Sunday, 21 February 2016

Out on the market

A write-up on my search for a dwelling, briefly signalled in October

If you are not under pressure to move out from where you currently reside, have specific budget constraint and defined expectations towards location, layout and age of your property, at the stage of seeking you can easily filter out those which meet the pre-defined criteria.

The most popular place where one can find property advertisements are numerous Internet sites which, thanks to presence of filters, facilitate the look-out. The conclusions one can reach upon frequent searching is that:
1) most properties have been out for sale for several months, if not years,
2) most ads are put up by estate agents.

The first observation bears out the secondary market for properties in Warsaw has been in a standstill for a few years now. It is not the case no one is willing to buy flats (though buyers recently tilt towards brand-new dwellings) or no one can get a loan to buy a property. The fault, I guess, is with vendors unwilling to get down to earth in terms of their price expectations. Nearly any flat (except for those with dreadful drawbacks) would sell, provided the price is reasonable and it has to noted if a seller really wants to dispose of a property, they will nail down the deal within a month or two. In practice turnover of flats has been very low. Week after week you see the same flats put up for sale.

The second observation leads to my precious piece of advice: avoid agents like a plague. I do not want to denigrate the profession, since many professional estate agents do their job very well, but the majority of them work hard to earn this profession the label of overpaid spongers. This has been confirmed by my two high school friends who had episodes of being agents in golden years of 2007-2008. As they have told me, the job is lousy and produces little value added. Unless you have no time to search for a property and have no notion on legal and technical intricacies related to the purchase and the very property, paying up to 3% plus VAT for an intermediary who will match you with a seller is probably the biggest rip-off I have seen in life (except for those seen at work as a bank employee of course)!

In general agents:
- put up outdates advertisements to attract clients and insist you sightsee another flat,
- put up advertisements without seller’s knowledge and after you call them, they need to call the seller or another agent to arrange sightseeing,
- often cannot answer basic questions regarding the property (rent charges and what is included in the basic rent, history of the flat, whether it is mortgaged, or not, etc.).
The only good thing I can tell about them is that they are punctual and rather polite (though some astonishingly reticent).

Big thanks should go to Mr Gowin who in his de-regulation craze freed up access to the profession. While I watched Mr Gowin opening the way for so-called ‘restricted’ professions to laymen, I thought he was cracking down on cliques of rent-seeking cronies and breaking their monopoly. Then came the day when I found an ad of a flat I was interested in, put up by an estate agent (one of the biggest brokers in Warsaw) who had exclusivity agreement for carrying through the sale process. I thought it was clear if the agent was remunerated by the vendor, he would be representing his interest, while I would be representing myself. The next day I pulled up to the site, met the agent, but outside the building before we went inside to see the flat, the agent (sly guy aged around 20, as later evidenced by his LinkedIn profile) asked my to sign an agreement with the agency he represented. I resisted his hastening remarks and read the whole paper, which included the obligation to pay the agent 2.9% + VAT of the purchase price if I bought the specific property. I kindly asked why should I pay the agent anything if I found the flat on my own, contacted the agent as the representative of the seller. The lad replied it had been the business model of the agency for 20 years and it had functioned well. Slightly worked-up, I reformulated the question. I asked what service would I get from the agency in return for 2.9% plus VAT, since in the normal market if you pay, you get a service in return and emphasised I would handle all formalities on my side on my own. His response was that I was paying him for creating the opportunity to buy that very flat. I told him he had been employed by the vendor to find the buyer and should be loyal to him and if he did not show me the flat, he would be acting to the detriment of the seller, because he was not maximising efforts to sell the flat and asked whether he would show me the flat, if I did not agree to pay the commission. After a firm refusal, more than annoyed, I walked away…

Then I carried out my own investigation. The estate agency said it was their policy indeed and as long as the seller agreed for charging both parties the commission, they can do that. Checked it out online – it any party agrees on a conflict of interest, charging both parties 3% plus VAT of transaction price is permissible! Jaw drops open. And then I found this firm statement of Estate Agents’ and Managers' Federation according to which what the agent was trying to coerce me to was unlawful – if the agent has the exclusivity from a vendor to run the property sale process, they had no right to condition showing the property upon signing the agency agreement by a potential buyer. If they do so, they violate the duty of care and loyalty to their principal (seller). I got in touch with the Federation and was informed on my rights and how I can file a complaint on an agent and what steps they can take. The only problem that in fact since the agent did not hold a licence (after Mr Gowin’s deregulation he does not need to), he is not subject to any code of ethics, code of conduct, integrity principles or whatever rules the Federation sets out to licensed estate agents and I could do nothing.

