The following article was authored by Simon Packard (Bloomberg - London) Aug. 17--
Beverley Kirby gave up trying to buy a house on her own in London’s Chelsea neighborhood after twice getting burned by owners reneging on agreements to sell to her.The night before Kirby was due to sign for one 4.5 million- pound ($7 million) house a year ago, she was trumped by an offer that was 500,000 pounds higher. The aborted deal cost her 4,000 pounds in fees and left her with a few months to vacate the apartment she had sold.“I was getting desperate,” said Kirby, who bought and sold seven other homes previously with her former husband.
“There was madness in the market. People had no ethics at all.”
That experience, along with the surge in prices for a dwindling number of top-end properties for sale, led Kirby to hire Robert Bailey, a type of broker known as a buying agent.
Bailey is one of several hundred operators in a field that barely existed in the U.K. 15 years ago. He found her a home that wasn’t advertised. Kirby moved into it in early April after Bailey helped her carry out refurbishments and get planning consent to use the top of the garage as a roof terrace.
The brokers are a response to a flaw in Britain that favors sellers, said Phil Spencer, who hosts property-search shows on U.K. television with fellow agent Kirstie Allsopp. Typically, potential U.K. homebuyers register with “estate agents,” who show them properties but are ultimately paid by the sellers. In the U.S., both buyers and sellers usually hire brokers, though only the sellers pay commission. These fees are shared by both sets of brokers.
‘No Help’
“A buyer has nobody to help them with the biggest financial decision of their life,” said Spencer, 40.
The new breed of advisers charge the potential purchaser a retainer plus commissions of as much as 2.75 percent of the sale price. It’s a cottage industry largely used by the wealthy because it’s too expensive for most people with budgets of less than about 500,000 pounds.
Buying agents have proliferated in the luxury markets of London and southern England as a weaker pound has lured overseas investors. They do everything from locating the home and negotiating the price, to arranging legal and survey work and researching potential pitfalls such as noisy neighbors.
They are prized largely for speeding up the process to reduce the chance of getting “gazumped,” a British term for being trumped by a higher bid before signing contracts.
Agents Quadruple
“Over the past five years especially, there has been a quadrupling in the number of buying agents in the prime central London market and their numbers increase all the time,” said Noel de Keyzer, head of house sales at broker Savills Plc’s Sloane Street branch.
There are fewer luxury properties for sale in prime London neighborhoods even as demand is rising. Residential purchases in the Westminster and Kensington & Chelsea boroughs, where average house prices exceed 1.3 million pounds, are down 23 percent from the average since 1996, according to London Central Portfolio Ltd., which buys and manages prime rental property investments.
About 100 properties worth at least 20 million pounds have been purchased since 2006 -- a category that’s less than 10 percent of the prime central London market. Most deals of that size are now handled by buying agents, de Keyzer said.
The scarcity of prime homes for sale lifted prices in central London by 23 percent since a yearlong slump, triggered by the worst recession since World War II, ended in March 2009, Knight Frank LLP estimates. Property values in the U.K. as a whole rose about 12 percent, according to the Nationwide Building Society.
Jackpot Deals
Agents have to court private banks or wealth managers to generate new leads to sustain the deal flow. Dozens of individuals, many former brokers, have set up on their own as overseas buyers flocked to London.“All you have to do is two or three deals a year and you earn as much as you did before,” said Johnny Turnbull, who has worked independently since 2006 after heading the London arm of Prime Purchase, Savills’s buying-agent arm.
Competitors include Property Vision, a unit of HSBC Private Bank since 1991 -- and the biggest with a staff of 60 -- and Knight Frank’s The Buying Solution. Some independent buying agents say rivals owned by brokers have a conflict of interest because their companies represent both the buyer and the seller.
“They’re trying to milk the fees at both ends,” said Francis Long, who set up buying agency Hanslips 12 years ago covering London and southeast England.
‘Chinese Walls’
Savills and Knight Frank say there are “Chinese walls” and enough transparency to avoid conflicts, and that few customers have problems with the arrangement. Buying agents rely on relationships with brokers, developers and owners to get their clients first in line for a home. Providing a superior service is vital if they want steady business, said Bailey, who helped Madonna buy a home in Mayfair in 1999 and also works with hedge-fund managers and bankers.
Agents research an area and prepare reports that may reveal whether a rock-star neighbor has loud soirees or whether planning authorities are hostile to tennis-court floodlighting.
“What worries me is that people don’t deliver and start to give the rest of us a bad name,” said Bailey, who has covered the prime London market for 25 years.
One morning in early July, Camilla Dell and Grant Aitken, of Black Brick Property Solutions LLP, dodged workmen refurbishing a three-bedroom apartment in the Knightsbridge district to see whether to make an early offer.
Feng Shui
Dell, 32, set up the London-based company in 2007 and has generated business through regular trips to visit potential buyers in countries including India and Nigeria.
“It helps us to understand them, to see them in their home and their culture,” said Dell, whose requests from clients have included properties with feng shui compliance.
Competition for high-end homes within commuting distance of London is also fierce. Here the agent’s research has to be even more exhaustive, said Mark Parkinson, who helped set up Middleton Advisors LLP in 2008 covering country homes in southern England. The efforts aren’t always appreciated. “You prepare a detailed report -- down to reminding the buyer of an old rectory that the church bells chime every 15 minutes -- and they probably don’t even read it,” said Parkinson, 37, as he drove a sport-utility vehicle that allows his customers to see properties over hedgerows.
Spencer and Allsopp
Spencer and Allsopp have encouraged buyers with smaller budgets to use agents, said Jo Eccles, who set up Sourcing Property four years ago and has handled about 70 purchases or rentals in London worth about 40 million pounds combined.
Not all the agents will survive, according to Andrew Giller, who heads London searches for The Buying Solution.
Competition and the slump in deals since the financial crisis mean individual operators, in particular, may struggle.
Spencer’s own London search company filed for insolvency in February 2009 after a four-month deal drought left it unable to cover the costs of running an office, marketing and staff.
He’s no longer involved in the business, parts of which were bought by Garrington Country, a company created from its former regional arm. Garrington has since expanded in northern England, said Managing Director Jonathan Hopper.
“The market is an emerging one,” Hopper said. “Who you are dealing with is key -- there’s a mixture of very capable, experienced agents out there and then there are those who are just going out to spend other people’s money.”
