Asking too much: why are estate agents overpricing homes?
The market is booming, prices are rising, there's a stamp duty holiday and buyers are out in droves: could it be any more of a seller's market?
And it's true: we are achieving record prices for property; multiple offers have become the norm and, for many sellers, their home is only available for a matter of days before they receive an offer that is not only acceptable, but more than they dreamed possible.
But while there is plenty to celebrate for homeowners during this bonanza, a darker side of estate agency has unfortunately come to the fore: overvaluing. While it’s nothing particularly new, the practice has been historically limited to a small number of estate agents. But now it’s become rife and causes untold heartache and stress for sellers, with results that can be seen in the high percentage of properties that are not selling (even with the favourable conditions of today): 70% of UK homes put on the market in the last month have not sold.
So let's take a look at why overvaluing happens, why it's increasing, the problems it causes and the true path to getting the best price. Having the tools to spot an overvaluation and knowing how to deal with it can help you minimise the damage to your move.
WHY DO AGENTS OVERVALUE?
Here’s a little secret about estate agency: it’s not sales that are the most important thing, it’s having a healthy register of available properties.
Without a constant stream of new listings for their website and the property portals, estate agents’ enquiries can dry up. This can leave them with an out-of-date list of potential buyers, many of whom could have found a property by the time the agent lists a new home.
Overvaluing properties to get them on the market is a low-skill, unethical and yet highly-effective method. It preys on people’s understandable desire to get the very best price for their home: it makes them question – and even be annoyed by – lower and more accurate valuations.
An overvaluation can make a seller put aside every concern they have about an agent’s professionalism, marketing, personality and service. If the figure they are quoted is sufficiently high, it can leave them feeling that any downsides will be worth the eventual financial reward.
Unfortunately, that’s not usually how things turn out. More often than not, the sellers who were misled go from being relaxed and having plenty of time to move, to being desperate to sell and racing against the clock.
WHY ARE MORE AGENTS OVERVALUING?
Changing business models have disrupted the industry, leading more and more estate agents to take more and more drastic measures. One significant factor is a new kind of reward structure that prioritises getting a property on the market over securing a sale: it can show up in pay-upfront agency contracts, or in the way employees are targeted.
The practice relies on training people in ways of quoting prices that are 10-20% (sometimes more) above market value, while still appearing credible. That sort of inflated figure is high enough to prove tempting, yet still within sight of what a seller could see and hope as possible for their home.
Once you've listed your property with the nice valuer, that will be the last you see or hear of them. Now you'll be handed over to the sales team in the branch who will be skilled in slowly managing you down on your price, but in a way that leaves you feeling as though they've been on your side all along and trying their best for you.
The idea is simple: to keep you long enough for your move to become more urgent. By tying you to a long-term contract of at least 3 months, the agent enshrines their chance to market your property at its reduced and realistic price, leaving you blissfully unaware that there was never a plan to achieve the figure you were originally quoted.
Many people see switching estate agents as a hassle, but it’s really very easy: there’s no need to feel trapped.
WHY IS OVERVALUING A PROBLEM?
Misleading people over the likely sale price of their home causes all sorts of issues.
For a start, you won't be able to move. Properties that are on the market for significantly more than their market value just won’t find a buyer. We don't get calls from people with a budget 20% less than an asking price in the hope that an owner will take a huge hit; those people simply won’t see your property in their search. Instead, you’ll be competing with higher-value homes and you’ll achieve nothing more than making those homes look like better value than yours.
Next, when one property in a street is on for an inflated price, it’s extremely difficult to get other sellers to market their homes at the correct level. This leads them to go with an overvaluation (you see how cunning it is?) and so begins the waiting game of who will drop their price first. And once the first person does, everybody else who’s on the market at an inflated level will get a phone call telling them to drop their price to compete.
Meanwhile, it ends up looking like property in that street or neighbourhood just sits on the market for ages, creating a negative impression of the location among potential buyers.
