YOU know the scenario.
The hardworking couple scrimp and save to build up their savings.
They forego the holidays, the nights out and the streaming accounts to become experts on the local property market, the Central Bank’s mortgage lending rules and the support schemes available to home buyers.
After securing mortgage approval and finding their dream home, in a welter of excitement, they submit their first bid.
Sadly, this is often where the couple’s ardent hopes crash head-on into a) the realities of the Irish property market and b) the intricacies of the bidding process as they find themselves entangled in a competitive web of bids and counter bids.
As we all know the key issue at the heart of Ireland’s housing crisis is that the supply of housing, while increasing, still falls far short of what our growing population requires.
According to a recent report by property website Daft, the number of second-hand homes on the market in 2023 was down 27% on the previous year.
While circa 30,000 new homes were built last year, most commentators believe we need to be building up to twice this number.
On the other hand, demand continues to surge fuelled by a growing population, a robust economy, and a shortage of properties to rent.
It is this imbalance which lies at the heart of bidding wars where numerous buyers vie for the limited number of properties available. So how does it work?
Understanding the bidding war
Before you submit a bid on a property in Ireland you are typically required to provide proof of funds to the agent managing the sales process.
This is aimed at preventing phantom bidding and ensuring that all parties who have expressed an interest are genuine and have access to the required level of funding.
The agent, whose job it is to secure the highest price for the vendor, then engages with the underbidder, and this usually leads to counter offers which in turn spark a bidding contest amongst interested parties.
Of course, one of the key questions which emerges for underbidders at this juncture is how can they be sure that they are not bidding against themselves – i e that there is indeed another bidder.
The key lies in working with licensed agents who adhere to a code of conduct and who have to keep a record of all offers received on a property.
This record can be inspected by the Property Services Regulatory Authority (PSRA), the body charged with regulating estate agents and ensures that the bidding process is carried out in a transparent and regulated environment.
If suspicions arise about phantom bidding, buyers can contact the PSRA to file a complaint, triggering an investigation. It is crucial for buyers to recognise that the vast majority of agents operate ethically, and safeguarding the integrity of the bidding process benefits all parties involved.
GDPR is the main reason identities of bidders are not disclosed. If one submits a complaint an investigation will be initiated.
While it will probably be too late to affect the sale of that particular property.
If something untoward is uncovered, action will be taken against the agent, and this is really important for raising standards and maintaining best practice.
The other key question for bidders of course is how high can they go?
While the advice on this can vary – and in the end will be determined by people’s different personal circumstances and approach to risk – most experts say mortgage repayments, including insurances should not exceed 25 to 28% of your gross monthly income.
While the person who submits the highest bid usually succeeds in securing the property this is not necessarily always the case.
Very often bidders are involved in selling their own property and will need to complete the sale of their home before they can finalise the purchase of the property they are bidding on.
And of course, potential buyers and bidders on their property will be involved in ‘chains’ of their own also.
This is where cash buyers have a clear advantage and if the agent knows that the vendor would like a quick sale they may guide them to accept their bid, even if it is lower.
Online bidding on a house
One fairly recent development in property sales is the advent of online bidding. While advocates point to its transparency and efficiency, some issues do arise.
While participants are assigned unique bidding numbers and can observe live bids, the crucial details defining a bidder’s strength – whether they are a cash buyer or have a property to sell – remain obscured.
This information gap introduces an element of uncertainty into the decision-making process, challenging the very transparency online bidding seeks to achieve.
As the industry continues to adopt new technologies, finding a balance between efficiency and the disclosure of critical bidder information will be a prime consideration.
The gazumping gap
While regulation of the property market and the profession has increased in recent years – a very welcome development – some gaps do remain. And one of the critical ones is the non-binding nature of ‘sale agreed’ status which in turn can lead to gazumping.
Gazumping, where a seller accepts an offer but backs out when they get a higher bid, doesn’t seem right – particularly when you are the party being gazumped – but it is not illegal.
A vendor can withdraw from a sale without repercussions, and buyers who have gone ‘sale agreed’ can sometimes be devastated weeks later to discover another party has made a higher offer.
Sale agreed not binding
Home hunters should know that ‘sale agreed’ means little, other than that the owner has accepted their offer subject to a signed contract.
There is no legally binding aspect to ‘sale agreed’ until both the buyer and the vendor exchange signed contracts.
Another issue of the current system is that it potentially allows buyers to go ‘Sale Agreed’ and put down deposits on various properties, through different agents, which are fully refundable with no protection for the seller.
These shortcomings need to be addressed. Purchasing a property in Ireland is often a long process involving numerous false dawns.
That’s why understanding the intricacies of the bidding process is essential.
Late last year the Taoiseach announced an expert group will examine the process of how people buy homes in Ireland and the obstacles they face.
Hopefully, that group will address some of the shortcomings we’ve identified here.
But by understanding the process, working with licensed agents, staying informed, and utilising regulatory bodies when needed, buyers can navigate the process with greater confidence and hopefully turn the dream of homeownership into a reality without unnecessary heartache.
Majella Galvin is a chartered surveyor, estate agent and RICS registered valuer at DNG Galvin Auctioneers, Bandon. She has been working in the property sector for over a decade. Majella holds a BSc in Real Estate & Valuations from the University College of Estate Management, Reading. She is a member of the Society of Chartered Surveyors Ireland and the Royal Institution of Chartered Surveyors. www.dnggalvin.ie
