RealisingReality

Dec 052013
 

Published Dec 5th 3013. (Last amended, by ph, on 22nd May 14.)

Comment on the content of The Chancellor of the Exchequer’s Autumn Statement to Parliament; 5th December, 2013, specifically relating to housing.

HEADING: The Hendry Solution: (for smoothing out housing market peaks and troughs)

When our Chancellor says he wants a ‘functional’ housing market, to most people this would presuppose that, currently, he doesn’t think the housing market is particularly ‘functional’. I would wholeheartedly agree.

How then can we make it ‘functional’?

There IS a better and quicker way, besides that of building more houses, which by any degree of estimation, must take nearer 10 years than 1 to be implemented.

It is essentially about engaging one single estate agent to ‘find’ your next house, negotiate the best terms AND sell your present house too! This is a simple but profoundly important proposal.
By doing that, parity between what you pay and what you get for your existing house should be maintained and also, gazumping should be practically eliminated.

The housing market needs improvement and the best way to accomplish this is to agitate for a complete new breed of estate agent.

Let’s call them, as an initial idea, “Incorporated Estate Agents“, (unless someone can think of a better name).

The main job of the new agent should be not only to sell clients houses but also to ‘find and secure’ their client the house they are seeking for themselves and their families.

How?
Agents ‘Moving Contracts’ or ‘MC agreements’ should replace traditional ‘Selling Contracts’. This would be a simple but a game-changing improvement.

The proposal is that we should do away with old estate agents’ sole selling contracts altogether and bring in estate agents’ ‘MC agreements’, where each estate agent engaged would be contracted to facilitate a vendor’s complete move from one property to another.  The aim of this is to bring greater satisfaction to all those in the throes of moving house and to get the whole UK housing market operating far more smoothly – in all possible economic conditions and, it should be said, without the need for government-backed mortgage guarantees for those needing to get onto the first rung of the housing ladder either.

We also claim that our method would help to stabilise house-prices across all regions, instead of tending to make them rise in some areas and not in others. That alone would be a very valuable market improvement.

In addition, estate agents would be more empowered by becoming more responsible for ‘the progress’ of sales of properties across the whole UK (and would gain more control of the volume (or lack of volume) of house sales completions.

And yes, I would expect this proposal could work against our own private sales/online business venture at Property Match UK, but if this is what the housing market really needs, my first allegiance is to try and help to improve the market for everyone - and not just think of our own business venture.

The current government’s plan to increase the availability of mortgages, especially for people starting to become house owners cannot be the right approach. As has patently been seen in the past, it will merely result in higher prices; which is the very thing that people simply do not need currently.

[As an aside, if and when government mortgage guarantees should no longer be available, market prices would be adversely affected and prices would have to suffer the symptoms of withdrawal. There is no other exit strategy.]


A condensed description of the new ‘Incorporated Estate Agent’ strategy:

In order to become more even-handed in their dealings, and so be of better service to all of their clients, estate agents must start acting both for buyers and sellers, instead of only for sellers or vendors.

This means estate agents would need to be involved in searching for and introducing the present seller to their next property as well.

To do this the forward purchaser’s agent would become the agent that negotiates both the terms of purchase of the next property and the terms of sale of the house to be sold as part of the move. We’re calling these ‘Incorporated Estate Agents’ (or finding agents) in this explanation.

In order for this to happen, estate agents must stop using sole selling contracts and begin offering agency ‘Moving Contracts’ or ‘MC agreements’ for their clients instead.

This would mean that the primary work of the estate agent would become to locate and then introduce acceptable houses for each buying client, whilst at the same time, retain responsibility for negotiating the sale of the client’s existing property - the one to be disposed of as part of the proposed move. One thing this solution will do is to massively reduce the rate of sales chain failures.

To explain how this would work in practice, let’s use the term ‘the subject property’ to mean the house being sold, and the term ‘the object-property’ to mean the house to be purchased.

Two new documents would be involved with this new process :
An ‘MC agreement’ entered into by buyers initially just with one agent; or a series of ‘MC agreements’ with different agents (instead of just having a ‘sole agency selling contract’ with one agent as generally happens now).

A pre-contract ‘lock-out agreement’ with a set time duration, during which the vendor of ‘the object-property’ could not accept other offers until the specified lapse-time occurs without incurring defined penalties. These would primarily be aimed at the vendor if they should default without just cause, but some form of recompense, payable to the vendor, ought also to be reserved in the event that the buyer was the party that decided to withdraw prior to exchange of contracts.

Clearly, all buyers would be advised to ensure that satisfactory property surveys have been carried on the object properties being bought before signing a lock-out agreement or even a further MC agreement. Having a survey is normally advised for most types of residential property being purchased anyway.

Once the whole scenario is reasonably well understood, these new methods should prove to be self explanatory and quite easy to follow!

Firstly: - let’s look at the new scenario from the point of view of the person selling their existing house, ‘the subject property’.

