Sellers end up paying price when agents over-value homes
IT’S a familiar refrain, and one which all residential agents have come across, particularly in these difficult times. A potential vendor is disappointed in the valuation put on his/her house and is seeking an agent who will pitch the asking price at a higher level, on the basis that offers will come in below the guide price and then negotiations can begin. After all, no-one believes that it is possible to obtain a figure above the guide price – do they? Two stories illustrate the pitfalls facing the unwary.
Property A is a five bedroom family house. I first visited the owner in 2006, about a year before the peak of the market and estimated the value at £850,000. In the event he decided not to move. So we scroll forward to February of 2011, five and a half years later, and I am invited out again. This time my valuation must take account of a very different market, mortgage difficulties, and a shortage of cash buyers. I tell the owner £800,000 is a suitable asking price and he seems to accept the advice.
It comes as a disappointment when he asks another agent to handle the sale – but agents know we cannot win them all. The reason becomes clear when it appears on the market in March priced at £975,000. After almost a year on the market, and three price reductions (during which time an offer of £800,000 is rejected out of hand) the vendor resorts to radical measures: he adjusts the price a fourth time to £795,000 and meets with a measure of success, with an offer close to £750,000 from a buyer willing to complete in February.
So, yes, you can “always come down”. But should it take a year to sell a decent house, and should the sale price be almost 25 per cent below the initial guide price? Or, to put it another way, should the agent have marketed this house at 30 per cent over its true value?
Property B is a five-bedroom village house, and this time I am directly involved. The owner and I agree that £850,000 is the correct guide price. The house is launched in June 2011 and soon a buyer is found at the price asked.
But the buyer gets cold feet and withdraws from the sale, to be replaced by another who bids £825,000, “cash in the bank”.
Our due diligence reveals that he does indeed have access to funds, but of course having access to funds does not necessarily entail using those funds, and this buyer also, in that time-honoured Yorkshire phrase, gives back word in early October.
What to do? Well, I have promised my client that I shall have him out by Christmas and he asks me to “think the unthinkable”. This results in a dramatic reduction to a new asking price of £750,000, at which knock-down price a cash offer is immediately received, although disappointingly completion cannot be arranged in the old year. I tell the buyer that we shall respect his request not to offer the house to other buyers, but he must exchange contracts in three weeks, because all the necessary “legals” have been completed. I get a brusque lecture about how long these things take and am put back in my box.
Three weeks duly elapse and the house is still under wraps as per our agreement. No sign of a contract, however, as surveys, electrical reports and elaborate pre-contract enquiries take their toll on the owners. Then: bombshell. The very first buyer re-emerges, offers £800,000 and undertakes to exchange contracts in 48 hours. The contract is withdrawn, redirected, and the buyer is as good as his word. Completion takes place in December, the owner is out before Christmas, and the price exceeds the asking price.
What then is the lesson? Sensible pricing gets results; foolish over-valuation usually ends in tears; buyers want a deal and will studiously ignore a property which does not represent value. And do I think anyone will observe these truths in 2012? Ask me another!