Monday, 26 January 2009

Seven weeks to sell a house

Brisbane's Courier-Mail reported on Saturday that apparently it is now taking 7 weeks to sell a home.

And probably the only people who are selling at the moment are those who have little choice in it- such as those going through a divorce. The three most common reasons for sale start with the letter D:
  • death
  • divorce
  • debt

The article highlighted for me some of the issues that face people when they split up. Usually one of two things happen when people split up- the home is either sold or one party transfers their interest in the property to their ex, who in turn refinances the mortgage debt.

Refinancing the mortgage debt

Most lawyers will ensure that orders or binding financial agreements have conditions in them about the person who is keeping the property having to refinance by a certain time. In the past this has usually been 30 days or one month. Occasionally, it would be 2 months.

It was seen that all the usual things can happen in that time- the person applies to the bank for finance, the bank then says- this is what we need from you, the bank then goes through its checklist, then gets its valuation and voila! within the month approval is granted.

There have been a myriad of reports in the media about banks limiting credit and delaying applications for credit. Other solicitors have said to me that banks are limiting credit and that there is a delay in getting valuations.

It is wise to talk to your mortgage broker or bank and ask : "I am about to sign orders here that tell me that I must pay out my ex within ... days. Is this timeframe realistic? What is a realistic timeframe?"

It would appear that 60 days or 2 months is more common now.

Low doc loans

While low doc loans are still out there, it won't be for long. I understand that they will be gone within 6 months. If your settlement is dependent on a low doc loan, you might think of acting now, rather than later, when it might be too late.

Sale of the home

In the past, a standard default clause was that if the home had to be sold, then 3 months should be allowed for that, and then the property would be auctioned.

There always had to be allowances for special circumstances where there was a limited market of potential buyers. Typically, rural properties or exclusive properties took longer, and allowance needed to be made for that.

In my experience of over 20 years as a Brisbane family lawyer, there are two types of couples who have split up and are selling their home. The first are those who are very much in tune with the market, and with each other, and can sell a property quickly. They are rare.

The second are those where there might be these features (sometimes all):
  • they have a poor relationship, sometimes conducted through the lawyers or through the children.
  • they can't agree on anything, let alone the sale price of the home.
  • they distrust each other intensely. In the context of the property settlement, one or both might think that the other is out to rip him (or her) off.
  • different agents have said different sale prices for the property.
  • one or both have set an unrealistic figure for the sale.
  • the party who is in default of raising the dough to pay out the ex, remains in the home and keeps it in less than spotless condition.
  • one is clinging to a valuation that is out of synch with the current state of the market. Nevertheless he (or she) has already worked out how the money he (or she) will get from the sale at that price is going to be spent, and is not going to compromise.

Sooner or later one of two things is going to happen- one party buys the other out, or the property has to be sold. The question is whether there is enough time for each step.

One has to wonder whether the usual default provision of 3 months is anywhere near long enough, when the figures that agents talked about for committed sellers were around 2-4 weeks, but are now (at least in Brisbane) in the order of 7 weeks. All I can suggest is to talk to a realistic hard-headed agent- what is arealistic timeframe- and then allow some more. One has to wonder whether 6 months ought to be the usual default provision now.

Auctions

Finally, everyone should be avoiding auctions at the moment. "Auctions" and "divorce" are normally words that do not mix well together but my view at least, for what it's worth, is that in the current market parties who are going through a marriage breakup should avoid auctions like the plague. They are really options of last resort. Someone has to pay upfront for the auction. Agent's commission still also has to be paid. There is no guarantee of sale. The bottom feeders are out, trying to get bargains at auctions.

If there is to be an auction, there needs to be a reserve and a formula as to how to get it.

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