For the sake of argument, if you do by some miracle secure a sale at 20% above market value, the buyer’s valuer and lender will not simply accept that price. They’ll want to see comparable properties that have sold in the neighbourhood and, when there are none, they’ll reduce their valuation and the amount they are willing to lend to reflect local sale prices. That will inevitably lead to your buyer renegotiating the price which could leave your move in shreds if your onward purchase is based on achieving an inflated price for your own property.
And while all that’s going on, because your home initially went under offer at an inflated figure, more properties will come onto the market based on the price you accepted, because of the supposed new level you set. This will lay the foundations for more delays, disappointment and heartache among other sellers when properties either don’t sell, or get heavily down-valued by lenders.
THE BEST WAY TO THE BEST PRICE
Estate agents are there to get you the best possible price, but the key word is “achieve”: not mislead, deceive or delude.
We have never once met a homeowner who was grateful for having their move delayed or ruined by receiving misleading advice. That single moment of joy when an agent quotes them an inflated price is rarely compensated by sitting on the market for months with no sign of a buyer. Anger is a more accurate term for the emotion it evokes.
In a rising market there is definitely an argument for trying a higher price than the last comparable sale, but property does not increase by 20% in a single week or month. So look around at similar properties to yours that have sold and that for sale: if a comparable home to yours sold for £400,000 last week or last month, yours will not sell for £500,000 today.
In the main, you will lose enquiries if your asking price is more than 5% higher than where it should be, but you can still use the property portal price bands to your advantage when trying to push your price. Sticking with the example above, most buyers with £400,000 to spend would use the £400,000-£425,0000 price band to search, and would probably call about a property that was for sale at £425,000. But asking even one pence more would remove you from those search results and pit you against higher-value homes between £425,000 and £450,0000.
Remember that your asking price is purely about getting enquiries: without them, there is no sale. And with enough enquiries and viewings the market will find a new level if the response is great enough: don’t deny yourself that chance.
HOW TO PROTECT YOUR MOVE
The market is great at the moment, but we have no idea how long that will continue: who knows where we’ll be a month or six weeks from now? We want to help you take full advantage of the selling conditions today, and to be the reason that your move is successful.
So here are some tricks you can use to work out whether an estate agent is ‘testing the market’ through a genuine sense of enthusiasm for your home, or if they are simply overvaluing to get your property and satisfy their KPIs or regional manager.
Asking these three questions will give you an idea of the agent’s motivations:
- does the valuer sitting with you in your home get paid for putting your property on the market, or for selling it?
- will they be your main point of contact throughout your time on the market, or is the meeting your first and final encounter?
- will you be tied into an onerous, long-term sole agency agreement for months on end?
If you still wish to chance your arm at the agent’s higher figure, there are some precautions you can take to ensure your move isn’t completely scuppered:
- don’t sign up for any longer than two weeks if you are being quoted an inflated price: you’ll know by then whether the advice you’ve been given is correct, and whether you wish to stay with the agent.
- check that you don’t have to give any notice beyond those two weeks as some contracts have lengthy termination periods. Insist that any clause like that is removed.
- do not reward the agent for misleading you: make sure to disinstruct them at the end of your contract if it’s clear you’ve been duped.
- reset your status on the property portals by switching agents. Your home going out as a “new property” alert is far better for you than a notification for a huge price reduction.
- let the agent know you’ll be leaving a review on Google and Facebook about your experience.
Well, that was quite a ride! We know there’s a lot to take in here, but it’s essential to arm yourself with all the facts to identify misleading advice and to remedy its consequences before they sabotage your move.
Does it sound inconceivable that an agent would overvalue your home simply to get it on the market? It should, but it’s happening all over the country and it’s abusing the trust that homeowners put in estate agents to help them move home. So be sceptical, ask questions, and challenge any valuation that’s much higher than the evidence suggests (even if you’d love to believe it).
If you’re concerned about the valuations you’ve been given for your property, or you’d like to talk about any aspect of moving home, why not get in touch? You can call us on 01945 588 111 or email us at firstname.lastname@example.org. We’re here to help.