your strengths before entering into negotiations and take advantage if you're in a position of power,” says Julian Constance, director, Tailored Home. He says that those people who are in no rush to buy, are not in a property chain, have finance, ideally cash, in place, will “always be in a position of strength.”

Constance adds: “Consider the current economic climate, the availability of similar properties in the area and any offers other agents or developers may be running. With so many empty homes - both old and new - on the market, it’s worth negotiating as hard as you can with the seller.”

Those people prepared to buy properties overseas in bulk will also be looked upon favourably, although single unit buyers do remain invaluable to sellers. “Do not be afraid to pitch a low offer”, says Oliver. “An estate agent is unlikely to disclose all the information to the prospective purchaser, and so it is important that the potential buyer finds out as much information as they can about the vendor, and their motivation for selling.

This is why it can be useful to employ a property finder,” Oliver says. “There are some sellers that are in a very stressful position and gagging to sell, due to their poor financial state, and this is where some of the best value for money deals can be secured.”

Make an offer
There are lots of people looking to haggle asking overseas property prices, particularly in the current economic climate. When making an offer on a property, do not be afraid to offer way below the asking price, even if bordering upon the ridiculous, particularly in the current buyers’ market. After all, a property is only actually worth what someone is prepared to pay for it.

Chris Mercer, a property agent in Costa Calida, Spain, with Mercers property agency, offers the following case study: “Six months ago we had a buyer keen to secure a two-bedroom, two-bathroom Rosa style detached villa on the ever-popular Camposol golf development in Mazarron,” Mercer said.

“He [the purchaser] viewed a total of six similar properties priced between €235,000 and €255,000. Not overly picky between the six, he made a flat offer of €150,000 for any of them. As an agent we had a duty to inform each vendor of his offer, however low it seemed, and whilst five vendors said an outright ‘no’, the sixth agreed as was keen on a quick sale. “A saving of €100,000 more than outweighed any embarrassment on the purchaser’s part for going in with what appeared to be a crazy offer. Six months later any of those five vendors yet to achieve a sale are possibly kicking themselves having seen prices fall further.”

Time on the market
It is a wise idea to try and spot homes that have been on the market for quite some time, “at least a few months”, says Murphy. “This is because vendors are likely to be more willing to negotiate downwards on the price.” Faulkner agrees with Murphy. She says: “Properties overseas can often take years to sell. The longer the home has been on the market, the greater the likelihood, the owner will be willing to sell at a reduced price.”

Extras
When negotiating a property purchase, you may want to try and get a few extras thrown into the deal. Murphy says that is not uncommon for a buyer to request that free furniture packages are thrown into a deal, while other purchasers like to request a contribution towards their purchasing costs, “such as legal fees”. It may even be worth asking an “agent to reduce their commission”, in order to secure a deal.

Location, location, location
Location is key, says Faulkner. She advises prospective purchasers to buy overseas property that will always be of interest to locals, because tourist rental and second home markets can often fluctuate, and do not offer year-round rental opportunities. Furthermore, there is often a mark-up in the price of homes aimed at foreigners, effectively reduces one’s potential exit strategy, when selling up in the future. “Locals are often priced out of buying homes located in tourist areas, which do not always offer value for money.”

Off-plan property
Buying off-plan property abroad has traditionally presented an opportunity to secure a residential unit at a discount on the retail price, particularly during the first and seconds phases of the release of a development. This is often because developers typically want, or need, to sell a proportion of their stock even before commencing building work in order to raise funds and boost their cash flow and to satisfy their lenders. However, there is a greater risk element to buying property this way, most notably the fact that there are no guarantees that a project will ever be completed.

Faulkner continues: “People buying off-plan property abroad should ensure that they can afford to kiss goodbye to their money, if the scheme is never ever built, which can sometimes be the case. “This may be because of unscrupulous constructors, or the fact that they may have run out of money, while there is always the possibility that legislation may change, which may affect the planning consent.”

Ghost town
Another concern with buying property off-plan is the possibility that the development will be left standing virtually empty, once it is finished, due to a lack of buyers. In Spain, for example, government data shows that there are over a million new-build homes lying vacant. Murphy comments: “It is not uncommon to find areas in Spain which consist of tens of thousands of empty homes, causing the local community, or lack of it, to collapse. “I would only buy into an off-plan project if at least 60 per cent of the scheme had already been sold.”

Property oversupply
There are housebuilders with “way too much inventory”, that should be willing to accept “significantly reduced” offers, says Julian Constance of property finding agency Tailored Homes. However, Murphy, who mainly sells distressed residential stock in the USA, and Spain, reports that there are still a lot of developers who remain “stubborn” in that they are refusing to adjust to current market conditions, by pricing their homes accordingly.

Consequently, he advises potential purchasers interested in distressed residential stock, to go straight to those banks that have large inventories of foreclosed homes for sale on their books.

Distressed sales
Because banks are not, or should not be, in the property business, having large property stock is proving a huge burden, and so many of them are keen to liquidate their growing residential supply, by selling at below market value. “But do be cautious of the fact that banks and auctioneers do sometimes offer an extremely low guide-price on a property, in order to generate interest, and encourage multiple bids. This can sometimes push values higher, often above what they are worth.

Exchange rates
Exchange rates should always be taken into consideration when buying property overseas. A shift in the value of the UK pound against foreign currencies such as the euro, and US dollar, can have an enormous impact on the price of a home abroad. “It is important to remember that exchange rates can move a large amount in a relatively short period of time, says Michael Steenkamp, director, FC exchange.

“Against the pound we have seen the price of the euro increase by nearly 30 per cent in the last 18 months making a €150,000 property about €45,000 more expensive which demonstrates the effect that exchange rate fluctuations can have on the price of a property overseas.”

However, if at the time of making an offer on a home, you feel that sterling’s value looks favourable, then it may be worth taking out a ‘forward contact’, which fixes the exchange rate for a given period of time. Steenkamp adds: “Forward contracts are widely used by property buyers as transactions often take weeks to conclude, leaving buyers exposed to a volatile currency market. “Fixing the exchange rate in times of uncertainty will protect your property price and budget against exchange rate fluctuations between now and when the funds are required.”

Legal
Anyone buying property abroad may wish to seek legal advice from at least two different solicitors – one based in the UK and one in the given country where the property is located, according to Faulkner. “The two solicitors should always come up with the same answers,” Faulkner advises. “Always ensure that legal documents are in English, and appoint a trusted translator, if there is a language barrier.”

Due diligence
Wherever you choose to buy property overseas, always ensure that you undertake your own careful planning and due diligence prior to parting with your money. Marc Da-Silva for Homes Overseas.

For more independent expert advice about buying or investing in overseas property, visit Homes Overseas.
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