Buying a property in today’s housing market

If you are, or have recently talked to anyone who is, a prospective property buyer, you will know that today’s Dutch housing market really is a sellers’ market. You will then also know that properties are often being sold (well) above the asking price. This raises the question among many prospective buyers, ‘how much to offer’ in a bid to buy your next home. And just as importantly; how do you know if you’re not paying too much?

Statistics Netherlands (CBS) concludes that: “Corona pandemic pushes house prices to record heights. Biggest price increase in 20 years.

Over the past twelve months, the average price of residential properties in the Netherlands rose by a staggering 10,4%. This marks the largest price increase in the last 20 years and predictions are that prices will continue to rise for some time.

Based on more than 20 years of experience in the Haarlem housing market, this is what we recommend.

How much should I ‘over bid’ to be the ‘lucky’ buyer of a house these days?

Unfortunately, it is impossible to put a percentage, or even a range, on how much you should bid over the asking price. Because sometimes overbidding is not even necessary, or justifiable.

Until a year or even six months ago, homeowners may have told you that they bought their property without a real estate broker (or a makelaar, in Dutch). That may still be possible today and might save you costs on one end. But in today’s market, where overbidding has become the norm: how will you know that you’re not paying way over the top in order to become the ‘lucky winner’ of a property?

Should you decide to (over)bid, then this should be an informed decision. To make that magic offer: just enough, but not too much. An offer that includes the right conditions and the right price to ‘win’ the property, but not so much that the selling agent says: ‘wow, another sucker with too much money pushing the prices up!’

To make that well-informed magic offer for your chosen property, you (or better said: your agent on your behalf) will first need to calculate the actual ‘value’ in today’s market This calculation is based on the transaction price, condition, location, popularity, m² and other variables and intangibles of (very) recently sold comparable properties. Only after these calculations have been made, can you make a truly informed decision about how much the property is worth to you and the amount you want (or can afford) to offer. And note that these calculations may well unveil that a property’s market value is lower than its very optimistic asking price.

How will I know what I’ll have to pay to cover the gap between the purchase price and the amount the mortgage company will lend me for this house?

Another question we are asked very often is: ‘How will I know what I’ll have to pay to cover the gap between the purchase price and the amount the mortgage company will lend me for this particular house?’

You may know that, typically a property is valued by three different estate agents: the owner’s selling agent, your buying agent, and an independent agent whose valuation will be used by the mortgage company. If the transaction price is higher than the independent agent’s valuation, you will need to bridge the gap with your own money.

Before discussing your offer with you, we will calculate the market value of the property. This way, we can give you a good indication of the valuation that the independent agent will calculate. So, when you make the offer (or when we do it on your behalf), you will be roughly aware of the amount of money that the mortgage company will lend, not based on your income, but based on the value of the property. This will in turn tell you the amount that you will have to bring in.

Will a mortgage cover my planned renovation costs??

Before offering you a loan, your mortgage company will want to ensure that your income is sufficiently high to cover your monthly instalments. Once this is established, they will cover a maximum of 100% of the property’s market value as determined by the independent agent’s valuation (called: taxatie).

However, if you intend to renovate the property after buying, you may need a bigger loan.

Depending on the type of renovations you intend to make, you may be able to secure a loan for up to 100% of the estimated value after renovation. Please, note that creating additional m² will add more market value to your property than replacing a two-year-old kitchen.

Here is an example:

Market value of the property before renovations = €400.000

Renovation budget = €50.000

Estimated value after renovation = €435.000

Your mortgage company will (in principle) lend you €435.000. At the moment of transfer, they will deposit €35.000 in the escrow account held by your notary and you will need to deposit the remaining €15.000 in the same account for a total of €50.000. Upon submitting invoices for your renovations, the notary will transfer the corresponding amount into your bank account.

When including sustainability renovations, your mortgage company will give you a maximum of 106% of the value (taxatie). This additional 6% loan must be used in full on sustainability renovations and they will have to be specified in the valuation report.

Tip:

Some mortgage companies may offer an additional €9.000 loan for sustainability renovations on top of the maximum amount you can lend, based on your income.

Which other costs do I need to consider and will my mortgage loan cover these?

There are costs that you will encounter that are not covered by the mortgage loan:

2% transfer tax (unless you are eligible for the 0% rate currently being offered),
Costs for the financial adviser (you have to pay costs if you go directly to your bank too),
Your buying agent costs,
The notary and the translator.
The independent agent’s valuation (taxatie)
A structural survey (should this be needed). A good buying agent will let you know if this is necessary.

So, there you have it. Being well informed is key to buying a property, no matter where the housing market is heading. Save yourself money, problems, and loss of face. Hire a buying agent.