We must focus on the PROCESS, and not on the outcome. Being scared by what we need to do to achieve the outcome, just defeats the whole process.
There has to be a way of keeping the housing market fluid, even when there are successive stalls in the main economy. It differs from the main economy in that it is merely bricks and mortar on land, in exchange for cash.
My proposal is to bring in Set-Price Selling and replace estate agents’ market appraisals altogether.
Instead of market appraisals, quality house price valuations should be provided by estate agents (whether paid for or not), so that all agents could compete on service quality alone and not on who exaggerated the current price the most (as happens now).
The way to achieve this is to place a responsibility on all agents to have to buy any houses they fail to sell at their stated valuations – this option would be exercised by the owner alone. (The idea would be, that it should be open to the owner to exercise their option after 3 months (or 12 weeks of agent marketing).
This proposal is the only change necessary to correct our faltering housing market.
The result would be that prices would become more realistic, and then stabilise. The number of sales in the market would start to increase, because people would be able to move at prices which are relative (and therefore relevant) to what they are also trying to buy.
True competition would then ensue, and be maintained.
It should be stressed that the minimum effective sanction against agents, for not carrying out proper initial valuations for clients’ houses going on sale, must be to pay the price stated at that time. Anything less would be ineffectual.
Finance for agents having to buy houses they failed to sell, is already available through specialist lenders like Goldentree, the specialist short term property lender who lends, at short notice, to agents buying properties on spec.
This burden of responsibility would, in fact, only penalise agents that continually over-value clients’ houses, while at the same time, the change would help to keep the housing market turning over.
An additional advantage of this is that the burden of costs between vendors and purchasers would be more evenly split, with the vendors having to pay something to get their house marketed as well as having a duty to price the property sensibly.
Purchasers would be responsible to pay to have building surveys of the house(s) they might be interested in buying as well as financing the mortgage valuation, paying the mortgage fees and possibly an independent house valuation, if thought necessary.
Let’s consider the advantages:
If agents valued confidently, bench-mark prices (with scope to gently increase) would be reliably established for all usual types of houses and in all locations.
Where more than one offer is made on a property, the agents could simply negotiate between the parties (just as they do now) to obtain the best offer for the property.
This would be competition, based purely on the value of houses, operating for the the first time ever, in Britain’s housing market.
The situation at present is that too often, highly exaggerated prices are quoted, causing a lengthy delay before perhaps one unsuspecting buyer comes along. If they need a mortgage, often the building society loan valuation then comes in at a considerably lower figure; causing difficulties that sometimes result in the sale falling through altogether.
The disadvantages? None that I can see.
In an effort to get these ideas more widely adopted, the author invites an appointed representative of the estate agency sector to enter into face-to-face discussions; with a view to identifying and possibly increasing, the common ground that may exist between us on this specific topic.
For more information on “Set-price” sales techniques go to: Full Reasoning:
This sales concept is original to Property Match (UK).
It was first published in The Times Newspaper in December 2010 and has been further refined since then.
[...] on how we think a turn-around may be quickly achieved: Set-Price Selling – by Property Match [...]
From YOUR OWN website, under the ‘Value Your House’ section: “You should understand that the market is not the same, day after day. It can vary from one week to the next. As an example there are not as many buyers in the market during the Easter and summer holidays or the few weeks before or after. There are not as many buyers in the market before Christmas until after the New Year. So “market value” is a variable, depending on time of year.”
SO – if the market can move daily, HOW can you justify requiring an Estate Agent’s ‘valuation’ to be valid for THREE MONTHS?
No RICS valuation would be valid for that period…
Ok PeeBee,
I would answer that by saying that a valuation is always a snapshot in time and is always dated.
Prices can move, as explained so if the agent that gave a valuation considers this sufficiently material, they would probably wish to update their valuation.
I see that there is an issue here. No-one can guarantee a house price will not change over 3 months.
I accept if the idea was seriously taken up, this detail would need some further thought but I don’t think it would be impossible to devise something.
BTW: I’m posting a closing comment on the EAT blog but you can reply here if you prefer.
Please note, I’m away from my office for a while so it may take longer than usual to respond.
I’m fairly surprised you are still keen to debate this stuff :-}
I’m even more surprised at your surprise! We are at diametrically opposite positions on this subject, therefore my concerns will not simply go away.