The parties to the ‘lock-out agreement’ would be: -
Vendor 1 (the vendor of the property currently being sold)
Buyer 1
+ Buyer 1’s ‘finding agent’ (who would get paid on simultaneous completion of the sale and purchase, by buyer 1 via their solicitors)

 

Secondly: - let’s look at the new scenario from the point of view of the person buying their next house, ‘the object-property’.

The parties to the ‘lock-out agreement’ would be: -
Vendor 2
Buyer 2 (i.e. vendor 1, the owner of the subject property as above)
+ Buyer 2’s ‘finding agent’ (who would get paid on simultaneous completion by buyer 2 via their solicitors)

NB. No selling agent fees are involved anymore in either case.

In each case, it should be noted, the ‘finding’ or Incorporated Estate Agent is paid on completion by the buyer (instead of by the seller as happens now).
Whichever agent was working on the ‘sale’ of each property, they would be informed when to stop marketing by the vendor at the appropriate time (as happens currently).

Here is a more detailed description of the new ‘Incorporated Estate Agent’ strategy: (for those interested)
Firstly from the vendor’s viewpoint:
A. Under the Moving Contract or ‘MC agreement’, the estate agent would act for vendors (as now), but instead of merely being a selling agent, would act primarily as their buying agent.  In other words, the same agent would find them their next house, ‘the object-property’, negotiate the best terms with that property vendor’s agent (whether that agent has an ‘MC agreement’ or not), and also sell their existing house.

As a follow-up but unlike the existing arrangements, the estate agent with an ‘MC agreement’, acting for the buyer, would request ‘the object-property’ vendor to instruct their solicitors to sell their property to buyer 1.

At the same time a three-way pre-contract agreement called a ‘lock-out agreement’ would be signed, the parties being as mentioned above.

The basis of the agreement which would be legally enforceable would provide for a set lock-out time, during which the forward vendor (i.e. the seller of the property in question ‘the object-property’) would not continue marketing the property or show any more viewers around it and agree not to accept any other offers prior to an ‘exchange of contracts’ with the named buyers, providing that this occurs within the agreed time limit. If the terms of the agreement were broken, the party disadvantaged may seek to claim the sum set down in the agreement by way of damages or compensation.

In addition to bringing more certainty in concluding negotiations between the parties, the effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time. One thing this solution will also do is to massively reduce the rate of sales chain failures.

[N.B. If the agent which happened to secure the best deal for the vendor, both for the sale of their existing property and the purchase of their preferred next property did not already have an ‘MC agreement’ with that particular client at the time, one could be signed retrospectively, or in other words at the same time as the lock-out agreement was to be signed by ‘the object-property’ owners; and this would effectively over-ride all other ‘MC agreements’ in the same way that a last Will and Testament over-rides all prior wills.]

B. If an existing, or alternatively a new agent were to obtain an offer involving a higher price on ‘the object-property’ - acceptance of this would become subject to the expiration of the pre-contract lock-out agreement and would merely give the existing buyer of the house in question, added impetus to make sure that a legal contract for the sale of land and buildings was concluded as swiftly as they could do so and within the lock-out timescale. There should be penalties specified in the agreement aimed primarily at the vendor of ‘the object-property’, if they should default without just cause but also in respect of the purchasers. However the opportunity to default if either party wished to would remain, as no contract for the sale of land would yet be in place.

C. In the event that the lock-out time period was unavoidably exceeded or formal contracts for sale were not exchanged in time, the pre-contract lock-out agreement would expire, or lapse.

The owner of ‘the object-property’ could, of course, then carry on using their existing agent, and/or instruct more agents, by using ‘MC agreements’, both to find them their next house and sell their existing one - which was the subject of the abortive sale.

The vendor of ‘the subject property’ however, (i.e. the buyer whose lock-out agreement has just lapsed), may simply carry on with their search for another suitable property, again using their existing agent via an ‘MC agreement’, or signing up with additional agents using more ‘MC agreements’ if this should be deemed necessary.

It should perhaps be explained here that existing estate agents with traditional selling contracts would, in the interim period and while these new procedures became fully accepted, slightly confuse the picture until sufficient numbers of estate agents began offering this new service. For this reason a consensus in favour of the necessary change, including Government legislation confirming this would be needed.

 

Secondly looking at this from the buyer’s viewpoint:
1. An estate agent with an ‘MC agreement’ would initially be commissioned by a vendor as above, both to find that particular buyer their next house, ‘the object-property’ and negotiate the best terms they can on that purchase, as well as conclude the sale of their existing house (if any).  Once ready, the relevant agent (or the agent offering the buyer the best overall terms), would request the forward vendor to instruct their solicitors on the terms agreed for sale, as in ‘A’ above.

The successful ‘Incorporated Estate Agent’ would be paid on completion of the combined sale of the purchaser’s existing house and the legal completion of the house being bought, ‘the object-property’, using similar machinery as currently exists with conveyancers.

A pre-contract lock-out agreement, as explained in the vendor’s example above, would be signed again by ‘the object-property’ vendors, the buyer, and their ‘finding’ or Incorporated Estate Agent.

