Broken? Buying real estate

I’m conscious that we have so little on buying and selling real estate in our programmes at Reading.  It’s probably because no-one on the staff – to my knowledge – has ever been an agent/broker.    It was an article by James Pickford in the FT that pricked my conscience.  His article is about the costs, risks and processes of buying a house with a bit of the fashionable Blockchain vibe thrown in.

From the point at which an offer is made, the pace can slow to a crawl as information is gathered from disparate sources to assure buyers that there are no hidden surprises. The average time between offer and completion in England and Wales ranges from 8 to 12 weeks — a delay that can put transactions at risk as the nerves of buyers and sellers are tested to the limit. The chances of collapse are all too real: more than a quarter of transactions fail, according to official figures.

Many of the points made are just as relevant to buying and selling commercial properties.  By global standards 12 weeks is quite quick.  With some colleagues, I was involved in a fairly chunky piece of work for the IPF looking at liquidity, transaction processes, brokerage models etc. across the globe.  Read at your leisure.

There was a hodge-podge of fees, transaction times, methods of sale, brokerage arrangements etc. and there weren’t really any clear patterns.  A lot of markets had only one broker (just acting for the seller), many had negotiated prices (as opposed to informal tender or ‘best bids’), fee levels ranged from under 0.5% of the price to 4%-5% of the price.  The only near universals were that that the broker’s fee was always a percentage of the price and there was always a broker involved – often two.

Due diligence is hard work – here’s a great report from the CREFC on the range of things that need to be done when buying a property.   I suspect that new technology will only produce incremental improvements in these processes.  Since due diligence is basically part of the risk management process, there’s a risk in not doing it properly.