Jul 092010
 

I’m 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 unprofessional and over-optimistic both at valuing houses and doing market appraisals.

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 some people 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.

Conclusion:
Those who believe that each house price recovery should encourage homeowners to borrow more against their properties do not understand that this only holds true if houses are correctly valued in the current market conditions.

If houses are over-valued, and homeowners begin to realise this, they will not keep behaving irrationally and still want to borrow more against the net equity of their over-valued houses. Self-preservation kicks in!

House prices that are stable and in line with true market expectations are in fact good for those working and becoming first-time house buyers. They are also good for the mobility of workers and hence good for the economy. With realistic house prices, more money goes into productive investment rather than static, non-producing investments like houses.

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