As already explained above, this would simply provide for a set lock-out time during which the forward vendor (i.e. the seller of ‘the object-property’) would agree not to continue marketing the property or show any more viewers around it and would agree not to accept any other offers prior to exchange of contracts with the named buyers, provided that this occurs within an agreed time limit. However, as previously explained, there would remain the opportunity to default if either party wished to, as no contract for the sale of land would yet be in place.

As explained above, the primary effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time, by formalising the terms provisionally agreed between the parties which would be an extremely valuable addition.

In other words, unlike existing ‘selling agents’, the estate agent with an ‘MC agreement’ would be primarily helping the buyer to find their ‘object-property’, and would assume responsibility for both transactions, but importantly, they may also sub-contract out the sale of the existing house to other agents if this should prove to be necessary, e.g. where the agent concerned is not active in the area in which the existing property is being sold.

This would mean that the active estate agent with an ‘MC agreement’ would have had to have found a buyer for the house being sold (‘the subject property’) before they could conclude a deal for the forward purchase ‘the object-property’. This, of course, should happen in the normal course of events, in most cases, anyway.

2. Again, if any other agent should attempt to contact the owner, or the owner’s ‘finding agent’ handling the purchase of ‘the object-property’ with a different offer worth considering, they would be told the house is currently sold, (subject to contract), of course. An agreed pre-contract lock-out agreement with a set time duration would be running, such that the vendor of ‘the object-property’ could not accept other offers prior to exchange of contracts. As already explained this is designed to stop, or substantially reduce, the occurrence of gazumping within the agreed time-scale but would not be an actual contract for the sale of land so would be straightforward to have executed.

As a result, any new estate agent (even one with an ‘MC agreement’), may still offer a higher price - making the offer subject to the expiration of the existing lock-out agreement. Again, this would merely give the existing buyer more impetus to make sure a legal contract for the sale of land and buildings to them was concluded as swiftly as they could do that.

3. In the event that the time was exceeded and the lock-out period expired or lapsed, ANY estate agent may then legitimately try and finalise acceptance of a new offer and if they did so, new terms with new people would then be substituted. Under these circumstances it is easy to see why having an effective lock-out agreement would help the performance of the housing market as a whole, primarily by setting down agreed time-scales for the progression of conveyancing under the terms of the offer.

Assuming the new introducing agent was working for a different or prospective buyer but still via an ‘MC agreement’, then again a new pre-contract lock-out agreement having a new lock-out time provision would be executed with the new purchasers (to replace the expired one).

Obviously in these circumstances the earlier purchaser would, by that time, have lost their rights to conclude a purchase of that particular property.

To clarify the procedures for ‘lock-out agreements’ once again:
Where it’s ‘the subject property’ being sold first (as is normal), the parties to the lock-out agreement would be:
a) Vendor 1. The owner of ‘the subject property
b) Buyer 1
c) Buyer 1’s ‘finding agent’ (who would get paid on simultaneous completion of the sale and purchase, by buyer 1 via their solicitors)

If it’s ‘the object-property‘ being bought, the parties to the lock-out agreement would be:
d) Again the owner of the property being sold (vendor 2 in this case)
e) Buyer 2 (i.e. vendor 1, the owner of the subject property as above)
f) Buyer 2’s ‘finding agent’ (if any) (who would get paid on simultaneous completion by buyer 2 via their solicitors)

NB. No selling agent fees are involved anymore in either case.

In each case, it should be noted, the ‘finding’ or Incorporated Estate Agent is paid on completion by the buyer (instead of by the seller as happens now).
The agent which was working on the ‘sale’ of each property would be told when to stop marketing by the vendor at the appropriate time (as happens currently).

In essence this means that the agent doing the selling only has to market ‘the subject property’.
After a buyer is found, it’s the buyers agent that would do the ongoing work, including managing each purchase through to completion - instead of the selling agent as at present.

The Effects:
In the above situation it is then possible for the ‘failed’ buyer to conclude a deal to buy a different house using either the same (or a different) ‘finding agent(s)’ using ‘MC agreements’ with whomsoever they appoint as agents.
Flexibility for each buyer is thus is significantly increased.

Once terms have been provisionally agreed on a different ‘object-property’, and they have a purchaser for their own house, they could again arrange for a pre-contract lock-out agreement to be executed for that property.

This new method of securing an offer on a house should mean increased choices becoming available for buyers, because each buyer would have increased access to more estate agents helping them to find suitable properties.

It would also enable buyers to make final decisions based on the very best opportunities currently available, both in regard to the selling of their existing house and in regard to the purchase of their preferred next house. As just explained, this would be accomplished by enabling buyers (if they should think it necessary) to appoint multiple estate agents to work for them in their search for the property that best suits their requirements.

By freeing up buyers in this way, the housing market would start functioning more like a perfect market than it has in the past. This would be of considerable advantage to all the players involved - both business-wise, and by increasing the choice of property for buyers.

Essentially, the only thing that an estate agent would not be able to do, using ‘MC agreements’, would be to act solely for a vendor of course, and this is the primary change which I advocate should now happen.

