22 February 2011 / Home & Energy

Are estate agents deliberately overvaluing properties?

Alice Rickman Which? Shopping Expert

Comments 15

The reputation of estate agents is pretty close to that of politicians or used car sales men – not great. So do stories about deliberately overvaluing properties to drum up business really add up?

I’m in the process of buying a flat and, despite working for Which?, this process has left me dazed and confused.

And I’m only dealing with one side of this – thankfully I don’t have a place to sell.

Selling leads to a whole world of other complications – like employing an estate agent, which in turn means valuations, contracts and fees.

Is overvaluing underhand?

Of course, there are stories of estate agents using underhand techniques, like overvaluing to get your custom. They’ll tell you it’s worth £250,000 and by the time you have to drop the price to get a sale you’ve already signed a contract.

However, like many things in life, it may not be this simple. The estate agents could just be trying to get the best possible price for you, and so testing the property out at a higher price.

In a tough market it’s not a ridiculous idea to approach the house-selling process knowing buyers will negotiate. The seller may also be in the driving seat and be requesting the higher prices – perhaps not taking account of the drop in housing prices in some areas.

Asking vs selling prices don’t add up

Whatever the reason, there’s evidence that asking prices and what houses actually end up selling for don’t seem to have that much in common. The asking price for the average house on Rightmove.com is £222,410 (December’s figures). But this doesn’t relate to what properties are actually selling for.

Halifax’s equivalent figures have selling prices at an average £162,435 and Nationwide an almost identical £162,763 – clearly, something doesn’t add up here.

And while house prices continue to fetch less than their asking price, estate agents are still charging high fees. So we’re paying thousands for their services but remain unclear about what we’re getting for this.

What are your experiences of estate agents? Do you think the valuation of your home was right? Did you think the fees you paid were reasonable, or could the estate agent have done more to sell your house closer to its asking price?

Comments

Dave D says:

22 February 2011

I’m very fortunate: I’ve never had to sell a house in my life (yet), but I must say that the intro to this thread rings loud bells for me.

My dear next door neighbour died 3 years ago in May. Her two daughters put the house on the market, just about as the “Credit Crunch” was starting to bite.

They got three estate agents in to value the property and all suggested asking prices of around £250,000. Because they wanted to try to sell quite quickly – certainly within 6 months to avoid the house being empty over winter – they decided to put the house on the market at £205,000, £41,000 below the lowest estate agents’ valuation.

It took over a year to sell in the end and they finally had to sell for just £167,000.

My house is identical (being a next door semi it would be I guess!) and although I will never sell up I would be amazed if these houses are worth over £195,000. Even houses at the top of the street, where they have garages and bigger kitchens are currently selling for about £200,000 or less.

So it seems to me that Estate Agents artificially raise people’s hopes, with equally artificially raised valuations, for no good reason that I can see.

Dunno – not being a vendor I guess I am not really qualified to comment further, but I do think Alice’s intro makes a very good point.

Dave D says:

22 February 2011

Sorry, I forgot to mention what the vendors got for their fees: sweet Fanny Adams! Because the daughters both live in other parts of the country they had to let the Estate Agents do all the viewings. On the occasions when I was in to observe this the young man in the flashy boy-racer car from the agents always unlocked the door, stood outside having a cigarette and left the potential buyers to wander alone indoors. As soon as they came out he locked up and had usually screeched off before the would-be buyers had left the gate.
On more than one occasion neighbours had to call the agents or the vendors to point out that lights had been left on and once even the immersion heater. The agents were never very prompt to come back to switch these off.
To me that’s service that stinks, but again I repeat: I’ve never had to sell, so maybe I expect too much; perhaps what my neighbour’s daughters got was de-rigeur?

JJ-London says:

12 July 2012

A) ” Her two daughters put the house on the market, just about as the “Credit Crunch” was starting to bite.” Estate agents could be more optimistic on pricing during the better times- people were paying more for property.

B) You dont mention the condition- I’m guessing it was bad as she was old.

C) the market did drop approx 20% in 2008 in some parts of the UK, there fore that is correct. The “just £168” is unjustified.

I also find it very hard to believe an estate agent would have a cigarette outside a house.

