2008Review: NEGOTATING:It was the year everybody learnt how to haggle. Arthur Beesleyreports
HERE'S A dilemma. After searching for that sleek new home, you've finally found just the place, done the deal, raised the money, surveyed to your satisfaction and readied your crew for the big move. All that remains is to ink the contract.
Should you sign? Or should you refuse, warning that you will withdraw if the vendor won't cut their price? After all, there may be no one else in the race. And the vendor, for whatever reason, may be under pressure to complete the sale. Threatening to pull out now might endanger the deal, but a lower price would improve your fiscal position.
Your call. You're a buyer in a rapidly declining market. Your job is secure, your bank is on board and you're ready to transact. You might see dishonour in seeking to snatch better terms after a "final" agreement is reached - or you may decide there's no place for moral quibbles in a purchase of this nature.
It's simply business. If the market has dropped in the couple of months since the sale was agreed you judge you can extract a superior deal, then maybe you should try.
But if your heart is truly fixed on the property and you fear it will fall from your grasp, then maybe not. Just as the vendor may have no choice but to capitulate, they might also pull the sale entirely.
Either way, the last-minute pull-out is not uncommon in the current scene. As the bubble deflates, buyers are the market makers.
Gone is the time when estate agents could relentlessly play one buyer off another, the price rising all the time while the vendor sat back in anticipation of a neat little fortune. Now the buyer is king.
That assumes, of course, that banks are willing to lend. All the negotiation nous in the world is worthless if funding is not available. If banks stoked the boom with a seemingly limitless supply of money in the good times, their credit assessment these days verges on the obsessive.
They are by no means as liberal when it comes to making funds available, loans take longer to negotiate and the upper limits on loans have dropped significantly.
This, too, has a bearing on price. In every transaction in every market, there's a "quoting level" at which the property is priced and an "acceptance level" at which the vendor might sell. In a rising market, the acceptance level typically rises above the quote. In a falling market, it's below. In a full-blown crash, the gap between the two widens by the day.
New figures from the Central Bank indicate that the market reached a virtual standstill in October, when the annual rate of increase in residential mortgages was at its lowest point since 1986.
The net increase in mortgage lending throughout the market fell that month to a total of only €26 million from an average of €700 million in the previous three months.
This presents a big opportunity for buyers, particularly in the new homes market. Under mounting pressure from their banks and their other creditors, many developers have already dropped prices by as much as 30 per cent in a desperate effort to drum up business and maintain an inflow of cash.
Even after that, industry participants say buyers in certain cases have extracted further discounts of 15 per cent. In the current climate, only a fool would bid at the list price. "Let's face it, nobody can give houses away at the moment," said an industry source.
Still, buyers of new homes should do their homework. Hands up all those who want to live in the top floor of an empty apartment block? Or the only occupied house in a half-finished estate with no neighbours?
The parameters of the second-hand market are broadly similar, though most vendors will be under less pressure to sell. As the economy slides, however, buyers should always bear in mind that the overall picture may look a lot worse by the time a deal closes. Beyond Christmas and into the new year, a further deterioration in economic conditions is likely. That this will pull prices down further seems beyond doubt at this point.
Thus buyers should not be afraid to offer well below the asking price. Equally, they should resist any false sense of satisfaction arising from any significant reduction in price quoted many months previously.
If the property didn't sell then, it probably wasn't worth the price in the first place.
Yet if both buyer and seller are serious, there's always a deal to be done. With the assistance of the estate agent, whose fee depends on the deal being done, both sides should be able to agree terms if both are realistic about the state of the current market.
The process takes a lot longer these days than in the boom times but the longer it goes on, the stronger the buyer's hand. The seller's neighbours might not like it at all if they opt for less than a premium price, but they may ultimately receive considerably less if they hang on too long.
That's the way markets work. For a good many years there was no such thing as a bargain in Irish property. With no upside in sight and none likely for a long time yet, now there may be.
• Arthur Beesley is senior business correspondent with The Irish Times
