The housing situation in Sweden - Part II

Picking up where we left off, we're on to buying a home in Sweden.

To begin, the seller hires a broker, aka a realtor. The buyer does not hire a broker, but the seller's broker is supposed to look out for the best interest of both the buyer and seller. Seems like an impossible task, but I guess you just have to accept it.

Broker fees are typically arranged as either a small fixed fee, or a very small percentage up to a certain level, such as the asking price plus 5%. If the sale price exceeds the determined level, the broker gets a large percentage of the excess. I've even heard 40% and 50% thrown out there as potential broker fees. Once again, with a fee structure in place that offers a huge incentive for the broker to drive up the price, I don't understand how that same person could be looking out for the best interest of the buyer.

There really isn't much work involved for the broker. The apartment is staged weeks before it goes on the market, a fancy website is put together and the apartment is shown online for a few weeks. Private showings are very rare. After a few weeks of online advertising there will be two open houses. The first is on a weeknight, the second is on the following weekend. Both showings will last between thirty and sixty minutes, and everybody that is interested in buying, and some gawkers, will show up during this period. The potential buyers get a whirlwind tour of the apartment, and if they like the place, they leave their name with the broker.

Either the same night of the second showing, or the following day, the broker will contact each of the interested buyers. The broker solicits a bid from each, then basically auctions the property to the highest bidder. I guess it's a fairly fast process carried out by texting back and forth. As I said in my previous post, the market has slowed, but apartments selling for 10% more than the asking price is still common, and 20% above the asking price is not unheard of in certain areas of Stockholm. The bidding period ends within a day, and the house is sold within a week. I'd hate to know how much of a markup is common when it's a "seller's market."

This auction-like system really drives prices up, and due to the lack of rental options, there is always a buyer. Consequently, many Swedes take out interest-only loans for at least part of their mortgage, and there is no incentive to build equity as it is assumed the property values will always appreciate. When loans are amortized, they typically ask for 1% of principal a year. Think about that, a 100 year mortgage. Pretty risky if you ask me, but in a system where the buyer has absolutely no power, prices may never drop, even in a "buyer's market."

For a Swede, this is just the way things are. Most Swedes also have all the time in the world to wait for the perfect apartment, or wait for the best deal. People that move to Sweden aren't so lucky. The world of second-hand rental contracts is pretty goofy here, and although we got lucky, most sublet units are also fairly over-priced. Newcomers to Sweden will buy as soon as possible, just to get out of their horrible second-hand contract. As promised, I'll get back to that tomorrow. Until then, wish me luck on my next pass through the apartment rental websites.