Jun 142010
 

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.

The RICS should be doing more to captain changes such as these - if it wants to justify the retention of its coveted Royal Charter status.

Who else agrees with us please? Does anyone disagree?