Spotlight on Below Market Value (BMV) Property

Put simply, Below Market Value or BMV properties as those that are available to purchase below their market value.  Normally this is because the previous owners experienced financial difficulty or needed to dispose of their property quickly without the protracted sales process.  The reason for this is usually the threat of repossession.

The official guidance from the Royal Institute for Chartered Surveyors (RICS) about how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book).  The foundation for the valuation of a residential investment property is normally its market value.  Market value is defined in the Chartered Surveyors hand book as:

‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’

If a property was marketed properly and then a sale agreed, a landlord might consider that they got a BMV bargain.  But this isn’t always the case.  For instance, let’s say an investor buys a property for £180,000 and a year previous to that a similar property sold for £200,000.  The landlord may consider that they have bought the property at 10% BMV.  If we look at the guidance set out by RICS the investor has just actually paid the market price.

So, do BMV properties really exist?  They do and it all depends on whether the property was fully marketed before sale or not.  These situations occur when buyers are given access to ‘motivated or distressed sellers’ who don’t want to go through the normal process of sales and marketing or cannot afford to.

Locating motivated sellers is usually quite simple if you are in a good position to buy.  Targeting your local area with adverts or leaflets is one way.  You could also contact your local estate agents highlighting your interest in property bargains and that you are a potential cash buyer of residential investment properties.  Even if you need to arrange a mortgage for a bargain property it’s still possible to flush out some good deals.  Persistence pays in the current market.  Make your name and number known and make it clear that you are serious about making a purchase.

As with any industry, the BMV industry is rife with rogues and dishonest middlemen.  Those posing as BMV gurus are often anything but and just after preying on those desperate to sell and in a distressful financial position.  Their main concern is with making a massive profit between desperate seller and landlord.  It is much better and easier to search for BMV properties through local estate agents or by offering your own direct service to local customers.

Of course, there are dangers with buying BMV property and this is mostly down to the provisions of the 1986 Insolvency Act.  These provisions could result in a landlord who has bought BMV property legitimately being sued by the previous seller.  If several years down the line the seller has become bankrupt they can take out a court order to reverse the sale or claim the difference back between market value and the agreed sale price.  The reason for this is because the Insolvency Act allows the trustees of a bankrupt to prevent the bankrupt from giving away or selling assets below the normal market price.  A landlord who purchases BMV properties can be exposed to these provisions for up to 5 years.  However, there is a way to protect against this instance by asking the seller to execute a Deed of Solvency.  This declaration states that the seller was solvent at the time of sale.

Welsh Local Authority Causes Anger by Opening Estate Agency

Competition is rife in the estate agency industry, but you never expect to face competition from your local authority.  Imagine the surprise amongst Welsh estate agents then when a Welsh council decided to be the first local authority to launch their own estate agency.  And then imagine how that surprise turned to anger.

Irritated estate agents have forwarded their complaints about Neath Port Talbot council to First Minister Carwyn Jones and other public figures with senior status.

Neath Port Talbot however have steadfastly defended their position and plan to let and market houses for sale in Wales.  Trading under the name of Property Bay Wales, the council has launched a website although right now they are only advertising one property.

Steve Kidwell, the council’s coordinator for housing regeneration and renewal, said “Property Bay Wales trades within the open market in the same way as any other private company and does not require funding from the council. All running costs are funded by trading income. Although it does not cost the council anything, all income it generates through its services are recycled by the council into local council services.”

Mr Kidwell went on to add  “It is fair to say that the estate agency is at an incubation stage. Assuming that it develops further, there are a number of markets that we are currently interested in other than that of a traditional estate agency service – for example, online “virtual” services.

“This is because we do not have a traditional shop front agency and much of our work is online, targeting disadvantaged groups that cannot move home as they are unable to afford the traditional sale fees. We can also provide a service for clients who specifically prefer a local authority approach.

“The company aims to apply core local authority principles, offering a customer-centred approach and value for money. There is no doubt given the current financial climate that it’s a competitive market, but difficult times require creative solutions.”

Local estate agents see the scheme differently and have branded it as a waste of taxpayer’s money.  There is also frustration about the money being given to the council as business rates and that it is funding their new venture into the property market.

Another Port Talbot estate agent, Peter Morgan,, said: “Whatever the council says, it is able to undercut established estate agents because it is using its own offices and doesn’t have the expense of operating on the high street. Their standard fee is £895 plus VAT – I wouldn’t get out of bed for that,” he said.

“It leaves a very bad taste in the mouth.”

Many estate agents are expecting the latest venture to fail.  Cardiff-based estate agent Kevin Francis, of the Royal Institution of Chartered Surveyors Wales, said: “There’s an awful lot more to selling property than just advertising homes on a website.

