Valuing Property

[Carol]

Our non-Croatian buyers often think that when the see a property which they consider expensive, the reason behind it is the seller is trying to rip off rich foreigners. In my experience this is very rarely case. What the foreign buyer is failing to understand is how property gets valued in croatia. For a start, the seller almost always has fixed ideas about how much they consider the property should sell for and those have got virtually nothing to do with the value of property in the area, or the size and condition of their property.
Most usually, the valuation imposed by the seller is calculated without reference to comparables and the explanation runs something along the lines of... "there are two of us sisters who own this house and we wish to sell it. My sister wants to buyer a smaller flat in Split with her half of the money and I want to put my son through university and buy a small place in Zagreb with my half."
Often the final remark is "we are patient, house prices are rising and we are confident we will get what we want. If not then we simply won't sell".
When this happens, its up to the agent to decide whether to advertise the property or not. In our case, sometimes we do and other times we don't to avoid the charge that we are dishonest and ramping up prices.

[mambo]

In other words: prices are just based on the greed of the seller, has nothing to do with the workings of the market and are unrealistic...............a very dangerous environment for a buyer who sees the property as an opportunity to fulfil a dream and have an investment at the same time.

That makes the whole market very vulnerable and not very attractive to buyers and therefore also not to sellers.

It should be good if the real estate agents would finally start doing the job and accept the responsibility to protect the market by stabilizing the market and not just sit there to collect a fee. This way they are only interested in the highest price and not in market development in the long run.

[Carol]

mambo - how do you think agents can stabilise the markets? Do you think we have some sort of mgic influence over the sellers?
As an agent, i'm happy to give a valuation (using the comparison method), but unless I happen to agree with the sellers, they dismiss my opinion the instant it is given.

BTW your summation is unfair on sellers. They are not all driven by greed, more its about having a truely alternative way to value their property. Instead of asking themselves what is worth on the open market, they are asking what do i need it to do for me? If it won't provide what they want, they'll just hold onto the property for another generation or two instead.

[mambo]

If the real estate market wants to develop itself into something trustworthy the real estate agents have to come out of the 'fraudulent' stage, they have to become professional and set standards for themselves.
I know that many real estate agents will never want to join some sort of a standard, but as soon as the market understands it is also beneficial for themselves a change is possible.

Change therefore has to come from within and that usually starts with some people getting together and starting the whole thing. It won't be done in a month nor in a year, it will take years, but eventually it can be done.

If you take the markets abroad, e.g. the Netherlands, we have the NVM (branch association of real estate agents). Nowadays almost every real estate agent is a member and the ones that are not have little to no market.
As a seller you know exactly what you can expect, but as a buyer you know that you are protected against fraudulent sellers or agents.

If you want to sell a house you can of course name a price yourself, but the real estate agent will do the valuation (usually done by a licensed 'taxateur' as we call it). This report is both beneficial for the seller and the buyer.
The final offering price is then decided based on the report, the market circumstances in that area and the wishes of the seller. The agent will also advise the seller if the price the seller requests is too high.

In a contract the duties of the seller and agent are written down and in case of disputes the NVM can mediate.
If a house, bought through a NVM agent turns out to be a hoax or a complete ruin, where the report says differently, the NVM will take care of the buyer.
The seller on the other hand has to declare each and every single major defect in the house of which he can have knowledge (e.g. leaking roof, not working heating system, not waterproof, damaged walls, floors etc). If it later can be proven that he knew about a defect, but did not say anything about it, he is liable for the repair.
Since this law came into action the number of disputes between sellers and buyers dropped dramatically. Sellers knew they could not get away with it.

The market in the Netherlands is therefore a safe market for sellers and buyers. Prices may be high in certain areas, but at least it is regulated.

It should be a good idea if also Croatia starts to regulate itself.
The real estate agent will then become responsible for the marketing,

[jill]

Carol, we have had exactly the same situation here in Italy.

If the property is seen as means to an end for the vendors they will sell...otherwise, they are not interested in 'underselling'.

