Property Match (UK) blog:

I’m not being angry and not trying to be controversial when I say that the Government should look into the whole debacle on house prices, and make agents more financially responsible, whenever they get their clients’ house prices patently wrong.

We have seen house prices seesaw over the past couple of years and are likely to see it again now. As a result, buyers have gone to ground in large numbers yet again, giving up on trying to move house, unless they are absolutely desperate. How sad.

I predict a double dip in UK house prices, starting now, and in addition I say “It didn’t need to be this way”. Agents please take note.

This prediction is not on the assumption that a double dip in the whole economy simultaneously occurs. I hope this does not happen and my prediction is on the basis that it won’t.

I suggest that estate agents are the cause of the fluctuating house-price problem, because they are incompetent both at valuing houses and doing genuine market appraisals.

As I’ve resigned my membership as a qualified valuer of 30 years standing in the RICS, I’m in a position to speak out, without fear of censorship.
In my experience, it is possible for the market to be duped by the inappropriate activities of estate agents, working as a group.
Agents simply don’t seem to understand that there’s a big difference between driving a hard bargain (thats called negotiating) and simply ripping people off in order to get a deal, by misrepresenting the facts, either about the house, the current state of the market, or both.
They have been doing the latter recently and now its time they were held to account – in the same way the bankers were supposed to be!?
Both types of professional, operating in these markets, need additional and appropriate regulation by government.
The question is: – does the new government have the capacity to realise this and correct the fault, working on behalf of the ordinary voting public?

The price/earnings ratio is always relevant when determining average house prices and this clearly shows that there is now a big gap opening up between average house prices and average earnings.

The price/borrowing ratio is also relevant when determining individual house prices.
If agents simply base the next asking price they assess on one occasional buyer, who may just have extra cash to invest but an insufficiency of ‘nous’; this is utterly wrong. It skews asking prices too far upwards.
If you think about it this doesn’t result in an increase in the value of houses for everyone else – though estate agents certainly seem to think it does!
There is significantly more ‘art’ to valuation than that, as many people do undoubtedly realise.

Definition of the term – Valuation:
A calculation, based on recent sales information – and adjusted for material differences between the sold property and the subject property (the house still to be sold) – which deduces the true current market value of the subject property at that particular time by using three or more recently sold comparables, none of which involved an excessive amount of credit finance (over 75% of the price required) to effect the sale.

The above reasoning explains why there is a great need for reliable house valuations – something that sadly, no organisation currently offers; even though building societies like to commission these, for their own protection, when making advances.

Definition of Market Value:
The price for which a contract to exchange on a property should occur, at the date of the valuation, between an educated buyer and a reasonably motivated seller, in an arms-length transaction after a proper marketing process has been conducted and where all the parties have acted knowledgeably, prudently, and without undue influence.

Posted by: Peter Hendry of Property Match (UK): The modern way to market houses

The asking price mis-match simply need not have happened.

The best attitude to borrowing is one that is fiscally conservative, i.e. one that is reactively prudent, in terms of how much you need to borrow; whilst being fully aware of the line of repayment and the level of interest involved in that repayment.



People, advised by agents, are doing themselves irreparable harm by not getting shrewd advice on how much to ask for their properties. Rightmove are correct to highlight this – in the interests of all selling clients.



With the continuing mortgage drought, which by the way is determined by the current wealth of the community, (or rather the lack of it), agents should be properly advising sellers on correct asking prices.



Lets have a valuation hallmark or “Charter mark” for all asking prices. Even rather upmarket estate agents would benefit from being able to show such a ‘Charter mark’ against their prices, certifying them as being carried out to an agreed standard.



It would certainly be a positive point for house adverts, drawing significant extra interest from buyers.

If estate agents were unable to do accurate valuations, companies like Barrett Homes, could not offer a part-exchange service for people buying their new houses.
Since they can do that, this proves that estate agents CAN do accurate house valuations, when entreated to actually do so!



We believe that official government guidelines should be drawn up, for legitimate market appraisals for all estate agents to have to comply with.



We are among those who think this would help, by forcing agents to supply more accurately compiled market appraisals bearing a “Charter mark” which could only be added if the calculation was done in accordance with approved valuation principles.



This way, agents could stimulate the market into reasonable and sustainable activity, so benefiting their clients and the market itself.