What worries me is your response. You acknowledge that a ‘valuation’ cannot be valid for the period of time YOU stated. You realise that NO-ONE can accurately state what a property WILL be worth in three months from the date of an inspection – yet you went to print with this. SURELY you would have ensured a bullet-proof argument was offered? SURELY you expected someone like me (and there have been MANY…) to challenge your ’solution’ and expose it as unworkable? You state in the main article “This proposal is the only change necessary to correct our faltering housing market.” In your response to me, you state “I accept if the idea was seriously taken up, this detail would need some further thought but I don’t think it would be impossible to devise something.” So – the change needs to change!
Part of your proposal aboves is to have DEAs carry out the initial pricing appraisal: “The best use of the EPC inspectors would be to provide initial house-price guides, in addition to Energy Performance Certificates, for all those planning to sell.” So WHO then becomes liable to buy the property after three months? Agent or DEA? Why a DEA? Most have little or no experience in this matter. Who would a buyer and seller trust more to appraise a property – Estate Agent or White Van Man? You would probably argue the latter – which I quickly warn you would destroy ANY scrap of credibility your proposal may have. Over 60% of the DEAs I have come across cannot accurately measure the depth of insulation in a roof void – so what hope of accurately assessing the value of a property?
You said “Let’s consider the advantages:”
“If agents valued confidently, bench-mark prices (with scope to gently increase) would be reliably established for all usual types of houses and in all locations.” Scope to gently increase? You care to measure that, Mr Hendry? What scale would you put on this? RPI? CoL? Index Linking? WHY should housing be the ONLY commodity that is ’set price’? Especially when it is already controlled by the most important factor – THE AMOUNT THE BUYER IS PREPARED TO PAY!
“Where more than one offer is made on a property, the agents could simply negotiate between the parties (just as they do now) to obtain the best offer for the property.” Best offer? Dutch Auctions? Best & Finals? Contract Races? Also known as ‘How to start off the next price war’. STOP the boom:bust cycle? You are looking to CREATE THE NEXT ONE with THIS offering, Mr Hendry!
“This would be competition, based purely on the value of houses, operating for the the first time ever, in Britain’s housing market.” Sorry? I have no clue whatsoever what you are saying there. Competion for whom or what? With whom or what?
“The situation at present is that highly exaggerated prices are quoted, then there is a lengthy delay before perhaps one unsuspecting buyer comes along. If they need a mortgage, often the building society loan valuation comes in at a considerably lower figure; causing difficulties that sometimes result in the sale falling through altogether.” ALL OPINION! NOT ONE FACT QUOTED. A Mortgage ‘valuation’ is influenced by the Surveyor’s opinion of market trends, as you know. In a rising market there are virtually NO downvaluations. Conversely, if the surveyor believes prices are falling, then the MV will be tailored to suit in order to guard against potential future PII claims. Yet, as you state, a valuation is a snapshot in time – AS IT SHOULD BE, and valuers should have no worry that their work should fall under scrutiny at a later date simply because it suits a purpose. IF valuers did not have pressures both from their own companies & PII providers AND the Lenders, then valuations would be fair and honest. What a pity that you did not champion THIS when you were an RICS Member, instead of fighting to SOLIDIFY it after you retire your status.
You said “The disadvantages? None that I can see.” Now that you have had your eyes opened, Mr Hendry – what can you NOW see?
I look forward to your response.
We may well be voicing diametrically opposite views. What needs to happen is for each to listen, most carefully, to the other and to shift their views as and when appropriate.
As I say, a ‘valuation’ is an assessment, at any given point in time – like a meter reading on an electricity meter.
What I am saying is that estate agents, when giving market appraisals, should produce a figure that can be achieved within the specific period of time required by their client, the seller. That, typically, might be a period of about three months depending on the individual client.
The further thought I am talking about is that estate agents need to produce a market appraisal figure which will to allow them to achieve success within that client’s timescale.
If house prices are seen to be likely to fall during the timescale, agents would be wise to factor this into their appraisal figure. (There is less of a requirement to factor in the converse when prices are rising, because offers themselves will simple reflect this.)
You quote me saying: “This proposal is the only change necessary to correct our faltering housing market.”