I checked then the acts (ustawy) and decrees (rozporządzenia) governing property management and learnt all the points setting out requirements towards estate agents have been revoked. I felt duped by the Polish state and stripped of protection of unethical practices of cunning bastards.

My piece of advise – for most properties if you search carefully, Google will find you (sometimes cached) an advertisement of a specific property placed by its owner directly. Sometimes after a few weeks of futile search, owners fall back on estate agencies and give them a free rein without exclusivity. Given limited value added of an agent, it does pay off to take the trouble and contact the vendor directly! If the vendor insist you get in touch with the agent, make sure you will not pay the commission!

Back to my efforts – all people telling me finding the right flat was a matter of months rather than days or weeks were right.

In October I found one dwelling which met my expectations. Not ideal in terms of layout (bedrooms not much smaller than living room, while I wanted the two rooms dissimilar in area), but passing muster, in good location, with price slightly above my budget. The seller (found after a half-an-hour intense search in an archived ad) had been trying to sell the flat for nine months. The flat needed a refurbishment (wall-painting and some repairs) and from the legal side needed conversion from co-operative right of ownership to regular ownership (entailing notary’s costs), so I wanted to beat down the price (already decreased by 15% from the first asking price) by PLN 20,000 more. It turned out another buyer was willing to pay the seller without haggling.

In November and December the search was put on hold, since after I had been relocated to another department at work and assigned new duties and clients, I worked up 70 hours a week, including weekends, to get to grips with the mess I had been entrusted. This took me two months during which I had little time and energy to pursue the search.

In 2016, seeing supply of flats recently put up for sale is short, I decided to screen out the primary market I had been sceptical about. What I learnt is a bit staggering:
- times of buying a hole in the ground are back – supply of completed flats is very short and their prices are exorbitant and actually despite not being under huge pressure, I do not want to wait two years before I move in,
- the best locations have been developed some time ago and locations offered now are either lousy or pricey,
- layouts of most flats are a crying shame. Architects excel in squeezing possibly many rooms into limited space, design long halls, kitchens combined with living rooms without windows and possibility to separate them, the other menace are rooms shaped other than rectangle, moreover developers are unwilling to rearrange flats as expected by a buyer, even if they are still under construction,
- openness of developers for meaningful price negotiations is close to zero, because sales are record-high, this is also why developers do not care much about potential customers (one of them told me if I did not like their offer, several other clients were waiting to buy the same flat, so why wasting their time).

I called my friend who is in charge of residential property financing department at one of the biggest banks and sees the market from the inside and he confirmed by observations. Developers have no problems finding buyers for their horrible products, however from his insight into gaps between asking prices and purchase prices, the room for negotiations exists.

Another piece of advice – before you talk to a property developer, familiarise with the right the ustawa deweloperska gives you as a customer. Knowledge of legal and technical rudiments (and even more) is a must if you go out into secondary market as well.

Then I returned to the secondary market, went around a few flats. None of them was ideal, I seriously consider buying one of them, but I need to count up the costs of all-out refurbishment (as my father rightly tells me, it may be more costly than finishing a flat from a developer, since the cost of removing bathroom fittings, kitchen furniture, wardrobe, floors, tiles, etc. needs to be added and God knows what is hidden beneath it) and I need to try how long the commute will take me from there (Włochy).

Visiting other people’s flats (usually uninhabited) is also a psychological experience – sellers attitude vary from total indifference (guy has been attempting to sell an empty flat for a year but has not taken the trouble not only to tidy it up but also to hide any defect – good for me) to aggressive hard-selling and tale-telling on alleged advantages of a flat (playing me a fool).

The bottom line is simple – it is better to spend a few thousand more and be satisfied with the purchase (as you will stick with it for a while) instead of saving a few thousand and regretting the decision, the same goes about waiting for a good opportunity – one month or two will not save you. Less serious and easier to unwind decision to change job two years ago involved six months of turning down offers I found unsatisfactory and when the position lived up to my expectations crossed my way, I took the decision swiftly and after nearly two years with hindsight I see this was that very opportunity I was meant to grab.