If estate agents used this new tool to pitch their asking prices rather closer to the actual price that the market would support, things would instantly improve, the market would cease to be stagnated. To get to do this would require changing the way in which agents do market appraisals.



There should be a “Charter mark” against all properties where the agent thinks they have achieved the approved valuation principles. (No mark against the house price would suggest it has been set entirely, or partly, by the vendor!)

The beauty of the “Charter mark” idea is that the agent gets back into control, by applying the mark if they are happy with the price.

If they are not so happy with the asking price being quoted, and have not given a mark, buyers will know there should be scope to negotiate.

So, with a “Charter mark”, people will know the price should be accurate and without it showing, people will be warned that they should proceed with caution over the price quoted.

Most vendors will therefore want to have the mark displayed against their house and thus will be less likely to interfere with, or try and tweak, the price advised by the agent.

This will help the market, by making the price information thats available, more transparent than it is at present. Right now, bald asking prices give absolutely no clue as to whether they were properly ‘valued’; or not. Such a position is intolerable for buyers and needs urgent government attention.

The ultimate beauty of the “Charter mark” is its versatility. If, for example estate agents, as a group, decided not to take up this versatile tool, to help the house-buying public be better informed about current house prices, other agencies, like those that formerly provided HIPs surveys could.

Definition of the term – Valuation (for residential property):

A calculation, based on recent sales information – and adjusted for material differences between the sold property and the subject property (the house still to be sold) – which deduces the true current market value of the subject property at that particular time by using three or more recently sold comparables, none of which involved an excessive amount of credit finance (over 75% of the price required) to effect the sale.

Another possibility is the RICS could offer this service, so that those agents who trade as Chartered Surveyors could have this option available for their clients and customers.

It seems that the new coalition government may have lost a golden opportunity to provide useful work for those loosing their jobs, as a result of the suspension of mandatory HIPs.

We hope this suggestion gets picked up by the new coalition think tank.

Posted by: Property Match (UK): The modern way to market houses

Rightmove have recently confirmed that many houses ARE overpriced, meaning the market will not and cannot pay these prices.

People, advised by agents, are doing themselves irreparable harm by not getting shrewd advice on how much to ask for their properties. Rightmove are correct to highlight this – in the interests of all selling clients.

With the continuing mortgage drought, which by the way is determined by the current wealth of the community, (or rather the lack of it), agents should be properly advising sellers on correct asking prices.
Even rather upmarket estate agents would benefit from being able to show a ‘Charter mark’ against their house prices, certifying them as being carried out to an agreed standard.
It would be a positive point for the house advert, drawing significant extra interest from buyers.

Some people think that official government guidelines should be drawn up for legitimate market appraisals for all estate agents to comply with.

We also think it would help if agents supplied more accurately compiled market appraisals, perhaps with a charter mark added for calculation in accordance with approved valuation principles. This way, agents would stimulate the market into reasonable activity, so benefiting their clients and the market itself.

What does Rightmove, or anyone else think about all this?

Posted by: Property Match (UK): The modern way to market houses

Things need to be tightened up in the housing market, if house price rises are not to adversely affect the UK recovery.
A valuation hallmark requirement must be applied to agents valuing houses for sale in the UK, as part of the macro-prudential regulations about to be considered in the financial sector.
It would serve to bring reality to asking prices which, at present, bear little, if any, resemblance to current open market valuations.
If this is not done, booms in house prices followed by more slumps, will continue to run out of sync with the main economy and cause incalculable damage to it.
The fear, that fluctuations in market pricing causes, also has the effect of paralysing the market; stopping large numbers of home-owners from deciding to try and move at all.

For more information on this please see:
http://www.property-match.co.uk/blog/2010/06/14/estate-agents/up-coming-decisions-needed-to-be-taken-by-the-housing-minister/

Posted by: Property Match (UK): The modern way to market houses

Realising the importance of what is done next in Downing Street, we have written a short technical paper outlining how the housing market may effectively be improved to benefit the majority in the house-owning community.

One of the main problems facing government in the immediate short-term future is to find a way of keeping the housing market ‘well behaved’ without using interest rates or contributing to inflationary pressures.

How to do this involves asking RICS and the other professional bodies representing the estate agents to use their technical knowledge more resolutely and determinedly to better define current market prices. They definitely have the expertise to practically ‘Hallmark’ individual house valuations, such that virtually all agents would agree the same prices at any one point in time.