I accept that this might well need the government of the day to give it their backing, if (and as is most likely) estate agents are reluctant to make such a change themselves. It should be stressed however, that the advantages for estate agents would seem to me, patently to outweigh the disadvantages by some considerable measure.

[As an aside, there would need to be a retained flexibility for those vendors without any forward purchasing intentions to sell without having to use a new ‘MC agreement’ and instead merely use an estate agent as their selling agent - as happens at present. However for this to work, there would need to be a provision in agency law that if a later ‘MC agreement’ were signed by the same client it would take precedence over a traditional sole or multiple agency selling contract and that the latter would be superseded by the former.]

Unlike the plan to build large numbers of houses very quickly, which is doomed to fail in the short-term because of the logistics of building them, this improvement to the way in which the housing market functions could be made very swiftly indeed.


TV programs such as BBC 1 Panorama’s ‘The Great House Price Bubble?‘ investigating the pros and cons of ‘Help To Buy’ mortgage guarantees, screened on Monday 11th Nov. at 2030hrs, and Channel 4’s Dispatches ‘The Property Market Undercover’ the week before, have recently investigated the current situation and found continuing serious misfeasances in the way that houses are sold. Since we are still in the aftermath of the worst financial crash since the 30’s it’s only right that something fundamental and of significance should be done to change and improve the operation of the housing market.

But why?
Let’s look at the following extracts in the news recently:

Seen 11 Nov 13:
www.estateagenttoday.co.uk/news_features/House-prices-in-astonishing-leap-across-country-claim

Seen 14 Oct 13:
www.estateagenttoday.co.uk/news_features/Brian-Murphy-Blog
“In the period 1997 to 2007 significantly more than a million housing transactions took place each year in England & Wales. In the period 2008 to 2012 the number of transactions has not been above 662,000 with numbers averaging 640,000 over the last five years.”
These numbers quite clearly demonstrate how constrained the market has become, with many would-be borrowers citing the inability to save the level of deposit required by lenders as their primary reason for not entering the property market.

What could existing estate agents do better?
Lots of things - and they need to; before they even consider becoming new, and improved “Incorporated Estate Agents”.

For a glimpse of some of the current and ongoing problems associated with traditional estate agency, please see the following links, which will open in a new tab or window. These would all be resolved by using ‘MC agreements’.

communicate your way to faster completions - recent pdf on estateagenttoday.

Also seen Fri 11th Oct:
www.thetimes.co.uk
Chris Leslie, Shadow Chief Secretary to the Treasury, said: “If ministers are serious about helping first-time buyers, they should bring forward investment to build more affordable homes.
“Rising demand for housing must be matched with rising supply, but under this Government house-building is at its lowest level since the 1920s.
“Unless George Osborne acts now to build more affordable homes, as we have urged, then soaring prices risk making it even harder for first-time buyers to get on the housing ladder. You can’t tackle the cost of living crisis without building more homes.
“Rather than waiting a year, the Bank of England should immediately review the details of the scheme. How can it make sense that a policy which should be about helping first-time buyers will allow taxpayer-backed mortgages for homes worth up to £600,000?
“And we need to know how much the Treasury intends to pocket in fees from people who take out Help to Buy mortgages. How will this money be accounted for in the public finances? George Osborne shouldn’t make struggling first-time buyers pay over the odds as he desperately tries to fill the hole in his failed deficit plan.”

So, what should now be done?
Recognise that there are problems with the hue and cry to build more houses, faster. The problems are twofold.
Firstly, as we all know, to build substantial numbers of houses takes time. This needs ‘forward’ planning. It simply cannot be done in an instant, or even in a year!

Secondly, however many houses are quickly built, they will only form a tiny percentage of the total number of houses already available and so can only have a tiny affect by lowering the prices paid for them.

Instead, the way to improve the market and in so doing, get fair prices for all is to change ‘the way’ houses are currently marketed by improving current methods.
The methods used by estate agents nowadays, have been used for several decades, without change, and understandably now need a radical shake-up.

Unlike the plan to build large numbers of houses very quickly, this could be done very swiftly.

I forecast that by replacing traditional estate agents’ selling contracts with MCs, the housing market would quickly start recovering and the direct result of this would be, more builders starting to build more houses, as there would then be a ready market for them.

Some More Recent Quotes:
housing-minister-role-is-relegated-to-a-junior
Richard Lambert, chief executive officer of the National Landlords Association, said amount other things:

“It is extremely disappointing to see The Coalition reduce the significance of housing within Government. Given the significant challenges facing households throughout the country, it is essential that housing takes centre stage in the political debate.” We agree.

Help-to-Buy-second-phase-opens-to-business
And Andrew Tyrie, chairman of the cross-party Treasury Select Committee, said that ministers had failed to allay its concerns about the housing market. He warned that with the “chequered history of government interventions in residential property, great care will need to be taken”.

Also, ‘Help to Buy’ was labelled mad and “very dangerous” by the Institute of Directors.

We agree with this remark too, which then begs the question:
“Exactly what should be done, by whom, and when by?”