Latterly as the foreign market (Northern European American etc) has shifted towards eastern Europe, fewer properties are being sold in the 'diehard' regions of Tuscany and Umbria and the vendors who really do want to sell are becoming more realistic and lowering their prices but it has taken years and there are still plenty who still have an inflated idea of their properties worth.
Another thing that Mambo should bear in mind is that many of these properties are in fact second, or family homes no longer used by the families and just sitting around not earning their keep and degrading. So the vendors have the choice of selling if the price is right, it's not a necessity.

In northern Europe, specifically the UK, Holland and Germany there is a much higher turnover of property sales and, by and large, these are not sold as holiday or second homes but more geared to the home market, not foreigners and there is generally a necessity to sell in order to buy another property.

[mambo]

Jill,

It is true that owners simply sit and wait until their price is paid, but they usually forget that a house needs maintenance. Years (and sometimes) decades of no maintenance can turn any house into a ruin. Problem is that the owners don't understand that and that is where a good real estate agent should and can advise them.
People also don't understand that 80,000 euro now is more than 100,000 euro in 5 years. They simply forget that they loose a lot of money by asking too much resulting in no sale.

It is always amazing how people react when you explain to them that selling a little lower can actually mean having more money in the long run. Some are in complete disbelief, think that you are pulling their leg, others don't even know what to say.
Especially where you deal with low educated owners real estate agents have a duty to help the people with the sale of the house and they should keep the dollar signs out of their eyes for a while.

[jill]

Mambo, I'm 100% in agreement.

[Carol]

Mambo - the estate agency market has begun to regulate itself here, though there are still a lot of rogue agencies around. A Croatian estate agents association has been established, but there is a problem (and i do not wish to spell it out as i have to do business in Croatia!).
The better option is for agencies who wish to be seen to operate an honest business is to apply for membership of some of the international estate agency bodies.

Regarding the Dutch model, my company for one, does have such contracts with the sellers but it is worth bearing in mind that a contract is only meaningful if it can be enforced. Everyone could die waiting for the croatian courts to get around to dealing with contract breaches, so really the contract between agency and seller is just a declaration of intention.

[Charles]

Re the 2 quotes from Mambo below -

It should be good if the real estate agents would finally start doing the job and accept the responsibility to protect the market by stabilizing the market and not just sit there to collect a fee. This way they are only interested in the highest price and not in market development in the long run.

Especially where you deal with low educated owners real estate agents have a duty to help the people with the sale of the house and they should keep the dollar signs out of their eyes for a while.

as ever it is easy to knock agents. BELIEVE ME - if my main motivation was making money I'd now be Head of European Credit Derivatives at one the largest investment management firms in the world. So why am in Croatia? With 2 young boys, I couldn't bear the thought of missing on out their formative years and I now have an extremely close relationship with them, having benefitted from 2 years of day to day involvement. However, I also need to earn a living and the general poor quality of service when we tried to buy a holiday home through local agents convinced us we could offer much better SERVICE. What we didn't cater for was, as Jill said, the timeline most sellers work to.

Example. Saturday afternnon - buyers drive from Istria to see some land. Seller: educated, comfortably off, has via many previous conversations indicated complete willingness to sell at €60/m2. We arrive with buyers, and 10 minutes later the price is €100/m2!! Does anyone know how annoying this is?! Also, he tells us that his noblemans house in Trogir, previously on the market for €600k is now €1.2 mill (forgetting that at least 20 clients from us alone have looked at it but rejected the price of 600k as too high given the enormous amount of work needed.

Mambo - it's not us needing to educated him (though we have tried endlessly with him and MANY others). It is his ability to sit on his hands and ignore 'the market' which is creating low liquidity. It is DEFINTELY not the dollar signs in my eyes as it is not the high margin business most peoples uninformed opinions seem to think it is.

Incidentally, we have recently won a prestigious international property award in the Best Real Estate Agency - Croatia category so I feel reasonably qualified to comment on the market place here.

[mambo]

Charles,

I know there are some trustworthy real estate agents out there and I am happy that you and Carol have some ethics, but I look at it from the point of view of the buyer.
When I am strange in a city or province, know absolutely nobody I am confronted with 'real estate agents' on almost every street corner. How am I going to distinguish the good from the bad ones ?