This would bring much needed stability to prices and help to curb the prospect of a house-buying frenzy occurring, if lack of confidence should start to materialise – a good insurance policy by any stretch of one’s imagination.

Getting them to be more precise with appraisals and valuations would also have the effect of reducing the current discrepancies between prices quoted by estate agents, and those produced by valuers working on behalf of Building Societies.

Those currently buying and selling would also gain added confidence.

The way to curtail speculative and unwarranted house-price escalation from taking hold is to bring more ‘clarity’, or transparency, to the housing market. The above actions would produce that result.

With more confidence about prices, comes more stability. Stability of prices inside the housing market will allow it to function better and be primed to avoid a movement towards the extremes of boom and slump, which we have seen happening in the recent past.

The following methodology, which the RICS is already well aware of, would still allow those producing market appraisals and mortgage valuations to chart the natural increases (or decreases) pointed out by the market.

In essence it allows the market more freedom to function more in accordance with the purchasing power of the majority and for it to be less dependent upon the ‘being rich is everything’ syndrome.

This does involve changing the model used by estate agents from that of getting the best possible price for the seller (as at present) to getting offers based on the current market value, on behalf of the seller.

The subtle change described would still allow agents to take genuine offers above the asking price, where an individual property draws special interest, at any one particular point in time; so they would in effect still be getting ‘best price’ for the client. The main difference would be, how they should go about doing that.

Here’s a draft of the differing methodologies currently being used by the estate agents, acting for vendors, and the surveyors working and for the lending institutions. It explains, in brief, what needs to be done to bring the two groups to a consensus and thus, the above-described changes into effect.

Valuation Resume:
First of all, agents need to gain an understanding of what Market Value is. Accurate pricing to market value is the key to maximum market exposure and, ultimately, a satisfactory sale.
Accurate pricing has a significant impact on the sale of a property. Properties priced within the ‘market range’ generate more viewings and offers, and sell in a shorter period of time.

Market value is defined as:
The price for which a contract to exchange on a property should occur, at the date of the valuation, between an educated buyer and a reasonably motivated seller, in an arms-length transaction after a proper marketing process has been conducted and where all the parties have acted knowledgeably, prudently, and without undue influence.
 
The current, and accepted, way to get a clear idea of what “market value” might be, is to look at what ’similar properties’ have actually sold for in the very recent past and then to adjust for any specific property and for market differences, between that house, and the one to be sold. This is what professional valuers do.
Remember, a good valuer is like a detective in that s/he’s job is to find out, in detail, what has been going on recently!

By comparison, an estate agent’s appraisal valuation is really just a feeling, using their local knowledge, about how much such a property might sell for, during the next 3 months or so. Its therefore NOT a proper valuation and could actually mislead people if taken at face value.

As explained, professional valuers do market appraisals, or valuations, by using comparison-sales and there is no reason why estate agents doing market appraisals, should not do the same. This information is now publicly available online, so even a vendor can now do exactly the same thing themselves.

People therefore no longer need the current-day estate agent’s market appraisal, which is outdated and usually incorrect. What they need is a more accurate replacement.

This involves looking online e.g. on our comparables page: to find the recently completed sales, near to the subject property’s location. This information is distributed freely by The Land Registry.

The appraiser should then do a like-for-like comparison by giving plus and minus values to the sold property price, depending upon the advantages and disadvantages (or differences) between the sold house and the subject house. The appraiser should estimate the amount that a buyer might pay, for each plus and minus respectively, and adjust the price that was achieved by the sold house. This is done upwards or downwards as may be appropriate.

The appraiser should do this for at least 3 separate comparison sales.

They should also ascertain whether each comparison sale analysed, involved a loan of more then 75% of the purchase price. If it did, they should ignore that transaction completely and look for others that did not use excessive loan finance.
These are the only ones to be used in the comparison calculation, or market valuation.

The result is the price to be currently asked for the house being sold.
(If there is a range of results the appraiser should take the middle, or median, price as the asking price.)

Unfortunately, estate agents simply do not do these things. They simply guess a figure and then try and make it sound feasible. The result:- booms followed by slumps in house prices on a cyclical basis; running out of sync with the main economy and causing incalculable damage to it.

Therefore, the way estate agents currently do business urgently needs attention.