Anonymous said...

Hmmm...why the rush or need to buy
Are prices appreciating there a danger of being priced out of the market
Why not rent an apartment in a great central location
why tie up your capital
Your living needs (spouse + child(ren)) will likely change in a few short will likely be faced with selling the mieszkanie you are currently hunting for and seeking out other accommodations. Buying and selling real estate is expensive and time consuming
I`m not sure tying up your capital at this stage in your (single) life is a good idea. Retain some flexibility, reduce your commute, and have some`downtown` fun. Defer your decision to buy until you have identified your future spouse...she may have very different ideas about what is an ideal location, layout etc
Just need to rush in.

student SGH said...

It's about economics, psychology and sociology.

If we turn off emotions, the calculation is straighforward. Being priced out of the market is very unlikely.

If I buy, I will run out of savings and will pay fixed flat maintenance charges towards a housing community each month. If I rent, I the fixed maintenance charges will be a part of payment to a landlord, while savings will keep earning me income. The difference between the former and the latter is around 3% of my budget. If price depreciate by more than 3% per year, the solution is economically effective, counting out transaction costs, incidentally some 3% of transaction price. BTW - in these turbulent times finding a decent investment is difficult, so consuming it by buying property is a way of getting rid of one problem.

Psychologically, there are people who feel more comfortable in a dwelling they own, while less comfortable in one which does not belong to them. For some people it may be convenient landlord needs to look after lots of stuff, be bothered by repairs, etc., some want to take care of a property on their own. Plus... Watch out. I have been saving for the flat for five years. Now when the pile of money is accumulated, I am giving up on my plan. Not a traumatic experience, yet if I am to tell myself my sacrifice were pointless, it might hurt a bit ;-)

Sociologically, Poles are a nation of property owners, not renters, just like i.e. Germans. In general perception owning, even at the expense of huge mortgage, is superior to renting and paying someone else and moving out after a few years and having nothing. If you see your peers having their own (mortgaged) flats, rather than renting, there comes the peer pressure as well...

Your argument about waiting with the purchase until the final flat is found is most valid. I have had it in mind for a while, yet while if I see around the typical model is buying the first flat and then the final flat, the temptation to follow it does appear.

Michael Dembinski said...

A great post, great advice. Scatts once told me that Poles are great at buying property, lousy at selling property. Seems to be verified here!

Having recently bought a flat (for my children while they study there and then as an investment) in Łódź, directly from the developer, I must say the process of buying was straightforward.

However, I completely agree about the agent and his role. Prior to buying the flat, I was close to buying land on Trombity, as an investment and eventually to build a house on. The agent wanted a commission from both parties. Who's interests was he representing? In England there's such as thing as 'Law of Agency'. An agent can, by law, only represent one party. Then we're clear - he's representing the vendor, not the buyer. The Polish system is a mess, and reminds me of the adage - "why does a dog lick his penis? Answer - because he can."

student SGH said...

Lousy at selling! I wonder what is in mind of a seller who has been trying to sell a property for a year now and refuses to bring down the price by a single thousand zloty. If efforts to sell for a year have been futile, probably you the property has been mispriced. Or the seller draws pleasure from playing hosts to potential buyers who look around and walk away saying the property is even decent, but not at such price.

The process is straightforward, especially if a developer can explain its intricacies to a laymen. Not all salespeople I have talked to were up to the mark in this respect.

A pure logic tells us the agent should be remunerated by the vendor. Why? Firstly because the vendor's goal is to sell a specific property, while the buyer wishes to buy a property, but they are to decide which one. Secondly, because the buyer can find on its own sellers' offers, while a seller would strive hard to find someone posting a notice online what property they are looking for.

Land on ul. Trombity. Also such idea has crossed my mind, but for the money I have I could buy a plot and then carry on setting aside money for construction. But at my stage of life it is pointless. Too early to settle down on the suburb, plus the location would need to be chosen together with a future wife...

I'm taking back my words that I have seen bigger rip-off at banks only. Banks charge 1% commissions on notional for services that do not cost that much. Property agents who charge both parties 3% net-of-VAT earn six times more and add even less value.

In Warsaw we have several hundred estate agencies. There's simply no room for so many agents, especially on the market which has been in a standstill. Some have to drop out, while others, if they charged lower commissions, could come in useful.