Yes, I still think EPC inspectors could perform a useful initial appraisal by giving a guide on the prevailing house prices in the locality, at the time. This would prime the sellers as well as helping estate agents, by providing a rough benchmark (or double-check) on their own more detailed assessments.
Even if the EPC inspectors provide an initial guide, it would be the estate agent giving the actual appraisal that would be liable to purchase any unsold property under the SPC proposals outlined at the beginning.
I’m proposing that EPC inspectors should be used, even though they don’t yet have much experience in giving house price guides because this information would be extremely beneficial to both sellers and to the estate agents having to commit themselves on a market appraisal. Also I believe that EPC inspectors are prepared to re-train.
You quote me saying: “Scope for house prices to gently increase.”
This would be, as it should be, based on increasing buyers’ wealth (but only if and when this materialises).
If asking prices were all based on good market evidence and predictions, in a rising market several offers over the asking price might be received.
This would naturally lead to higher EPC inspector’s guide prices based on the new evidence for subsequent sales and similarly higher estate agent’s appraisals; but only when there was proper evidence for it. Increases would be purely market led – not pegged to any sort of index.
As you quite rightly say, the prices paid must always depend upon what a buyer is prepared to offer.
I see taking offers on houses being sold, and advising the seller, is one of the primary functions of an estate agent. This should be a main function of any good estate agent. This does not mean ‘price wars’, as you put it. It means straight dealing and honest negotiating by agents – for sellers.
Because I left RICS, being disappointed with how little they seemed to be doing to improve house marketing, and because those in the NAEA that I have corresponded with seem to be similarly slow to see the improvements needed, I am championing this cause here instead! What’s wrong with that?
I hope this gives you some deeper understanding of my strong views on this. I also hope that you and your colleagues may be prepared to listen and consider bringing in such improvements as ultimately, may be agreed as beneficial.
It may interest you to know that I am currently involved in a sale and purchase using estate agents (where I would be one of the purchasers) and that much of what I am saying here is being utterly vindicated during the course of this particular transaction. I am not therefore working merely on an academic level. My research is actual.
Mr Hendry.
Firstly (and of course totally expectedly…) I am going to disagree with you. Get it out of the way, so as to speak…
You state “As I say, a ‘valuation’ is an assessment, at any given point in time – like a meter reading on an electricity meter.” Not a good analogy, I am afraid. A meter reading is a tangible thing; it can be proven to be correct. A valuation is an assessment. I acknowledge that it is an assessment based upon factors which can be proven; nevertheless it is an interpretation of these factors and as such is an individuals’ opinion. An estimated reading, in fact.
You state “I see taking offers on houses being sold, and advising the seller, is one of the primary functions of an estate agent. This should be a main function of any good estate agent. This does not mean ‘price wars’, as you put it. It means straight dealing and honest negotiating by agents – for sellers.” This is incorrect. You take a phrase from one topic and move it to another. I FULLY AGREE with you that one of – if not THE the main reason for appointing an Agent is to deal with offers received. No-one should be better equipped to do so. I was referring to you stating that multiple offers could/would be received when adopting your SPS technique. Because the ‘Asking Price’ would be artificially low (the Agent being required to purchase at the AP figure will guarantee that to be the case…), then offers would invariably come in at higher than the stated Asking Price. Hence me saying that a bidding war would ensue – heralding the next boom for sure.
“Because I left RICS, being disappointed with how little they seemed to be doing to improve house marketing, and because those in the NAEA that I have corresponded with seem to be similarly slow to see the improvements needed, I am championing this cause here instead! What’s wrong with that?” Nothing – but it is easier to bring about change from within than outside – hence my comment. I have previously stated that your ideas are too radical for these bodies to consider adopting – this is still the case I believe, however less radical theories could be seen as improvements to be worked upon.
You have previously stated that I strongly resist change. I disagree entirely – although I agree that I have vehemently opposed YOUR plans for change. And I believe for good reasons – which I have made no secret about. A recent idea put forward on the EAT site from one of the Housepricecrash members in fact was the most sensible offering I have seen in years and I said as such. You may or may not have seen it – I recommend you do. What a pity that he is not of the industry, and the industry need to be shown the way by an outsider…
There – having got those over and done with – now to the interesting bit.
You state above “What I am saying is that estate agents, when giving market appraisals, should produce a figure that can be achieved within the specific period of time required by their client, the seller.” You may not have noticed this – but I have NEVER disagreed with you on this point. Far from it, actually.
