In a rising market, it’s possible for an agent to over-value a property in the knowledge that within the length of the contract you will be required to sign, the marketing price will become gradually more realistic. You might have to agree to a slight reduction, but there’s a good chance that eventually, you will find a buyer prepared to agree with the higher price.
In a soft and declining market such we are experiencing in September 2018, however, this approach can back-fire badly. Let’s be charitable and suggest that a higher asking price has been suggested by you and that the agent has reluctantly agreed to it on the understanding that you will agree to re-visit the asking price in the event that it remains unsold after a month. For the purposes of the argument, let’s discount the very many agents who over-value simply to meet listing targets in the hope of the price being reduced after a period of time.
If a property is truly valued at £350,000 in this sort of market, then it might be marketed it at a slightly higher figure (£5,000 to £10,000 higher) in order to receive an offer of the £350,000. The owner would surely then be happy?
If, however, the same property were marketed at £375,000 in the hope of an offer over its worth, the owner may end up with no offers at all. After a while, he might agree to reduce the price to £360,000, still hoping for the offer of £350,000 to £355,000. By then two things have happened. The market has softened even further and an accurate valuation might be £340,000 or even less. This home has been seen by many people online and they are all aware that it has been on the market for a while. Some will wonder what is wrong with it and some will be thinking that if the price has been reduced once, maybe it’ll be reduced again. It’s unlikely that anyone will be beating a path to the seller’s door with a full, revised asking price offer in hand.
Properties are often reduced in price and very often an agent will cite a reduction as the only solution. It isn’t necessarily the case, but that issue is for another article. How many times and by how much is a seller going to reduce the asking price?
Apparently, if we believe what we read in the press, some 52% of properties of all properties sell only when placed with an alternative agent. If there is a price reduction at this stage, the property benefits from this and the fact that the new agent lists it as a new property and the websites show that it has only just become available. Overnight it has lost some of the stigma of having languished on the market unsold. There are some who will recognise this fact, but for many just starting out in their house-hunting search, this will not be apparent.
In the case of the £350,000 property marketed at £375,000, it may be anything from 10 weeks upwards before the opportunity to re-launch the property with a new agent arises. It could be as much as 20-plus weeks. The real value of the property by then may be a lot less than it was to begin with.