Seller beware

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Everyone knows that it’s cheaper to buy a property directly from the owner than it is to buy one through a realtor. In Japan, the buyer usually pays a 3 percent commission to the realtor (plus consumption tax plus a ¥60,000 “handling fee” whose purpose has never been sufficiently explained to us), who also gets 3 percent from the seller. Many potential homeowners resent the commission, and for good reason. Often the realtor does nothing for the buyer and everything for the seller. If the price of the property is really low to begin with, it may seem as if the realtor is wasting his time by even showing it to a customer. We don’t know how many times we’ve gotten an agent to come a very long distance to show us a house that we probably knew we weren’t going to buy in the first place, but in any case even if we did buy it his commission would hardly mean much to him. But the main sticking point with regard to the realtor’s actual role in the deal is that, in Japan at least, he doesn’t do much in the way of negotiation.

We’ve heard of cases of real estate companies actually refusing to list a property by someone who wants to sell, for the simple reason that the realtor believes the property is unsellable; or if it is sellable, it would be at a price so low it’s not worth the realtor’s time and effort. But when they do list a property sometimes they will advise the seller of an appropriate price and even suggest remodeling work to make it more presentable. As the market has become glutted over the years such tactics become subject to scrutiny. How much improvement is enough? If the property is so difficult to unload that even extensive remodeling isn’t going to make it any more sellable, is it even worth it? These are considerations the realtor should help the seller understand, but occasionally we’ve met realtors who would just as soon stay out of it.

In the past ten days we inspected two properties whose contrasting circumstances illustrate this situation. The first was in an outlying area of Chiba City, near Honda station on the Sotobo Line. From the information we could glean on the Internet the house was old and likely in disrepair, but it was situated next to a vast wooded area that apparently wasn’t subject to further development. Prior to meeting the agent we arrived early and walked around the neighborhood. Though it was a typical housing development, it was a bit older and thus there was at least some breathing space between buildings. Moreover, there was more than the usual allotment of park space, including one very pleasant open area on top of a hill that was surrounded by cherry trees in full blossom.

We met the realtor, who drove us to the property. As it turns out, the open area that skirted the property’s eastern border contained a graveyard, which explained why there was no danger of it being developed. Usually, properties in such close proximity to cemeteries are much cheaper because it’s assumed they’re harder to sell. We don’t mind graveyeards at all, but we were baffled about the asking price: ¥11.8 million. That’s not a lot, but in addition to the graveyard the house itself was built in 1980. The only feature that might have added to the value was the size of the land itself. It was the only property on the block with a front yard. We were also disconcerted to discover that the owner was still living in the house, and when the realtor knocked on the front door frantic yapping could be heard from the other side. A small middle-aged woman holding a papillon dog opened the door and welcomed us. She apologized for the mess, a common opening line when you inspect a house where the owners still reside, and usually it’s just an empty formality. But in this case it was justified. The place really was a mess: stacks of magazines everywhere, laundry scattered about, dust covering almost every horizontal surface. The first floor had never been improved in any way since the house was built, and though the second floor had been a later addition, it was so cheaply constructed that you could see the outline of the slats behind the drywall.

It was worse than we expected, but we knew when we asked to see the place that it would need a lot of work. The reason we were interested was the open land to the east and the large plot of land attached, both of which would guarantee sunlight and a greater feeling of airiness. But the agent had told us on the phone that it would need “¥3 to ¥4 million” to fix up. That was obviously not enough. The place would require more, at least another ¥2 million for a new kitchen and bathroom, not to mention a central water heating system, since the house had none. Outside and out of earshot of the owner and her dog the realtor asked what our budget was and when we told him he suggested another property nearby that was newer and in almost perfect condition. The fact that he wasn’t pushing this property told us that he didn’t expect the owner to come down much in price. He knew the owner was asking way too much, but the very fact that she was still living there indicated she wasn’t so desperate to sell; at least not at the moment. Normally, when owners put their houses on sale they ask for much more than the place is really worth; which makes sense. They don’t like to admit that the value of their property had fallen as much as it has since they bought it and will try to get as much out of it as possible. Some realtors may try to disabuse them of this fantasy, but most just assume that the customer is always right and list the price he says. Over time the owner will gradually reduce the price as he realizes no one will pay as much as he hoped to get. Some owners, in fact, are so stubborn they never reduce the price, and their property remains on the market for years. Maybe that was the case with this house, but in any event we couldn’t imagine anyone paying ¥11.8 million for it.

Potential buyers have a much better chance at negotiating if the owner of the property is a realtor who purchased it either outright from the previous owner or obtained through a court sale. Realtors understand what they can get from a particular property and how much they would need to invest in order to unload it. Consequently, in almost every case a realtor-owned property is going to have a lower sticker price than a comparable resident-owned property. About a week after we saw the house in Honda, we saw another house in the city of Sakura. As with the Honda house, this one appealed to us because it was located next to an open area, a small park, in fact, with a natural stream running through it (“natural” in that the source of the water was a spring, but the contours of the “stream” had been laid out by engineers) and lots of cherry trees and other vegetation. The house was relatively small, a little less than 65 square meters of floor area comprising two stories, as was the plot of land. But it was only ¥9.3 million, having been reduced in the last few weeks from ¥9.9 million.

