January 2012 - Property Match (UK) blog:

Changing the way prices are negotiated on house sales and purchases

Jan 112012

This is about changing the way prices are negotiated on house sales and purchases, in order to reduce cyclical market stagnation.

Having researched the difficulties in housing market transactions taking place over successive booms, I’ve come up with a better way for agents to handle offers received from prospective purchasers. In my opinion, it should be made a requirement for agents to adopt this new method for dealing with all offers, in an effort to stabilise the housing market, and thus bring increased growth and prosperity to the country. Coalition Government please take note.

Instead of taking instructions from their client to accept an offer, which implicitly includes withdrawing the property from the market, agents should do the following.

The vendor should be advised to say “We accept your offer, but instead of taking the property off the market,” say “but until you are ready to actually exchange a contract to purchase, we need to carry on advertising the house as being still available; though we are happy to mark it ‘currently under offer‘.”

Since HIPs were abandoned, the estate agent should be saying (on behalf of the vendor):
“You should aim to exchange contracts as soon as you are able to complete your legal work, including getting a survey right away, if at all possible (and if required), in order to satisfy yourself that you are happy with the condition of the house.”

“Once you have exchanged contracts the house will be removed from the market or alternatively marked as ‘Sold (subject to contract)’.
On completion of the sale, the house will be described as having been sold.”

“Whilst accepting the offer, the vendor agrees to arrange for their solicitor to send the contract for sale to the prospective purchaser but on the understanding that the purchaser undertakes to return this to them, should they at any time up until exchange decide to request this.”

The effect of this new method would be that the acceptance of an offer means the prospective buyers are being accepted by the vendor as the preferred buyers and that they are only ones the vendor’s solicitors will deal with at the present time. In effect, the prospective purchaser would have the option to exchange contracts to purchase the property, right up until the point when the vendor decides to discontinue and requests the return of the contract.

Firstly, this would not be gazanging, because it would not be withdrawing as a result of a change of heart about selling. The vendor would normally only do this if a higher offer was made and preferred, subsequently.

Secondly, this new method should also substantially reduce gazundering in falling market conditions by encouraging buyers to progress to exchange more quickly than tends to happen currently. A problem frequently seen in these conditions is that buyers may put in offers on multiple properties whilst intending to proceed with only one of them. This, together with the time bought by getting each house taken off the market, is what usually drives the gazundering strategy of some buyers. This needs to be eliminated from the sales transaction process, and these new proposals would help to accomplish this.

Thirdly, the new strategy works to reduce the likelihood of gazumping as the onus would be with the prospective buyer to get on and purchase. Should they fail to move towards being ready to exchange contracts, of course, the vendor ought to be perfectly entitled to discuss better prospects and receive such better offers as there may be in the market. If ultimately, the vendor should decide to accept another higher offer, this would clearly be as a result of a rising market but the first buyer would usually still have the option of buying, assuming they could do so in the quickest timescale.

For the above reasons, the idea that a purchaser ought to insist that the house is taken off the market as a condition of the offer, is just a poor attempt at placing an anti-gazumping safeguard in place by that purchaser and an attempt to gain more time to effect the purchase. In fact this should be discouraged because it actually encourages gazundering, for the reasons explained earlier.

In all these examples however, it’s the agents responsibility to check the ability of the buyer to secure the required funds to conclude the purchase, as well as do the legally required money laundering checks, well in advance of the agent recommending any offer to their client for actual acceptance. Sadly, this is not always done by them currently.

Better alternative ideas to be submitted please, in the interests of ‘democracy’ itself!

Definitions by Phil Spencer (requiring updating please):
gazumping, gazundering and gazanging:
For more info, see also: in-deed conveyancing. “We make the legal side simple”.
We have invited them to comment on this new idea of ours and are happy to update readers about their views about this.

See also: The Correct Way To Craft Asking Prices.
Posted by: Peter Hendry, Consultant in Housing Valuation at Property Match (UK).

Why have prices remained almost static whilst sales have dropped to a trickle?

Jan 112012

The answer has to be Price, Price, Price. Quoting the correct price when marketing a house, is the key. This cannot be happening – but why?

