Covert Operations

26 March 2010, Financial Times

By Faith Glasgow

Most homes are bought and sold on the open market, using an estate agent whose job it is to get as many serious viewers as possible through the door. Sellers put up with a stream of strangers – scrutinising the plaster, opening the cupboards and making comments about the decor – because they know they have to in order to achieve a sale, hopefully at a decent price.

This is not the only way, however – at least not if you inhabit the upper echelons of the housing market, where an increasing number of both buyers and sellers have powerful reasons for wanting to avoid the free-for-all of an open-market transaction.

Indeed, there is a whole spectrum of covert property deals being done, with not a glossy brochure or prestige property section advert in sight. Some transactions, according to Crispin Holborow, head of country house sales at estate agency Savills, are so secret that they sound more like gung-ho wartime operations, with codenames for the project, the seller’s identity concealed even from the sales team and confidentiality agreements required from everyone visiting the property or involved in the sale. He cites a sale in excess of £30m in 2007 in which no one but the lead agent in Savills’ country house team knew the client’s name or the estate’s location. It went through without a word of press coverage.

“I’ve made a number of advance trips to the homes of high-profile sellers before we show a buyer around, in order to take photographs of the owner down [off the walls], turn invitations on the mantelpiece around and generally conceal the evidence,” adds David Forbes, director of Savills’ private sales office.

Why such drastic measures to protect identities? Celebrities, of course, are keen to keep the paparazzi off their track for as long as possible; but Holborow says pure celebrity is rarely the primary reason for wanting to keep a sale quiet and, indeed, that in most cases it is the stars themselves who are responsible for leaks about a transaction. “No, it’s usually because of the house staff – owners don’t want the staff to hear rumours or be anxious or disrupted; they’d rather present the sale as a fait accompli,” he explains.

Tom Hudson of country buying agent Middleton Advisors concurs. “We see great value in discretion and vendors tend to agree. One client recently bought an estate in Hampshire that took two years to complete but no one else knew during that time. The seller had lots of staff and interests in the area, so total confidentiality was needed.”

Other sellers want to avoid any damaging links being made between their business and the sale of their home. As Jonathan Bramwell of buying agent Prime Purchase explains: “For a high-profile businessman there are risks that an open sale could lead to rumours in the City [of London]. Are they moving offshore? Is the business in trouble?”

In many cases, Forbes says, the desire for secrecy is basically to do with changing personal circumstances: “People may be selling because they’re getting divorced or they’ve lost their job or lost a lot of money or become ill – but they don’t want their friends, colleagues or neighbours to know what’s going on,” he explains. Safety can also be an issue: rich people might fear for their own security or that of possessions.

Buyers at this level can be equally cagey – often for much the same reasons as sellers – which is where the buying agent’s intermediary role comes in handy. The wealthy people, celebrities and even royalty with whom Camilla Dell of London buying agent Black Brick Property Solutions deals want their identity protected as a matter of course. “Many are not British and are using an offshore company for tax reasons, rather than buying in their own name, so we can do the whole transaction without the buyer’s name being used,” she adds.

Forbes believes that this trend towards private transactions has gathered momentum over the past four or five years, as sellers and buyers alike attempt to keep their financial affairs under wraps in the face of increasing reams of information in the public domain, a growing culture of celebrity and a more intrusive press. It is also a reflection of straitened economic times. Forbes says: “Two or three years ago there was a lot of money around; people – Russians, Indians, new money – wanted to leave the price-tag on their properties and they wanted their names attached. But that’s gone now. There were big bonuses for some hedge fund managers and other City workers but they won’t want people to know they’ve bought new property, nor how much they paid.”

A similar trend is evident, albeit on a smaller scale, in New York. Private sales there only really occur among very top-end properties (over $20m), as less expensive properties “need to reach a broader market to achieve a sale”, says Kirk Henckels of Stribling Private Brokerage (which caters for the $5m-plus market). But while the number of top-end sales in New York has shrunk dramatically since the financial crisis, “quiet” transactions have become more significant, with the growth of what are known as “pocket listings”, held back from the communal pool of listings to which all real estate brokers have access. “After the crisis, trophy spending became politically incorrect. It simply wasn’t acceptable any more to go to a cocktail party and say you’d bought a $30m apartment,” says Henckels.

While very wealthy buyers and sellers might go to great lengths to protect their identities, at the next price bracket down many sellers take a less extreme tack, in effect still working within the market but attempting to tap into latent demand without having to go to the expense of an advertising campaign or brochure. In these quiet sales agents are given a limited period of time – perhaps a month – to put the word out to specific potential buyers, either directly or through buyer’s agents. Or, on occasion, a seller might simply let it be known that although the property is not for sale he or she is open to private proposals. If no deal is reached privately and the seller is keen to move on, the property can later be released on the open market.

“With properties worth up to £2m, almost everything goes to the open market,” says Hudson of the UK country market. “Above £5m there’s a 95 per cent chance it will be put out to buyers quietly first.” Holborow suggests almost half of all country house properties (especially the more expensive ones) are being sold privately, with an average value of about £8.5m.

It is often a preferable solution in several respects. Not only is it cheaper in terms of agent fees and more civilised than the open-house regime required in the mainstream market but sellers might be able to ask a better price. As Dell explains: “Properties offered off-market tend to have an aura of exclusivity and so some sellers are choosing not to go to the open market purely so as to create a ‘buzz’ around their home.” That whiff of rarity value might enable them to ask a premium over the asking price in the open market. If they get it right, eager buyers will pay the premium to secure the right property without having to get into competition.

They don’t, however, always get it right. “Often private sellers ask too much,” growls Hudson.

Discreet deals are likely to be a feature of any property market catering to wealthy individuals. For example, Jonathan Grey, who runs Beechams Estates’ office in the south of France, says: “Most deals exceeding €15m are very secret; below that level many people use discretion but as a sales strategy rather than to avoid public exposure. They don’t want to advertise – they would rather promote their property by word of mouth because that makes it into something special.

“That’s particularly the case because the open market in the south of France is dominated by multi-agency instructions, which means you are likely to see the same property on one list after another and people just lose interest in those properties.”

Ultimately, exclusivity and desirability are closely linked, agrees Bramwell. “Sellers see the private market as an opportunity to quote a premium price, particularly if they don’t need to sell but would do so at the right price. It’s pointless to launch publicly because of the risk that the house might stick and go stale; and the right buyer will understand that they may need to pay a premium for access to a best-in-class property.”

SALES MANOEUVRES: QUIET EXPERTISE

Selling:

  • For properties worth less than £2m don’t bother – you will do better in the open market.
  • “Do not try to sell privately without a selling agent, as the chances of getting it right are slim,” says Tom Hudson of Middleton Advisors.
  • Most high-quality agents will be happy to sell quietly if you explain what you want.
  • In the UK, you need to have a Home Information Pack in place, even if you don’t go to the open market.
  • Be clear on the level at which you are prepared to strike a deal. “If you decide your house is worth £3.75m-£4m and the first private viewer offers £4m, then you can’t ask for more because this isn’t the open market,” says Hudson.

Buying:

  • Talk directly to top-end agents about what you are looking for.
  • This is a business built entirely on networks. Jonathan Grey reports that intermediaries such as lawyers and notaries are among his most important sources for both buyers and sellers – so make sure your advisers have their feelers out on your behalf.
  • Buying agents are probably the surest way to access the trickle of off-market properties available or coming up in chronically under-supplied areas such as the UK country-house market. They are also likely to know the best examples in city markets such as London, where there is generally greater supply of privately marketed property.

 

Copyright The Financial Times Limited 2010.

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