This is a question that is of paramount importance to someone considering the sale of a property.
Quite rightly someone won’t want to give their property away and will seek to achieve the highest possible price.
Sometimes, a seller can glean a value from an intimate knowledge of a neighbours deal and very often from research carried out online. Eventually, it’s inevitable that an agent or two will also be asked to provide a valuation. When arriving at a marketing price for a property, however, there are a couple of things to bear in mind; getting it wrong can cost a seller dearly.
The power of the internet
The internet is a phenomenally useful tool when fully understood and used in the right way. Unfortunately, however, it can also appear to skew research and a lot of care is required and sometimes a fair bit of interpretation and understanding is required.
For example, many websites have areas where given a postcode, it is possible to get an estimate of a property’s current worth. Zoopla today values four identical neighbouring properties in Hampshire that were built at the same time for prices ranging from £424,000 to £470,000. Now, imagine that one of these properties is yours. Which valuation would you take as being the more accurate? And, if you were to find another site which values them at £415,000 to £465,000, which site would you consider to be the most reliable?
These tools are based upon mathematical algorithms and nothing more. Zoopla knows simply that a house was sold for an amount a number of years ago and applies a formula to that sold price. Zoopla is blissfully unaware of extensions and refurbishment works. It is also oblivious to the fact that for whatever reason, a purchaser knowingly overpaid for a property. This might sound odd, but if you were to have overpaid by 10% on a property valued in 1965 at £3,500 you would have overpaid the princely sum (at the time) of £350 If that property is now worth £500,000 plus, would you really be concerned about the £350? The sums may be larger nowadays, and you still have to have the means to find that extra 10%, but in a “forever” home, it probably doesn’t matter at all; the principle is the same.
The reason these four homes vary in “value” is simply that Zoopla cannot do any better than apply house inflation to the figure, using local statistics. If the road has been drastically improved, (a new by-pass for example) Zoopla won’t know or be able to cope. If something detrimental to the road or area has happened Zoopla will still be very much in the dark.
An agent's input
An agent may well look at these sites, but he will access areas unavailable to the general public. He will have access to sold prices and should compile a list of properties truly similar to yours for you to look at. This list will include some that have sold and some that haven’t, but which have been reduced. Hopefully, he’ll demonstrate how he arrived at his suggested price. And hopefully, his evidence will be sufficiently strong to persuade you to accept it.
Please remember that no matter what you think your property is worth and no matter what an agent may say, it's actually worth what someone is prepared to pay for it. This is why it is the prices of similar properties that have actually sold that is important. It's probably folly to try and buck this and list a property in accordance with someone else's over valuation on a similar property that has yet to sell.
Have you ever had an agent tell you that your home isn’t worth quite as much as your own research has suggested? Did you dismiss them as being not sufficiently experienced in your type of home, or your particular area? Maybe another agent gave you the higher valuation which was more accurate in your opinion.
The risk that you run is trying to unduly influence the agent, rather than accept that you might have been over-enthusiastic in your valuation. Or that you carry on looking until such time as you find an agent volunteering a higher valuation that meets your expectations.
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.
The cost of getting it wrong
In the interim, the owner of this property has put his life on hold. Offers for other properties to move to will have fallen through, if indeed they were ever accepted. The owner isn’t in a “proceedable” position and agents will become less and less enthusiastic about showing him around properties that he simply cannot make an offer on.
He and his family, will be utterly sick and tired of always having the house presentable for wasted viewings. Potentially job re-location and school issues will now cause problems.
Eventually, the inevitable happens. The house goes under offer at less than would have been achieved if the correct price had been used to start with or, the seller changes his plans, changes his job, gets his kids into a different school, doesn’t move his in-laws in or doesn’t down-size to that dream cottage by the coast.
When you are contemplating selling your home, by all means do some research, see a number of agents but be honest with yourself. Is your home really worth that much more than the one that has successfully be sold at the end of your road, or just around the corner?
The eventual price isn’t necessarily arrived at by the agent who has sold more in your area. It won’t be from the agent who has lots of over-priced properties on his books. It will probably come from the one who turns up armed with evidence to substantiate his valuation. Ironically, you might even have liked him more and thought that you could work with him more easily than the other agents. If only his valuation had been higher...