There are agents here in Porec who will not even show a house to you without paying them ! Others simply refuse to tell the truth about a pending court case determining the ownership of the land.
Now we have a real estate agent offering forest land and agricultural land to foreigners ! They simply forget to mention that the law is still prohibiting the acquisition of forest land by foreigners. If permission is granted it can take many years or some money pushing under the table.

Suppose your office is sitting in the same street as these 'agents'................how do I, as a complete stranger in that town, figure out who is trustworthy and who is not ?
The offices all look fine, there are desks, telephones, lots of pictures, but that won't help me.

I know that locals have the idea that their house is worth millions. Recently a local peasant in Pazin offered his ruin for sale for 1 million euro, the house had 4 hectares of agricultural land and according to him that made it worth all this money.
If you did not want to buy the house you could also rent the house for 1000 Kuna per month !

Needless to say that this house will not be sold at all and indeed as long as there is no need the price will not drop. Even when there is a need chances are that the price won't drop either.

It is a difficult situation you are in, but I hope that once this market (at least the agents) will become professional so that a complete stranger will not be thrown between the sharks if he decides to buy a house.

[Charles]

I would be all for regulation and training to weed out the sharks (if you can weed out sharks?!).

All we can do is to try to build a reputation for honesty and good service. I agree that for the buyers it is a potential minefield as there are now so many agents all competing for a relatively limited pot. We have been told numerous times by other agents that we're crazy to put on our website the level of information we do. We say well if you're sitting in London, New York or Timbuktu why would you get on a plane to view a property with one grainy old photo, a 5 word description and an uncertain location? For us this is the key. Being open, informed about the property and willing to both educate the buyer and show them the property is a pre-requisite to building trust and confidence. Once they see the property (or meet the owner!) then it's out of our hands a little bit. All we can do is to explain the process, forewarn them of any potential 'difficulties' and try to broker the deal as efficiently as possible.

It's all good fun. At least the sun's shining today unlike in the UK where to say it's raining is, apparently, an understatement!

[irac]

charles2 said:

Incidentally, we have recently won a prestigious international property award in the Best Real Estate Agency - Croatia category so I feel reasonably qualified to comment on the market place here.

Silver is as good as gold, at least that's what Michael Carruth said about our mate Wayne, but those awards are a little store bought (at least according to one judge). But I agree that sellers don't understand the property market, espcially with changes in currency and what a place is actually worth.

Mambo, I asked one of my colleagues who is in the property section and she said that 1% of owners actually understand what their property is worth, and they're the ones who get their objects sold. There is a ridiculous situation with a plethora of agencies, unregulated and never likely to be so (and certainly never trained), but the only way to make progress is to form exchanges as has been done locally so that agents actually get to see what a real real estate agency looks like in a regulated country (Germany or Ireland, for eg) but how many agents want or need that? Far better to stick in €5,000 extra on the price, make 3 sales and live off that, meanwhile the locals think they're sitting on goldmines when their crumbling ruin will cost 5 times the actual price to make it habitable.

The government won't step in as there are too many fingers in the pie, and until they can provide proper education and medical care for their citizens (and German cars and mistresses for the politicos) regulating the property market is low down on the agenda.

[valiant]

i know of a canadian man who was quite happy to sell his house for 300.000 DM the agent came along and told him that he can get double, if he waits. now we have the euro and hes still selling it for 300.000 euros.
when we were looking for a house to buy, people often told us that there prices were justofied because of the "planned barbecue area or terrace " that isnt there yet,, but it is "planned"implying that the new buyer complete the constrction. hahahah,
ridiculous country, ridiculous people. ridiculous govt, ridiculous laws, ridiculous beurocracy, ridiculous mentality, ..its on big confusing , shark infested , black hole, munching up money wherever it can.

[bear42]

Hi,
How can Croats buy property in their own Country at these prices?

[valiant]

most croats can sell what theyve inherited, unfortunately , out of desperation .
but most croats cant imagine buying realestate at these prices in their own screwed up country.