The answer clearly is: - The Coalition Government should bring in ‘Moving Contracts’ or ‘MC agreements’ to replace ‘Selling Contracts’ before the next General Election.

Food for thought?
It’s definitely within the grasp of top estate agents to permanently improve the UK housing market.

We’d certainly be interested in your thoughts and observations.


Bibliography:
Recent online articles involving discussion amongst estate agents generally

www.estateagenttoday.co.uk/news_features/House-prices-in-astonishing-leap-across-country-claim

www.estateagenttoday.co.uk/news_features/Mortgage-lending-the-highest-in-five-years-says-Bank-of-England

www.thetimes.co.uk/tto/news/politics/article3901688.ece

www.estateagenttoday.co.uk/news_features/New-Get-A-Move-On-campaign-aims-to-shake-up-home-buying-and-selling

www.estateagenttoday.co.uk/news_features/Dodgy-estate-agency-practices-put-under-spotlight-in-TV-programme

www.estateagenttoday.co.uk/news_features/Asking-prices-up-again-as-property-supply-dwindles

www.estateagenttoday.co.uk/news_features/Shelter-calls-on-ministers-to-rethink-Help-to-Buy

www.estateagenttoday.co.uk/news_features/Talk-of-a-housing-bubble-is-hysteria-says-think-tank

www.estateagenttoday.co.uk/news_features/New-OFT-guidance-issued-on-definition-of-estate-agents

www.estateagenttoday.co.uk/news_features/Sarah-Beenys-private-sales-site-Tepilo-to-relaunch-as-online-agent

www.estateagenttoday.co.uk/news_features/A-tale-of-two-Britain-in-bipolar-housing-market

www.estateagenttoday.co.uk/news_features/Estate-agents-are-an-army-of-invaders-who-must-be-stopped-says-Cable

www.estateagenttoday.co.uk/news_features/RICS-call-to-cap-house-prices-is-shot-down-in-flames

www.estateagenttoday.co.uk/news_features/Second-steppers-still-stuck-in-first-homes

www.estateagenttoday.co.uk/news_features/Supply-plummets-in-London-property-drought

www.estateagenttoday.co.uk/news_features/Housing-market-recovery-threatened-by-low-volume-claim

www.estateagenttoday.co.uk/news_features/Asking-prices-hit-their-highest-ever-says-Rightmove

www.estateagenttoday.co.uk/news_features/Estate-agents-and-surveyors-beg-to-differ-on-state-of-market

Posted by: Property Match (UK): Press Release: Peter Hendry, Consultant in Housing Valuation

 

[The former title of this article was: “The way to house-marketing heaven”]

 Posted by at 9:43 pm  Tagged with: stable housing market., We want a functional
Oct 152013
 

Here’s the gist of it.

Assuming that ‘demand’ without the ability to pay now exceeds ‘supply’, the availability of extra finance will bolster prices rather than satisfy that demand. (That’s because sellers will each try and get more of the money being made freshly available.)

The non-availability of extra finance won’t cause such a distortion. (Obviously.) Prices will, instead, have to adjust to suit current purchasing power.

The latter is a far more effective way to distribute scarce resources.

It is simply that of letting markets function on their own - without direct financial intervention.

If any specific non-financial market (like e.g. housing) ever needs intervention, anything which is believed to be appropriate ‘other than’ direct financial intervention might help.

Direct financial intervention in any market (other than the money markets themselves) will however, merely distort the market in question.

QED

Posted by: Property Match (UK)/Asking_Prices: Peter Hendry, Consultant in Housing Valuation, Property Match (UK).

Oct 012013
 

{amended on 23rd Oct}
Recently, Tepilo has become an online estate agent, having registered with the Property Ombudsman scheme.
It appears that its free-to-advertise model didn’t start becoming commercially viable enough to sustain it. Reluctantly so we understand, Sarah Beeny’s private sales site has had to re-structure and go down the online estate agency route as part of the deal.

This leaves a clear road ahead for services like Property Match (UK), the online way to sell or let. We’re a service that offers individuals house advertising on the Internet. We charge very low fees (instead of no fee) but we advertise on Google using Pay-Per-Click to get first page listings for any selected keyword relating to each individual house advertisement. Unlike some sites though, we won’t be taking commission on any completed sales.

The main reason for what we are doing is to offer an alternative for those having to use what is clearly seen as a failed estate agency business model. Few could successfully argue that it hasn’t failed, since it hasn’t coped, at all well, in the aftermath of the recent financial downturn.

That’s why we are offering a special online-only service. Because estate agents need to improve the way houses are marketed and sold, in order to bring things up to modern-day standards. Private (or sale by owner) web sites are something that this government has, in the past, encouraged in the spirit of enterprise, with the aim of helping the housing market to get re-started more swiftly. So far however, there has only been fairly meek or tacit support by the said government for online-only ventures such as ours and the new OFT guidance on the requirements of consumer law, providing more clarity on what constitutes estate agency work, doesn’t exactly appear to make fair competition with this sector easier.