Posted by: Property Match (UK): The modern way to market houses

ADDENDUM:
1. The statistics for the number of houses placed on the market, compared with the number of completed sales, clearly show an excessive number of abortive attempts to sell. HIPs purchases and Land Registry completions can be used to ascertain this stat. over the past two years.
This suggests that too many house-sellers are finding it impossible to sell at the prices suggested by their agents.

Phil Lavelle of BBC News, confirms this in his report a short while before HIPs were officially suspended:
“30% of all home sales fall through before they reach completion date.”

This is a severe indictment of the methods used in the house-selling market which is currently being operated, almost exclusively, by estate agents.
We are told sellers paid for more than 1.1million packs in the year prior to their suspension yet only 650,000 homes were actually sold!


Nearly half a million (hundreds of thousands) of home owners must have been left with HIPs – but no sale.
Its an indictment of estate agents’ efficiency. So many instructions obtained, so few completions?
What, exactly, is being done about that – by anyone? Anyone can help to provide answers to this online.

2. The final confirmation of validity, of these arguments, is in the RPI graph (which includes housing costs),
Url: Link to BBC RPI graph
This graph clearly shows the over-optimistic track taken by house prices over the past two years.
The future likelihood is that it will level out, once again.

Our contention is that if the graph had taken a less extreme trajectory (i.e. going from bust to boom and back again) things would have been a lot better, for a lot more of those trying to move house recently. To achieve this, government needs to involve itself in requiring estate agents to produce better and more precise market appraisals, when competing to take on new instructions.

Better appraisals would reduce the fear-factor, amongst those trying to move house. This would result in an increase in successful transactions.
Looking back in history, a similar thing happened with deals going bad in the selling of gold and other precious metals (they turned out not to be of the quality initially alleged by vendors!). The result:- a law to ensure that all precious metals must be hallmarked before being offered for sale in the UK.

We strongly believe a similar system should be introduced to guarantee the quality of a market appraisal, offered by anyone in business to sell houses and this should include estate agents.

The past few years have clearly shown that macro-prudential regulation of the housing market to help retain price stability was, in fact, needed. Simply regulating the availability of finance or mortgage loans is insufficient. New regulation can only be implemented by the government.
The last government failed us on this account, in our view.

Who else agrees with us please? Does anyone disagree?

If the housing sector is to become an integral part of the main UK economy, there have to be root and branch changes in the way houses are firstly valued, and then sold.

If these changes are not made, the status quo will simply continue, i.e. booms followed by slumps in house prices on a cyclical basis; running out of sync with the main economy and causing incalculable damage to it.

We now have the choice, whether or not to embrace such change.

Posted by: Property Match (UK): The modern way to market houses

It seems strange that only a month ago, agents were reporting that it was a shortage of instructions from sellers which was causing prices to rise, as the relatively few buyers in the market, rummaged through what was available. Now, the opposite is being reported with loads of sellers leaping onto the market, hoping for a good price. Given this change, one would expect prices to be put under pressure. So, why aren’t they?

My theory is that its to do with over-optimistic market appraisals being offered to vendors by eager estate agents, greedily competing to secure sellers instructions; no matter how high they need to lift the appraisal value to win the the initial instruction.

If real valuations had been done instead throughout the winter and into spring, the market would have remained steady throughout the period.
This would have resulted in the house-owning public gaining in confidence and this would have resulted in more activity in the market throughout the period in question.
In a nutshell, estate agents competing against each other for new instructions are cutting off their noses to spite their faces, as none of them should be able to sell houses at the excessively high prices they are suggesting.

Instead of a price frenzy, driven largely by agency competition, the real objective should be more activity, more houses being sold.

Twinned with this objective is the need for lots of happy home-owners who were able to move as all the prices were within their reach. Remember, no-one gains from over valued property, as if they are trading up, they will have to pay even more to do this. If they are trading down, they may make a slight gain but this is usually offset by the months of uncertainty and the extra time taken to effect a sale.

The present model, whereby agents compete aggressively to gain instructions from individual sellers, is destroying consumer confidence and causing the market to stall in successive phases. This problem is an extension of the one which brought the banking sector down and a remedy needs to be put into place urgently.

We need a bold government to do something to correct this dangerous and economically damaging scenario, once and for all but such a government will only do so if we give them the mandate to.

The time is right. The question now remains, is there a party out there that can deal with this desperately needed, and required, change?

Posted by: Property Match (UK): The modern way to market houses