“I haven’t heard of a local authority setting up its own estate agency before, but supermarkets have tried and failed. Superficially selling property sounds like a good and easy way to make money, but there are many potential pitfalls and it is by no means as easy as it sounds.”

A spokesman for the National Association of Estate Agents said: “So far as we are aware, this is the first time a local authority has launched an estate agency of its own. Our view would be that whoever works for an estate agency should have qualifications that are appropriate for the industry.”

So, what do you think?  Should local authorities be allowed to get in on the action or keep their noses out?  Is it a case of healthy competition or being priced out of the market?  We’ll be keeping a close eye on this one and report back!

Localisation – local knowledge moves online

As more of us start our home-buying search online there is a growing need for sources of local information.

The last few years have given us instant access to objective information such as sold house prices, bus routes, school catchment boundaries and distances from shops, restaurants and train stations,  but we now have an appetite to digest the subjective information online as well.

Not only do we want to know the house prices trends for the area and what our target property sold for last time around but we want to get a feel for the area itself, and we want to hear it from people who live there.

Internet people call this ‘user generated content’ and it means that we write for each other.  No more do we consult the a restaurant guidebook written by a professional critic but we ‘Google’ the restaurant and read reviews written by other diners.  Word of mouth moves online.

The same applies to local area knowledge.  We want to read what residents are saying about an area to put some depth and colour behind those dull statistics.  Yes there may be 12 restaurants within a 10 minute walk – but are they any good?  Has the map eaten there?  The software? Perhaps the website dropped in for a coffee and croissant?  I don’t think so.

The merging of mobile phones with personal computers has really put the ‘location’ into location-based search.   Rather than typing a postcode into your office based computer you can, in theory, use an ‘app’ on your phone that already knows your exact location – and provides information relevant to it.  You can be standing outside a flat you’re about to view and access the Ofcom score of the local school or read what residents think of the local library.

Property websites have recently woken up to the power of localised information, not only because house-hunters are demanding more access to it, but because the internet’s Chief Whip Google demands it.

In Google’s quest for localization, the search engine has started giving precedence in search results to websites that show that they have local relevance to queries.  This means a search for ‘Hotels in Glasgow’ is less likely to return a list of national hotel booking websites and more likely to return a list of actual hotels in Glasgow, represented by the business’ own website.

Likewise a search for ‘houses for sale in Brighton’ may, in the future, be more likely to reveal the websites of estate agents in Brighton than a national property portal website.

To stay relevant and retain the enormous footfall they (we) receive from property-related search queries, property portals are developing local strategies online.  In Rightmove’s case by developing a place to share local knowledge and reviews: Rightmove Places.  Zoopla were ahead of this game with their AskMe! feature where you can ask and answer location-related questions and their recent acquisition of  houseprices.co.uk will allow them to give customers access to sold house price data from the Land Registry should they so wish.  Personally I could never buy a house without knowing how much the previous owner paid for it.

The property search engine Nestoria has a number of data sources that add flavour to the home search, if not colour – giving census information, healthcare facilities, house price trends, post office locations and other hard facts.

Findaproperty.com have a ‘how far is this from…’ tool allowing you to measure the distance of certain services from a given property.

For property portals serious about catering for the needs of their users, location based information services are more than a nice-to-have feature and not only adds to the experience of the online home-hunter – allowing them to do more of their research in one place – but will attract more home-hunters to the website by capturing more of the home-hunt research queries made in search engines.

For those without the time to do their own research,  a new service called Check The Area uses a nationwide network of retired police officers ‘each tasked with using their local knowledge and investigative skills to research your potential new neighbourhood’.  The service starts at £150 for their bronze package.

Their website claims that ‘ a bad neighbourhood can knock up to £30,000 off the value of your property’.  Friends of mine recently pulled out of purchasing a flat at the 11th hour when they discovered, quite by accident, that the flat above was owned by a charity that re-homed ex-prisoners and recovering drug addicts.  This flat shared an entrance and, stairway and hall and being in their early 60s and planning to retire to this flat my friends didn’t feel safe and backed out of the sale.  Had they commissioned an area search earlier they could have made a significant saving in abortive solicitors’ fees.

If your budget will stretch to it, using a property buying agent can also reveal more about an area than you might have time to find out yourself.  The Association of Property Finders and Buyers Agents could be a good place to start looking for one.

Online forums can also be a great place to get an inside view on an area – many hyper-local forums serving just a postcode or a whole town can reveal what residents are talking about whether it be crime or the local library.

Websites such as Local Mouth, We Love Local and Qype bring together sources of information about an area – as well as providing a forum  for local people to post reviews and comments about their area.

If you know of any good online resources for local knowledge and house hunting research feel free to add them in the comments below.

(The hand-drawn map image in this post is used courtesy of Danny McL.)