In reply, we would respectfully suggest to our government that instead of trying to pump up housing market activity with cash guarantees for mortgagors, our idea is to propose a better estate agency model by introducing what we call estate agent Moving Contracts or ‘MC agreements’ and that this should be urgently considered. Our idea is basically a simple change in the way in which houses are placed on the market.

I’d be interested in readers’ thoughts and comments.

Proposed by Peter Hendry, Consultant in Housing Valuation at Property Match (UK).

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

Sep 132013
 

The RICS proposals appear to have been hastily put together as a quick reaction to the recent BOE report about accelerating house price increases.
Capping lending has been done before and basically forces people to wait longer to buy, and to save for a larger deposit. It does little to help moderate asking prices.

The RICS proposals are heavy on legislation and financial controls and thus likely to be unwieldy and slow to implement.

They appear to be protectionist towards estate agents, rather than addressing the real issues which involve identifying and exposing sales negotiators whom provide misinformation to buyers, whilst trying to conclude the best terms for their clients - the vendors.

The way to limit inappropriate house price increases at times of economic fragility, without having to use restricting legislation, is to provide more information to buyers about the current level of demand and current (or recent) prices being achieved. This would take the wind from the sales of any agents whom may be trying to guild the lily, on such things.

One simple way to do this is to open up the Internet to those wishing to sell their houses themselves, making this an acceptable alternative to using estate agents. By doing that you would take away the suggestion that estate agents are the best or only people who can sell houses. This would increase competition for them to become more precise and efficient, both with their advice to their clients and their sales pitches to their customers.

Posted by: Property Match (UK)/Asking_Prices: Peter Hendry, Consultant in Housing Valuation, Property Match (UK).

Sep 062013
 

A dream about trying to buy a house:

Last night I had a dream which was so vivid that I remembered it because of the strong emotional effect it had had on me.

I dreamt that I was on the quest to find a final house for us to enjoy in our latter years of retirement.
We knew the area we preferred to live in, so it was simply a question of finding a suitable house.

We noticed a few which were for sale and which we might like to view.

My role in our marriage (as a retired surveyor) was to see whether the preferred house might be available at an acceptable price for the house in question.

We made contact with the agent of the one we’d first like to view.

I was immediately disappointed to find myself on my guard as instead of a price we might have expected, we were greeted with an agent appearing to suggest that the final price rather depended on other interested parties and on the size of our purchasing budget!

So, the vendor’s agent was already trying to weigh up the different applicants as to their buying power, rather than assuming a set price for the house in question.

This alarmed me and I complained to the agent in question that I had spent my career in property sales and management and was concerned about the way he seemed to be conducting dealings regarding this sale.

Instead of listening to my concerns, he told me he was arranging a firm’s gathering with all his staff, and me, and that the case for my complaint would be put before him and a decision made immediately!!

As if by magic we quickly found ourself in a garden-area behind the office and the agent, sitting as arbiter, invited me to begin laying out my concerns to the whole office.

Without having time to prepare I began to explain.

I first intimated that it should not be for an applicant to declare how much he or she might be able to spend including the size of the loan he or she might be able to raise. Instead, I averred, the price should be decided beforehand and stated on the particulars for the property so that every applicant should be treated equally as far as asking price is concerned. Crucially though, it should be based on a careful assessment of the value of the house in the current market, not of a token-amount thought up by the agent working in concert with the seller. In passing, I stated that even an owners’ ‘perception’ of the value of their home is not the same as knowing the true market value of the property in question and sometimes estate agents are even less knowledgeable than the house owner - as they don’t know the property concerned in any great detail.

He then called one of his senior negotiators to speak. She explained, that what I was saying was rubbish and that prices depended purely on how much each buyer could pay. Therefore, she crooned, we’d need to know how much the different applicants might be able to pay so that we can then decide which one may be invited to buy the house which they had expressed an interest about!

My heart sank as I knew this meant that they would make the house as expensive as they could for whoever might be lucky (or unlucky) enough to be the preferred bidder.

I then endeavoured to explain that this is not a fair way to adjudge how much something is worth.

For example, I pointed out. If you are selling a second hand cooker or any medium-sized item, you wouldn’t expect the buyer to tell you how wealthy he or she currently was!

The seller names his or her price by assessing the basic price if new, and by making an appropriate adjustment to arrive at an asking price depending on its current state of repair, age etc., as well as the likely demand expected during the time available to sell - in the location where the sale is to be conducted.

If you then find there are few applicants the seller, (or his agent should he have one) should further discount the asking price, until between one and three people have expressed an interest or made an offer.

Such offers are NOT dependent upon finding out how much each buyer might be able to afford. They are more about a question of sensible negotiation between the parties.

A second example may be seen by examining antiques or general salesroom behaviour.
The buyer usually asks the seller how much he wants for the item.
The seller says he is hoping for £x.
The buyer usually says “I could offer you £y. It’s my best price but I’ll give you that now.”
Sometimes a bit more haggling is done, then a deal is struck and the paperwork begins.

Both parties are generally content with the outcome.
Often these items are unique and so there is low supply, in a similar way to unique houses.

