Are estate agents deliberately overvaluing properties?

If the market is to have any chance of retaining volume, prices need to track demand far more closely.

We’ve written a paper on why prices are sticking too high, when they should, in fact, have been reducing earlier.

The conclusion is a tough one, but do-able, in our estimation.

See the Property Match Blog for more.
http://www.property-match.co.uk/blog

Are estate agents deliberately overvaluing properties?
The short answer is yes they are and have been doing so for years, and I’ll explain why because it’s happened to me.
When anyone puts a house up for sale they have a rough idea of it’s value. You only have to look at similar houses in the area which have recently sold.
We then approach an estate agent who “values” the house. This will almost alway be a higher figure than the seller thought. We think that’s great, we’re going to be better off than we expected, but next comes your signature on a sole agency contract, usually 16 weeks rolling over longer because you must give notice of termination. “They’ve got you”.

Next thing is the house is advertised at their valuation level, but of course unless you are very lucky it doesn’t sell. A week or two later comes the excuse from the estate agent that either the market has changed or there have been viewings and this that or the other is wrong. So to sell the price needs to come down. Remember you are still in that sole agency contract that your own optimism (or greed) got you to sign. The estate agent is still in line for their fee the reduction they suggest won’t significantly change that amount which was factored in anyway. This may go on and on. The agent might suggest several reductions during the contract period, thus lengthening the time to a sale but costing the agent next to nothing.

So in summary they value high to get you locked into their sole agency contract and just talk you into reductions until the house sells, they can wait, but can you? If you can thats fine sit it out but be aware houses on sale for too long can become a turn off to buyers.

I suggest you use a smaller independant agent rather than a big chain. Smaller agents need a quicker turn over so will value more realistically. Don’t drop to a level where you’re giving it away but sell at realistic levels or don’t sell at all, perhaps even consider letting it out instead.

To follow up what Chris Gloucester says:
The absolute answer to stop agents over-valuing is for the Government to force them to do Set-price selling, by amending the Estate Agent Act 1979.

Over-valuation to win instrucvtions is a common charge levelled at estate agentsand has been cited by some as one of the reasons for an sharp increase in complaints recieved the industry ombudsman this year (http://blog.thebigpropertylist.co.uk/record-rise-in-complaints-against-estate-agents).

In the long term though its a practice that doesnt make for a sustainable business model as it may benefit the actual agent recieving the instruiction but wont do the agency any favours in the long term.

My advice is always to seek a personal recommendation for a friend or contact to get an idea of what the service is really like.

I have been house hunting in West London area for last 6 months. My observations : asking prices seem to be 5~10% overvalued and there are limited good new properties coming on the market but also limited buyers who have good finances in place. With all of the information on properties and valuations available on the internet I wonder really what value estate agents are adding – except arranging viewings? Compared to other European countries the whole buying and selling process is very slow and prone to delays/disappointments so it needs a serious overhall to modernize to the internet age.

I have been a practicing estate agent for around 30yrs and read the comments on here regarding estate agents overvaluing with great interest. The answer is Yes there are a number of estate agents who are substantially over valuing or should I say misadvising prospective sellers on what would be a realistic expectation of what their property is likely to achieve. The offending agents tend to be predominately the large corporate agents who employ ‘Listers’. The listers sole job is to attend Valuation appointments and convert these into instructions to sell. The lister will be working to weekly or monthly targets. In order to meet these targets there is a tendency to overvalue to secure new listings particularly as the Lister is unlikely to be directly invovled in subsequent efforts to sell the property, that will be the problem of his collegues who will then have to try and manage the price and the sellers over expectation down to a level at which the property can be sold. Let me say that those of us in the industry who are commited long term career estate agents feel that the above practice is dishonest and is distorting the market and creating an unrealistic expectation in other prospective sellers who are looking to bring their own properties to the market. A good professional agent will always provide a prospective seller with as much comparable evidence as possible to back up their valuation as well as accurate advice about local market conditions and trends. if the prospective sellers price expectation is over optimistic the agents should and often do give the sellers an option to market the property for an agreed period at their price to ensure that they are satisfied that the market has been fully tested but on the understanding that the sellers will reduce the price later to a more realistic figure if the market proves not to support their expectation.

For the vast majority of professional agents,the practice of deliberately overvaluing to gain listings is pointless. The reason is simply that most of us work on a no sale no fee basis this means as soon as we accept instructions to market a property it costs us money!. No sale no fee means we get paid for what we achieve not what we do!. Over valuing to gain listings is simply shooting yourself in the foot as it is likely that all that will be gained is a register of unsaleable properties with frustrated seller. In addition there is a cost involved in properly marketing a property and for those who are critical of estate agents fees, please understand that those properties that are sold subsidise the costs of marketing those that dont sell, so the alternative option to no sale no fee and the possibilty of much lower selling fees are. Paying the agent for all costs related to marketing the property regardless of whether the property sells or not.