When practicing as a Residential Estate Agent, between 1992 and 2007, that was EXACTLY the advice I gave. I would NEVER ask a vendor what they wanted; nor would I tell one what they wanted to hear. Yes, I lost some instructions to other Agents for my honesty – but in the main vendors were appreciative of the truth.
You will note that a significant part of that period covered the last downturn. I was employed by a corporate at that particular time, by the way – and the corporate emphasis was on numbers. MY emphasis was on sales and prices. Without sensible prices, sales simply do not flow. You waste money (and resource) on instructions that are going nowhere. So you need to list more to sell more, and more fall by the wayside – and the vicious circle grows.
You will laugh when you read the following – at least, I hope you do. Many times, prospective vendors hit me with the old “But XYZ Agent has ‘valued’ my property higher than you”. My response was always “If they – and you – are so confident that they can achieve that figure then you would be foolish to market through my company. I take it they will back up their ‘valuation’ in writing and guarantee you that figure?”
Needless to say, the answer never came back ‘yes’ – although quite a few asked the question to very embarrassed Agents… ;o)
My opinion has not changed – has not HAD TO change – on the fact that property priced correctly will sell, in any market. I also firmly believe, however, that even CORRECTLY priced properties are being affected by the ridiculous market antihype which is being produced today in all the media – and I am afraid that your writings fall into right this category, which is why we are essentially at loggerheads. In your postings both here and on EAT; on your Twitter and Facebook pages; on your property website, you make NO ALLOWANCES for the fact that a significant proportion of properties on the market ARE priced within sensible range of their worth to buyers.
You simply tar EVERY property (and, by absurd virtue, all those listed on your site…); EVERY Agent, with the same brush. This is fundamentally wrong and I will never back down from that stance. The fact that tens of thousands of properties are still selling EVERY MONTH attests to this. They are selling; valuers are valuing them – and buyers are completing on them. If your ideas were so right, then none of this would be happening. Yes, volumes are down; yes, many still cannot afford to buy what they want, where they want it – but there is NO divine right to house purchase. Never has been – although the eighties and nineties saw a huge swing in this regard – 82-year old women buying their council houses with mortgages for heavens’ sakes – but it was unsustainable.
Your parents came from a generation where home ownership was not the norm – so did mine. It certainly wasn’t a need or a requirement – nor need it be today. There will always be a proportion of the population for which home ownership will be impossible – so we cannot and should not attempt to bring this about. And I speak as a father to two sons who would DEARLY love to buy their own properties, but fall into the group I refer to above, where affordability is just out of arms’ reach. Maybe one day they will. Maybe not. Naturally, I hope so – however it would be totally wrong of me to attempt to influence a whole market simply so that my family may benefit.
One thing for certain – you and I arguing the toss will not make it happen, Mr Hendry. However, what should come out of this is you may now see that our opinions are NOT as diverse as you assumed.
So – where do we go from here…? Agree to continue to disagree? Or do I sense there is there somewhere else – a mid-point, maybe…?
Actually I don’t disagree with your assessment of what a valuation is.
To answer your several concerns though, I propose that we take them in smaller bites because this whole ‘elephant’ of what we are talking about is a big and pretty wild beast to describe fully, or all at once. Can we agree to take your concerns one by one and examine them in the order that you are presenting them? I’d be happy with that (subject to certain time pressures from other directions it should be said).
A valuation is certainly an estimate of the price a house should achieve in the currently market.
Houses should be valued using two distinct components. The site or its location being one, the amount and quality of construction being the second. Although this sounds like doing a contractor’s assessment it is in fact calculated using sales comparables but we won’t go into that right now. You’ll probably agree that is for another discussion.
I would also argue it is the buyer that generates the price being paid, so inclusive in any valuation there also has to be a method of measuring average buyer-wealth too, and to disconnect buyer wealth from buyer-borrowing, merely to apparently increase that wealth.
This is taking things to a yet another level, of course, and may overcomplicate the discussion we are having here, so having said that buyer wealth measurement is probably best left for a future part of what has necessarily already been a lengthy dialogue on EAT.