I explained to the hearing that this simply isn’t happening with estate agents and those selling houses. The result is the whole thing has become a living nightmare to all buyers.

Instead of knowing they can haggle with the seller over the price of a house, the seller is using strong-arm tactics to try and force the price ever upwards depending on how wealthy each potential purchaser may be!

I’m saying this is wrong, it’s out of control and it needs to be addressed by those overseeing the whole process of house sales. Ultimately that’s our government of course.

We need vendors, (and their agents) to learn and retain the skill of haggling again! In other words there are some questions that should be taboo - including the: “Now empty your pockets and show us all your bank accounts question!”.

The other side then countered with “But there is a shortage of supply so we need to get the best price possible in the current market!”

Demand:
I exclaimed that this is nonsense. The level of demand and supply for any particular house for sale, is the number of people actually interested in that house currently - the demand. The time aspect is the time the vendor has at his disposal for selling, or simply a reasonable amount of marketing time.

Supply:
The supply is the crucial issue. It refers to the one house in the specific location the specific buyer is interested in; not the total number houses in the whole country! There is a grotesque misunderstanding being perpetrated about these simple economic terms, which are badly misunderstood by most vendors and the agents advising them. This leads to damaging confusion and chaos for the housing market itself.

The principal agent then called a halt to the proceedings and, although I held my breath thinking that a decision either for or against selling the house we’d expressed an interest in might be about to be made, what he then said was quite the reverse.

He said, “Well I hear what you have explained and I shall think about all this and we shall see - in due course.”
It was clear that he was simply planning to carry on trying to tempt an unsuspecting buyer into revealing all, in order to get a bid acceptable both by him and by his vendor client irrespective of any other offers, or lack of them.

The whole process of discussing this seemed to have been a complete waste of time. I went to my partner and explained that unfortunately we could not come to terms on this property and may be forced to keep looking elsewhere.

I awoke, rather disappointed about this repeating nightmare scenario, not least as the house we’d quite liked would still probably be in the hands of the agent trying to engineer a rip-off sale to the next unsuspecting buyer, for quite some while to come. We’ve frequently seen for sale boards up for over a year lately.

I felt we had no option but to withdraw our declared interest in that house and go and try and find a likeable house which was being sold by a more reasonable set of negotiators than that.

The problem is, this seems to be becoming more and more difficult as most estate agents tend to adopt similar strategies when trying to get sales through.
They seem to work on the principle that as there is a national shortage in the supply of houses compared with the demand for them, the more houses each agents keeps on their books, (however long for) the better for them! This is flawed logic that urgently needs correction.

If their logic was sound, where there is an excess of demand over supply, as it generally the case here, they would start selling the houses more quickly to work to satisfy the demand and lower it.

Instead, they tend not to worry about how long it might take (even though there is clearly an excess of demand over supply) and prefer to pride themselves in getting the absolute best price possible, using the nefarious tactics outlined above and vying with each other as to which agent is the best at this - they even have award ceremonies to celebrate how much they have each made and which negotiator is the best in year!

I rest my case - for the time being at least.

Footnote:
My purpose in writing about this is to show that there is a need for government to review and enhance the methods used by agents and not to besmirch the reputation of estate agency without a justifiable reason.

We at Property Match (UK) have developed a 10 point plan, or set of rules, for rectifying the current shortcomings within the profession, which will be published later this year.

Posted by: Property Match (UK)/Asking_Prices: Peter Hendry, Consultant in Housing Valuation, Property Match (UK).

Aug 302013
 

The housing market recovery has come “too late” for many estate agents, according to accountants, as recent figures showed insolvencies have risen 57pc in the year to the end of June.

WHY?
Let’s cut to the chase about house prices and the way houses should be bought and sold; without further delay?

Here’s the dilemma. If we leave the way things work in the housing market as they are, what will continue to happen is estate agents will try more and more desperately hard to get the best possible price for their clients (and so stay instructed) in what is indisputably a difficult market - with money still extremely hard to chase for.

What usually happens is ‘For Sale’ notices stay up a long-long time, until somebody with enough money and a great desire for the house in question decides to sign up and pay up.

That’s all fine and dandy provided there’s someone out there who is prepared to make that leap of faith for the particular house being sold.

The downside is, this can take a long time and may well result in hard negotiating with the prospect of downwards serial price adjustments before contracts ultimately exchange. Selling to move up (or indeed down) the chain is doubly troublesome as a result.

Anyone buying under these criteria will clearly have to be expecting to stay for the medium/long term at their next house because they will know there will be no easy sale, should that be needed, for some while to come. They are effectively buying into a future market, betting on the likelihood that prices will eventually go up further.

Our alternative strategy, on the other hand, is to trade on the gains available from selling at slightly more attractive prices.

The idea is that if properties start changing hands more quickly and more frequently, the knock-on effect for the whole market would be more sales completions per year and hence more business, more fees and more market activity.

The added bonus would be more speed in selling whenever the day comes for each homeowner to do so.
The result of this would be the market would trade better both in difficult and in buoyant times. Everyone would benefit. There would be no losers.