As regards property over pricing In my experience the public have a part to play in this too. Generally , in my part of the country the vast majority of prospective sellers I meet have price expectations which are at or even above the levels achieved during the last property boom and are simply unable or unwilling to accept the realities of the current market and a recent article released by Rightmove described this by stating that “Sellers are continuing to romp away from reality” as asking prices continue to be set ever higher.

As a professionally qualified estate agent I agree with many of the comments made above. Anyone working for me acting as one of the negotiators did above would be out on his ear. Overvaluing by agents is endemic, but this is largely because home owners rarely look at the quality of the estate agent providing them with the information and opt to take the chance on the higher figure. They don’t appreciate that their home will probably sell for a lot less if it sticks on the market for any length of time and isn’t marketed properly. Anyone can set up as an estate agent without having passed any exams and most of the wide boys (and girls) that give our industry such a bad reputation have no qualifications whatsoever. If house sellers want a good service from a decent agent they should use a member of the National Association of Estate Agents or a Chartered Surveyor. They have exams as well as experience behind their backs and can be dragged before a disciplinary board if they breach their strict codes of conduct.

RICHARD COPUS FNAVA FNAEA (Honoured) CPEA

We recently decided to put our house on the market and invited four local agents to pitch for the job. Agent A was from the local branch of a corporate agency. Agent B was the head of a local independent estate agents with a good reputation in the area. Agent C was from the top local firm of auctioneers, surveyors, valuers and property professionals. Agent D was from the No 2 practice, again with professionally qualified staff in all relevant disciplines. The spread of asking price valuations was £50,000 – over 21% – in the order, from the top price downwards : D, A & B, C. They all suggested that negotiations would inevitably lead to a discount of £10,000 to settle on a selling price so that we should “realistically” expect to achieve around 95% of the initial asking price. We had our own idea of what our property was really worth and what would be the least that we would accept, as we do not have to move and will not undersell it. All the agents stated that the current state of the housing market made it very difficult to value properties with any confidence since there were so few sales of comparable properties on which to base an estimate; this was their defence against any criticism of their valuations.

We quizzed the agents about their performance, contact lists of prospective purchasers, viewing arrangements, use of media and property websites, brochure and marketing techniques, and profesional back-up through the selling process. Their commission rates were : A & B 1.75%, C & D 1.5%. We selected Agent D whose recommended asking price – the highest – was in line withour own estimate and expectations but we also considered that this firm’s professional approach and position in the market place was more suitable. The property was put on the market in mid-June and within two weeks we had accepted an offer at over 97% of the asking price. Obviously, there are a lot more hurdles to be cleared before we reach the home straight and it is difficult to draw any general conclusions from our experience – so much does, and always will, depend on timing and luck. But this does suggest that the highest valuation is not necessarily wrong and that the agent with the highest profesional credentials can also be the worst.

The answer is: Estate agents should start advising both buyers and sellers again.

John Ward’s comment is extremely pertinent illustrating, in addition to several other comments, that it’s time to improve estate agency.

The housing market is in stagnation, just at the time when more activity within it is most needed.

Our Government therefore needs to reinvigorate the housing market.

The ‘way’ houses are marketed by estate agents needs to change and that the change is now long over-due.

As well as trying to get the best price when selling your house, why don’t the estate agents also help you to secure the next house you want to buy, at a similar market price.

I happen to believe that doing this would help the market to flourish again and overcome its current stagnation because lots of people would like to move and lots would benefit from being able to move house, even in recessionary times.

“The way this should be achieved is to match buying and selling prices more appropriately,”  I suggest.

At the end of the day, the price you get should be in line without the price you pay, whilst taking into account differences between the houses and their different locations of course.

I would add, “people not only need roofs over their heads, they also need estate agents to provide even-handed and mature marketing services, whatever economic circumstances may prevail at the time.”

I forecast that if agents can’t do that, the only alternative will be for owners to market what they would like to sell direct online and for buyers to view these houses, and then make offers direct – without having to put up with the broken service of present-day estate agency, anymore.

In my opinion, “if estate agency is broken (as it undoubtedly is), it is certainly time to fix it.”

There is indeed a substantial discrepancy between asking prices and eventual sold prices.
In my experience the amount is excessive.
This causes market stagnation, especially in a downturn.

We wanted to move last year and found a house we wanted.
The agent had successively reduced the price over several months, having failed to sell it but what they were asking when we viewed was still a lot too high.
Talking direct with the owner made it clear she as almost desperate to move by then but owing to asking prices where she wanted to move to, she thought she needed her current price.

We secured the purchase but at a compromise price.

We then put out own house on the market with a national sized firm. The price they suggeted was considerable lower than what we expected having spent thousands on an extension and a new kitchen.

The hose still failed to sell.
we changed agents but kept the low price.
Someone immediately put in an offer. The house came off the market and we instructed solicitors to do the conveyancing.
At the last minute, the buyers tried to drop the price by a pretty large margin, without good reason.
I’m a qualified surveyor and know there was nothing hidden or bad about the house.

We reluctantly had to witdraw the house from sale and hastily let it out instead.
We just about managed to move but what a saga!!