Possibly the worst position estate agents could ever find themselves in, is having to do accurate house valuations instantly – on the hoof, having just viewed the house themselves (for a quarter of an hour or so) – and without getting paid anything until the house might be sold by them!

Well guess what; that’s exactly the position that estate agents have got themselves into, simply by trying to out-compete with other agents to win the sales instructions needed for their individual businesses to keep on growing.

Owing to this problem, the present method of doing market appraisals by estate agents has resulted in the majority of houses not being ‘valued’ accurately enough. This has resulted in there being no clear ‘tone’ of value across current asking prices these days. In other words, asking prices are all over the place. The effect of this is that both buyers and sellers have become confused and apprehensive.

It’s long been known that asking the wrong price can actually put viewers off a house, from the very start. Testing the market with a hefty price at the beginning of a marketing campaign is therefore the worst possible thing that anyone could be advised to do but unfortunately, too many people are being advised (or think it might be ok) to do exactly this.

Even mortgage valuers, who are required to corroborate the resulting prices, agreed subject to mortgage, are generally able to reflect a little, and do some specific research in the office, before deciding whether the figure agreed upon is within ‘the range’ – or not.

It’s ‘range’ rather than price because there is no ‘exact’ figure which can be applied to any particular house. Instead there is only a range of prices within which a house should attract buyers in the current market, without the need for grossly excessive borrowing in order for buyers to be able to do so.

To sell efficiently, a house needs to be priced within the range-of-prices that currently apply to it. My view is that this isn’t happening in far too many cases. It is this that is largely responsible for the decline in the volume of completed sales and not the downturn in the economy per se. People still want to move house, even in a downturn. It’s just the confusing and varied levels of asking prices that are hampering them from achieving this.

It’s generally accepted that the most important aspects that affect the market price of a house are location, type, size of property and condition or quality of build.

Well I don’t know of any surveyor who could reliably assess all four of these criteria within a quarter of an hour’s visit – and do this correctly every time. There is therefore little or no chance that an estate agent could do this either.

Don’t forget, they also have to take into account all the arguments being put forward by the owner as to how much the house should be sold for, and they must appease the owner to get the instruction to begin with! It’s now obvious that we’re asking too much of our agents these days. For anyone to to try and argue that there’s nothing going wrong in the housing market, would clearly be to shoot oneself in the proverbial foot.

No; the problem is purely agent-created as explained above and what’s worse, there’s no-one actually doing anything to help them resolve the matter either.
[First published 11 Jan 2012 on EstateAgentToday. See article and comments. Not released here until 14th Jan 12.]

The damage that is being done to the UK’s national economy as a direct result of this deficiency is, unfortunately, both massive and increasing. The problem ought therefore, to be taken up by our government as a matter of the highest priority.

At Property Match (UK), we are taking a fresh look at how houses are priced and marketed by allowing individual owners to have more input about this. We strongly believe that they are just as capable of doing this as estate agents, many of whom do not know the area as well, nor the prices that have actually been achieved in the vicinity. No estate agent can know a house as well as the owner must after just a short, often cursory, inspection. Therefore, to better the housing economy, it’s just a case of helping an owner to describe and market their house at least as effectively as the average estate agent could do so.

Peter says “The government has been too ‘hands-off’ when it comes to monitoring how well estate agents progress house sales in the past, and this has resulted in the severe price imbalances that we now see.”

Peter is therefore urging ministers to review their approach and take a stronger leadership role, to get the housing market ‘motoring‘, once again.

The coalition government should take note of this and take swift action to help restore balance in the floundering UK housing economy. For example, it would be no good simply running a national TV advertising campaign, advising people what to do if they fail to be able to move house owing to the current housing market imbalances. Instead, a pro-active approach needs to be taken to get things moving again and to achieve this, appropriate measures need to be put into place swiftly.

Peter Hendry is the current Web Site Manager of Property Match (UK). He has practiced as a surveyor for over 30 years and worked for some years in estate agency himself but has since retired from 9-5 work, as such.

Property Match (UK) is able to list houses online for sale and to let by both agents and by owners direct. Peter does not consider himself ‘anti-agent’ but, at the same time, is passionate about seeking new ways to improve the stagnating housing market itself.

Posted by: The Correct Way To Craft Asking Prices: Peter Hendry, Consultant in Housing Valuation