The only reason why this cannot happen straight away is that agents are continually chasing for more houses to beat the numbers on their competitors’ books!

This is what needs to be changed. I’m proposing that if the Internet was allowed to compete with estate agents equally, everything would start to come right - for everyone, even for agents themselves.

Therefore I support the idea of levelling the playing field for all people to sell either on the Internet direct, with agents (but not with sole agency contracts), or using both ways at the same time.

To summarise, I am claiming here, there would be no losers.

I urge anyone reading this to have faith in these proposals. They, and they alone, can carry the whole housing economy out of the quagmire it is presently in.
They can resolve all the crises involved, including the problem of how to distribute currently available property to those whom need it most.
They can in addition, stimulate the production of new housing development commensurate with the level of demand for it, naturally based on the population in existence at the time.

If anyone has any question about the viability of this plan for marketing houses equitably, we shall be glad to respond with a full explanation of how that particular aspect of the plan would work.

We are therefore happy to explain any aspect of this plan in sufficient detail to satisfy all genuine enquiries about it.

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

The present government’s housing stimulus package

 Estate Agents, House Price Valuation  No Responses »
Aug 252013
 

Instead of the present government’s housing stimulus package, involving bigger mortgages for everyone, we should look at things rather more carefully:

We urgently need to get the UK housing market functioning properly by addressing the problem of a cyclical reduction ‘in transaction volumes’, every time there is an economic slump, which is still happening now; lets make no bones about it.  The main problem is that current asking prices simply don’t reflect the true current values of houses at times like these.

It’s not the slump itself that’s causing the substantial decline in transaction volumes, it’s because of an increasing lack of confidence, born from a lack of reliable knowledge about one’s current (and future) buying power.  This is driven by increased ‘uncertainty’ which the slump will have caused.

The inescapable but pertinent fact is; generally the same people still want (and need) the same number of property exchanges across the country in the year following each slump, irrespective of the economic nadir but asking prices make this virtually impossible - except for the Über-rich.

The problem is that asking prices no longer reflect the true economic situation, making it impossible for most families to move.
Even the estate agents have got to feel the pinch as a result of these present and poor marketing methodologies!

The way to resolve the problem is to put systems in place which enable asking prices to adjust quickly enough to closely reflect the reduced (albeit temporary) current wealth within the housing marketplace during a downturn, thus tending to sustain previous levels of throughput, or transaction volumes. This, itself, would be a massive stimulus to the wider economy which could be auto-administered exactly at the right time using our proposed measures.

The way to achieve this is to change the monopoly of estate agency, by removing exclusive selling rights and opening the market to more competition amongst different sales business models. Private advertising, via the Internet, should be allowed to play an active part in making all this happen and the time for facilitating this is now as the Internet has, at long last, come of age.

Our proposal is neutral in terms of regulation and intervention. It simply relaxes the current presumption in favour of estate agents having the monopoly when it comes to selling houses. As I say, the main driving force for the change would be gaining increased prices transparency using the existing Land Registry data which is now open to public access.

We all know there are not enough houses being built to satisfy current or projected future demand.  Policies should of course be adopted to encourage more house building BUT just stimulating price increases is too simplistic a method and won’t achieve the desired result.

Some say that with prices increasing, more builders are likely to want to start building houses.

This is questionable, especially when one realises that profits from building houses depend more on the cost of building them (including labour costs) than on sale prices.  What we want is increased turnover, not just the same (reduced) turnover with higher prices.

As we state, by far the best idea would be to improve the market so that it could properly set its own ‘market’ prices, and in so doing perform more efficiently, as briefly explained above.

Posted by: Property Match (UK): Press Release: Peter Hendry, Consultant in Housing Valuation

Aug 132013
 

So, what about the idea of stoking-up house prices in advance of the next General Election! Would it be a strategically good idea?

Upside:
Electorate feel-good factor (in favour of the current (coalition) government).

Possible increased interest in those thinking of putting houses on the market.

Some say that with prices increasing, more builders are likely to want to get building houses.
This is questionable, especially when one realises that profits from building depend more on the cost of building them (including labour costs) than on sale prices.
As far as builders are concerned, sale price increasing are mostly swallowed up by land price increases plus the inflationary side-effect of prices on the labour and material costs themselves.
The people who gain most from house price increases are those selling land for residential development, (and the majority of these people are not ordinary men and women on the street, as it were)!

Downside:
Over-stimulating asking prices is likely to lead to fewer transactions actually taking place, as fewer people will be able to afford tp pay those prices.

Increased likelihood of those thinking of putting houses on the market holding off, whilst prices continue to climb!

OUR CONCLUSION:
It’s not a good idea in the current, difficult, economic conditions.
A better idea would be to improve the market so that it could set its own ‘market’ prices and perform more effectively.

It might be better to give any stimulus to builders, rather than to stoke up house prices by making loans for buyers cheaper and longer term.

Peter Hendry, Consultant in Housing Valuation at Property Match (UK)