This reduction also told us the owner was being realistic. As it turns out, the owner was the major real estate company Century 21, which had already invested in the house. The realtor who showed us the property was from a different company, meaning that if we bought it through him we would still have to pay the 3 percent commission. If we had known Century 21 was selling the house in the first place and contacted them directly, there would be no commission since they were the owner. The young realtor told us that the previous owner of the house, which was built in the late 70s, tried to put it on the market through Century 21. The company told him he would have to fix it up first and he said he didn’t really want to, so Century 21 bought the house from him, obviously at a very low price. The owner, it would seem, wanted cash in a hurry.

The work that C21 had put into the place was impressive. They had replaced all the floors and walls on the first floor, and while we’re not crazy about white “kurosu” wallpaper and wood veneer “flooring,” it looked quite nice. More importantly, they had made the large window overlooking the park even larger, and installed double-paned glass. The kitchen, though small, was new, and the bathroom, though “unit” style, was attractive. The second floor, which contained two rooms, had yet to be improved to the same extent, and one room seemed to sag a bit, but the realtor said we could ask C21 to fix it to our specifications. This was important, since it told us that C21 was willing to negotiate not only over price, but further improvements. Some things we didn’t like. There were still not enough electrical outlets, and the aluminum balcony on the south side of the house was superfluous and would have to be removed. All the windows on the second floor would have to be replaced with transparent glass, preferably double-paned. Most important for us would be installing a toilet on the second floor, since that’s where the bedroom would be. As is common in a house that small, the stairs are narrow and steep and going up and down them in the middle of the night to use the toilet could be dangerous, especially in years to come.

We gave the agent these conditions, and even lied a little, saying that the lack of a parking space (the ostensible reason for the low price) was a problem. Actually, we don’t own a car, but thought we might as well use any leverage we could. He listened carefully and reacted enthusiastically. Several of our demands he said would probably be no problem. The toilet might require “negotiation,” meaning perhaps a higher price, but it seemed obvious that Century 21 was desperate to sell this place. The agent asked us what our budget was and we told him what we were willing to pay for the place, including any fees (such as his commission). He said he’d get back to us. Another advantage of buying from a realtor is the tatemono kashi tanpo menseki, a two-year warranty on the house against structural defects. If a problem arises, the realtor who sold you the house has to address it free of charge. When you buy a new house, the developer has to take out insurance because the structural warranty is for ten years. But if you buy a used house from the owner, there is no legal guarantee required. You take your chances.

The thing is, as impressed as we were with the house, we still didn’t imagine ourselves buying it. It was sunny and overlooked a park on one side, but everywhere else was the usual cramped housing development environment. More troubling was the fact that the house was located at the end of private road that sloped downward, meaning runoff would come into the property. The agent was obliged to tell us this because the drainage system was somewhat primitive, and since the road was private it was the owner’s responsibility. The city would do nothing. He assured us that there had never been a problem, but it was easy to see that in a heavy rain or typhoon the land around the house could become inundated. Also, any work to improve the situation would probably have to involve the neighbors, who seemed friendly enough (two came out to talk to us as we waited for the agent), but these sorts of community projects tend to strain relationships. In any event, we don’t think we’ll buy the place, but we’re still curious how Century 21 responds to our conditions.

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4 Responses to “Seller beware”

  1. Zoe Says:

    The 60,000 Yen ‘handling fee’ is probably mistranslated by the agent. Agency fees are 5% on the first 2 million Yen, 4% on the next 2 million Yen and 3% on the amount over 4 million Yen. This works out to 3% + 60,000 Yen on the total amount.

    Buyers must also be aware that there can be 2 agents in the deal – a buyers agent and a sellers agent, so the agent you are dealing with is not necessarily being paid by the seller nor working for them. More and more sellers agents are offering zero brokerage fees for the buyer so you can make a saving there, although they will be working for the seller’s best interests.

    Used houses bought from private owners typically have a 2~3 month warranty against defects (roof leaks, plumbing, wiring) in the contract, not zero. Unless it is being sold without any warranty as is the case with many older houses that are being sold for land only.

    In the property above, it is important to confirm that the seller is indeed C21, and that they are not just acting as the seller’s agent. If C21 were the owner, then they would be paying your agent 3% and he would be getting commission from both of you. Sneaky!

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    • catforehead Says:

      Thanks for the details about the handling fee. We’ve always asked what that ¥60,000 was all about and no one was ever able to explain it in a way that was understandable. We were aware that there are buyers agents and sellers agents, but have yet to get to the stage where agents have willingly answered our questions about who pays what to whom.

      From what we understand now about the C21 property, the company who bought the house from the previous owner belongs to the C21 network but on the materials given to us by the agent who showed us the place C21 is described as the urinushi, and when we asked about possible renovations the agent said he would convey our requests to “Century 21-san.”

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  2. ein Says:

    ein…

    [...]Seller beware « Cat Foreheads & Rabbit Hutches[...]…

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  3. Monty Says:

    You can figure out who the current owner is by going to the houmushou and pulling the records. In Tokyo it costs about 1,000 or 2,000 yen for a copy of the land record and the same for the improvements (i.e., building structure) record. In my experience the improvements record is usually all you need, since the structure is usually owned by the landowner, and the improvements record shows all the relevant data about the plot of land that you’d get on the land record.

    I used to get these for the akiya buildings in my area, thinking I could buy one, and they would generally turn out to be owned by one of the neighbors, and many of them were relatives of each other. I uncovered a fascinating invisible social map of my community. Nobody could really improve their houses because of creeping zoning restrictions, so everyone was waiting for people to die so the plots could be reassembled into large enough pieces to do something with. Occasionally developers would try to act as go-betweens I was told, but without success.

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