Steven Barrett on importance of face-to-face meetings with landowners
“...face-to-face meetings between the two key parties involved in a transaction is one of the single most quickest ways to complete a deal at the price each party is happy with.“
Steven Barrett, Director of Apogee Group, talks to our team about effect of bad land agent, profit margin in offers and future of land buying in the UK.
What would you say are the main barriers to sourcing viable land?
Firstly, sourcing: to find the land in the first place usually requires either a subscription to a sourcing platform, agents, sourcers, introductions from your network or you know the landowner directly. There are many avenues to find land and it can be very time consuming sieving through them all, so if there was a central platform that consolidated some of these avenues it would speed up transactions.
Secondly, viability: this can be saved or destroyed by an agent. An agent worth his salt will do his research and then appraise and value a deal correctly for a speedy transaction, looking into up to date build costs, financing costs, market trends, developers profits and lastly Gross Development Values (GDV). A deal can be won or lost with agents.
The viability is also often determined by the planning process, so Local Authority’'s play a large part in this process. This is slow and antiquated which Parliament are well aware of, which is why they are slowly bringing new PA legislation to the fold, speeding up applications and fast tracking the development process.
After the success of the B1-C3 PA scheme, more property classes need to be added to the PA list so that developers can mitigate as much risk as possible.
What has been your most challenging land buying experience (with a landowner or closing a deal generally)?
Most deals that has been introduced to us by agents are generally priced quite high and tracked against future GDV values. If we receive deals which are tracked this way, we generally decrease GDV values by at least 10% for ‘today's values’ and any corrections and then allow a 25% margin on GDV as developer profits.
We have found that some agents value land as GDV minus build cost = land value, which leaves no profit whatsoever. This leaves an indelible and unrealistic value in the landowners mind. Once the value has been given to the landowner, it is near impossible to re-educate the owner with a viable land value.
How do you feel agents can add more value to a land purchase?
I think the most valuable thing an agent can add to a land purchase is supporting to get a deal over the line, aside from just applying the highest target value. They need to consider the buyers point of view a lot more and more deal will get done and that will include having a good understanding of profit margins and the reason why these margins exist.
These need to take into account build costs, financing costs, developers risks, the cost of equity and market fluctuations. Most agents value land on pure guesswork which inhibits and slows down the proceedability of a potential deal.
How many deals do you review per month or per year?
We receive and analyse approximately 20-30 deals per month and have a conversion rate of 1-3 good quality deals per month.
What do you believe can be done between buyers and sellers to improve the land buying process?
In a perfect world we would like to see all non-proactive and dishonest agents disappear from the market completely. In the 21st Century we are living in the Information Technology Age where information can be exchanged at the speed of light. Deals could and should be happening much faster than they do but the agent can sometimes be seen as a hindrance to the process, however, we have also experienced some very good ones.
Historically, an agents purpose was justified, but these days it personifies more negative connotations from discussions with my friends and peers. They artificially squeeze margins on developers slowing progress. Some agents interrupt and hinder that process, whilst other agents are an asset.
If there was a central core repository where landowners and buyers could connect with no middle man interaction then more deals would get done and there would not be a barrier between landowner and purchaser. I think face-to-face meetings between the two key parties involved in a transaction is one of the single most quickest ways to complete a deal at the price each party is happy with.