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Peter Hendry says:

23 February 2011

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

John Ward says:

24 February 2011

Although neither buying nor selling at the moment I am very interested in how the property market works and have been thinking on and off about this disparity for some time. The reality is that properties are not selling – the property websites show hundreds for sale in all brackets, at all levels, and in all areas, and the photos give the game away [last year’s daffodils and roses in bloom, or snow on the roof from last November]. Asking prices are way too high which is falsely keeping sellers’ expectations at too high a level. Even though some properties have to be sold within a finite period – executor sales, repossessions, job relocations – this does not seem to be feeding into the advertised prices. Agents are desperate to maintain the differentials between different classes of property and as soon as an agent lowers the advertised price on one property they are intrinsically cutting the price of all the other properties in that area at and above that level, so they won’t go there. The last housing market recession saw estate agencies close branches and entire firms went to the wall [the banks and building societies which had piled into estate agency got their fingers burnt and made a hasty red-ink exit]. This time that is not happening because of the buy-to-let business which is enabling agencies to hang on, making a living out of managing rentals and lettings. Even then I do not see how some agents can survive on three sales a month if they have a high street branch to run and higher advertising/promotion costs per property because they are on the market longer. I have no idea whether agents have been quietly and collusively raising their commission rates to compensate for the reduced throughput. Quite a number of the more recent landlords are having to dispose of bundles of properties through the auction route as the economics no longer stack up yet the low prices achieved at auction do not appear to be having any influence on advertised asking prices for property generally. This is a bubble that has to burst before long I think. As to the service that agents provide, it remains abysmal – very few of them have raised their game to suit the circumstances of today’s market. Although they are not instructed by the buyer in most cases, they do have a professional duty of care towards them and they could do a lot more to assist them without compromising their primary engagement to the seller. Their response to potential buyers’ enquiries is generally characterised by one or more of the following: slow, unhelpful, ignorant, incompetent, lazy and misleading. Not for nothing is one of the larger regional firms known as Bovine, Droppings & Co. around these parts. And apart from the slap-dash viewings and the inadequate particulars, their newspaper advertisements have all the graphic appeal of a 1960’s pools coupon. With their unintelligible abbreviations, lack of property addresses [“North City”], blurred postage stamp-sized pictures, prices “available on application”, high-charge phone numbers, no service on Saturday afternoons or Sundays [haven’t they heard of homeworking?], what chance do they have of enticing buyers and giving their clients what they pay for? The stuff the agents put on property websites is little better with no floor plans, useless maps [“the flag marks the centre of the postcode”], photographs of owners’ beds and sofas – even the best could do much better, in my opinion, to justify the fees they charge. When you sell and buy a property most of the work seems to be done by the solicitor/conveyancer whom you have to pay at the outset just to get them going on it; the wily agent, who eventually sells your house for far less than they told you they would, somehow manages to get their fee [at least twice the legal fees in my experience] without actually asking for it because it mysteriously emerges in the completion statement as a deduction. But does the solictor not carry far more responsibility and need higher qualifications and competence than an estate agent? It’s about time this surreptitious practice was outlawed so that clients could see more directly how much they are paying for what they’re getting.

AI says:

21 May 2011

My wife and I are in the missery of trying to sell are house for the second time with a second agent.We have had it on the market for a year (although its actualy been on for 7 months as we took it off over the winter) We have had 21 groups around in that time, most of them tyre kickers.The price was set by the first in a bands of £10000 we droped from one band to the next and were to be droped again so we pulled out from the first agent.The best we did under our first agent was a woman who was buying for herself as she was surposedly splitting up.We came down into another price bracket and then another £2000 drop as that was all she could afford as there is some work needed on our property.A period of two weeks went buy and no word from our agent.After me phoneing them I was informed she had been on holiday.She came back and messed about with measures saying she would getb back in touch.We then were told by the estate agent she had pulled out,They then suggested we dropped into a lower price band and we ceased buisness.
We started this year about eight weeks ago a number came ,about 5 parties,one very poor offer we refused.,and then some 4 weeks back a party wanting the property but needed planning to extend.They would pay for all the planning but could not make an offer until the plans were past and there house sold.We were not to keen but as the house was still being marketed it was up to them.We had there so called archtect round and a builder to see if the buyers idea was feasable,they said it was.The archtect came round with no ID she was working for a friend of a friend.Again nothing for two weeks.We have foun d out to-day only because we phoned that they cannot go through with the purchase as the build was to expensive.The estate agent with thev usual tut-tut time wasters atitude and then tried to get us to drop the price.The price was made by this agent less than the previous agent and only one other party came round in that time with no interest.How can they keep dropping the price unless its all a set up and price fixing is involved or there standards of pricing are appalling.Yet these agents are still in buisness and do not seem to be closind down around here.We are fed up of being fed half truthes and are begining to wonder if an outside body is controling the sale of houses.We would appreciate any helpful coments

Chris Gloucester says:

25 February 2011

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.

Peter Hendry says:

26 February 2011

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.

James says:

20 March 2011

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.

cduffy says:

27 March 2011

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.

James Lambert says:

21 June 2011

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.

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richard copus says:

24 October 2011

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

John Ward says:

6 July 2012

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.

Peter Hendry says:

6 July 2012

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.”

Peter Hendry says:

12 July 2012

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!!

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