Panic buying in the property market?
Would it surprise you that there are much fewer properties for sale today than a decade ago?
Property values are much higher than a decade ago and the property market is on fire: with many people saying it’s reminiscent of 1988 when dual-MIRAS relief was abolished by Nigel Lawson, as people are paying top dollar for property, because they are buying it like there is no tomorrow.
Underpinning the reason for this is difficult as there is not a shortage of property to sell (unlike the panic buying of toilet rolls last year in the supermarkets!). With a buoyant property market, being adept to state what your property is worth is exceptionally problematic.
When there are less properties on the market, to gain your instruction some estate agents will value your property by providing an over-inflated suggestion for the asking price. Which raises the question: why is this, when the considered wisdom is estate agents only get paid once they sell the property?
What is overvaluing?
It may surprise you that many (although not all!) estate agents pay their employees a bonus to your property on the market, and then an additional bonus when they reduce the asking price. Some feel that the fastest way to get your property to market is to be optimistic about the asking price to secure your property for sale, then work to reduce your asking price after it has been sitting on the market for a few months.
It may seem there is nothing wrong with this, as you are eager to get the most for your home and it is of course the job of the estate agent to get the best price for their client. However, we believe that if it is worth testing the market at a slightly higher asking price, this will be suggested to you as the seller and we will explain why and if we have overshot the asking price, it can be swiftly realigned after a couple of weeks.
Yet, many estate agents are disposed to suggested over-inflated asking prices to the house seller just to secure their business (i.e. overvaluing) but not manage the property for months and months… this in turn, causes properties to sit on the market and not sell.
Most homeowners will ask three of four agents to value their home and take the middle figure when they want to sell. However, if all or most estate agents are over-optimistic and they all provide a higher price to secure your instruction to sell your home, then that middle figure will be too high. Most estate agents know they don’t win business if they tell the homeowner what they don’t want to hear.
So, what is the risk of overvaluing?
There is potentially a significant cost to putting your home on the market at too high an asking price. Your estate agent will tell you that your home is worth a certain figure and then lock you into a 16-week sole agency agreement (sometimes longer) which you cannot get out of early. If you are getting around two or three viewings a week, and the pictures and marketing material are half decent, then your pricing is about right, meaning in this market you should be sold (subject to contract) within a month to six weeks.
Yet, if your home has an over-optimistic asking price (i.e. it is overpriced), you might only have a handful of viewings in a month and no offers. As the weeks and months go by, your overpriced home makes similar homes to yours (i.e. your competition) look really good value for money. That’s when you will get the price reduction call from the agent.
How many times have you seen a property that has been on the market a while and you have wondered what’s wrong with that? Also, to add insult to injury, the portals tell you how long a property has been on the market, adding weight to that argument.
The longer your property stays on the market, the more desirability of your home drops.
You will end up selling your home but only after a handful of price reductions. Firstly, in those lost months, you would have missed out on many properties that you fell in love with, yet couldn’t buy because your home was languishing on the market with no interest (this is backed up by consumer champion Which, who said that if you have to reduce your asking price by 5% or more, it adds an extra 64 days to the sales process).
Secondly, you will end up selling your property for less than if you had placed the property on the market at a realistic asking price from day one (again, backed up by Which). This is because buyers think there is something wrong with it, so as the homeowner gets fed up, they accept a lower offer to get their property sold.
Finally, because you take less for your property, your choice of the next property to buy will also be curtailed, meaning your dream home move might be more of a nightmare.
The best advice we can give you is to search the portals: make sure you look at properties that are also sold STC (which can normally be found by clicking on the filter section of the search on the portal). Then ask a couple of straight-talking trusted friends to do the same and compare your property to the competition that is both on the market and sold (STC).
Compare their locations, number and, size of the rooms, and size of the plot, and ask them where they see your property against those. Carry out the same exercise yourself (of course you will be slightly biased) and take an average from all those figures. Then ask a number of agents to value your property and if you feel any are being overly optimistic challenge how they get to their figure and get them to qualify their belief in that figure – is their valuation realistically achievable in the market at the time? As we all know markets change and property prices go up and down and ultimately a property is only worth what a buyer will pay for it – this all requires careful consideration.
We can assure you most estate agents are decent people, who want to do the best for you. All we ask is you do your homework and look at the sale of your property through the eyes of a cold-blooded buyer.
If you would like to see how much your property could be worth and to get in contact, check out our free instant valuation tool today.