House valuations are made in a scientific, or mathematical way similar to the way an estimator decides how much his building company should quote to provide a building extension or even a complete house. In the latter case an estimator adds together the cost of all the required materials (including specialist fittings and finishes required). They then calculate, pretty accurately, the number of man-hours needed to build the project. They then add for acceptable profit and arrive at the quote to be tendered.
In house valuation, similarly detailed methods are used to arrive at the value of a house in the current market. Unfortunately most estate agents simply have no idea that this, is even a possibility.
The idea of doing it by ‘gut’ reaction by comparison, is quite frankly ludicrous. The difference between the two figures arrived at is bound to be large and significant.
The ‘gut’ reaction figure (even if given by an ‘experienced’ estate agent) would be a far inferior assessment.
By comparison with my methods, such a ‘valuation’ would be utter rubbish. A finger in the air, would probably do as well.
Of course, those that can’t see there is a problem with the current market appraisal methods won’t see that there is a need for a better method of house price valuation either.
I’m not wishing to be unkind but you are probably one of many living in that camp, the camp of NO Change. I’m hoping to get you to move to my camp, the camp of Great Change.
========
What I am saying is that the way the market undershoots and overshoots needs calming.
If you don’t believe me just hop over to Hong Kong right now. There, free market behaviour has gone wild currently, and many of those living and working in the city are complaining they’ve been unable to buy because of property investment speculators, forcing prices up to crazy levels, unaffordable even, by the very people who keep the place trading.
I’m saying this situation would be ‘unhelpful’ for an island economy like ours, were it allowed to happen (again) here.
To avoid this happening again here, not only do valuation methods, or ways to forecast prices in the housing market, need improving, but also those operating in the market need to be prepared to avail themselves of such technology if we are to avoid another massive boom / bust scenario developing by the time the next generation of home occupiers come into being.
This is a very BIG subject, and I guess it could only be discussed meaningfully if we all understood this from the outset and worked on discussing it in logical sections, rather than wholesale?
I say it’s worthwhile to change house marketing in just the same way that the PM now thinks it’s worthwhile to ask an expert like Mary Portas to advise on ways to avoid the further demise of the UK shopping High Street. Clearly, just allowing market forces to operate here is not going to work either. Something has to be done, that’s the job of Government.
To illustrate my point, in the UK property market, here is an actual example:
I am currently dealing with a house purchase situation, for a specific purchaser who shall be nameless.
The vendor (and their agent) originally marketed the house at £300,000 last October and the seller had originally hoped to have moved by the end of the year.
No offers materialised for over 6 months.
When no early offer came in during the spring 2011 uptake either, the owner reluctantly agreed to drop the price by £25,000!
The new price became £275,000.
The estate agent had been saying, correctly, that buyers might pay £270,000 or more for a house worth enough, or £250,000 and below for another house worth less, but that because of the stamp duty thresholds, buyers are unlikely to pay a sum between the two. Fair enough?
The owner felt the house should be worth £300,000 (certainly more the £270,000), but later admitted to the agents that if this was not the case the lowest price they might be prepared to take, would be £265,000.
Now in this particular case, in this particular market, my considered valuation, advising a purchaser, was actually £240,000.
This illustrates the market appraisal problem graphically!
The difference between the original asking price (involving the agent in four months worth of intensive but abortive marketing admittedly over the winter), and my valuation is no less that £60,000. That’s 20%.
My supposition is that had the vendor marketed at say £250,000 last autumn, they would probably have sold.
The time they spent trying for an unobtainable asking price was, simply wasted.
Even if I had been wrong by approx.10%, in my valuation, interest from various prospective purchasers could have resulted in an offer approaching £265,000.
In fact that is the offer that materialised .
The point I am making is that if the initial asking price had been offers over say £250,000 (despite the stamp duty threshold) a sale would have been agreed much faster and offers over the asking price would have amounted to £265,000. This would have been a far more efficient way to have transacted this particular sale. Multiply this by the millions of sales current y pending and you get some idea of the scale and scope of the improvements needed in doing market appraisals.
My valuation of £240,000 should have persuaded the seller to set an asking price of offers over £250,000, or even ask £270,000 and hope to negotiate down.
£300,000 was simply unobtainable, and much time was wasted in the process of discovering that. Nevertheless, the agents printed the details at that level.
“I think we had better stop here and see if that are any points needing further debate on what I have just said here, before we go on the the rest of your queries.”