Estate agents may be the goal scorers of the housing market, but can they value houses?

Under the new regime:

Take the example of a well-presented and saleable house:

Three agents would compete for the instructions to sell. Their valuations would all be similar. The client decides to appoint one, on the basis of preferred service, alone.

Now lets take the example of a bad or UNsaleable house:

Any agents prepared to take the house on, would price it accordingly; saving a lot of wasted viewings and general disappointment.

The disadvantages? None that we can see.

We have already proposed this idea to RICS and to the NAEA, but neither body has yet commented meaningfully. (They received details of the essence of these proposals in Oct. 2010.)

The idea has also been discussed with estate agents across the country using their blog sites. Most practitioners debating the merits of this idea have been extremely dismissive of it and, in our opinion therefore, are reluctant to embrace the necessary change. This suggests the idea actually does have merit!

As estate agents won't debate this objectively, it's time for economists and other commentators to do so instead - and hopefully most will agree, this idea is the required fix to stabilise house price volatility and stop the pendulum-like behaviour of the present housing market.

More advantages:

One of many advantages of this idea is that it will put vendor/clients into a more powerful position with respect to their agents.

They will get ‘the say’ as to whether (or not) their house sells at the offer price - especially if it’s below valuation.

(They could still extend the marketing time to see if any better offers might materialise, before closing a sale with the estate agent instead, if not.)

From an estate agent’s point of view, the big agents shouldn't gain any advantage over little ones as all of them would have access to the finance to fund this procedure.

As importantly, the only agents that would get an advantage, from this new policy, would be good agents.

Summing up this proposal:

It would be GOOD for agents, by giving them the needed responsibility to get it right on day one, which is when they initially assess a house to be sold.

It would also help to increase their throughput of sales, which would be good for their earning ability too.

It would be GOOD for buyers, by providing them with more accurate price information and it would reduce the need for excessive and lengthy price negotiations.

It would be GOOD for sellers, by getting them a definite sale, arranged when they need one. They could then move on to their next stage, the buying process. Sellers in chain situations would therefore gain.

It would be GOOD for the market, by getting more houses bought and sold, through simply having better appraisals and better bench-mark valuations for people to use.

E.G. If you take your old gold jewellery to a high street jewellery shop, they will weigh it and tell you the price you will get for that gold. If you agree, they give you the cash, immediately.

Houses should be able to be sold in the just same way, for those who might prefer to move within a definite timescale.

Note:

For the avoidance of any doubt, there is a world of difference between this proposal, which is a valuation and marketing exercise (still working on behalf of the client) and a 'we buy any house' type of business, which is a below-valuation, quick turnaround business model instead.

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WE SAY: WHY-EVER NOT. ADOPT THIS NOW

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If agents won’t adopt this and governments won’t intervene, our alternative solution is for vendors to use our low entry-cost web site instead, allowing them to avoid commission-based agencies altogether and to price their houses for sale; competitively; but as importantly, correctly.

FURTHER INFORMATION ABOUT THESE NEW PROPOSALS:

http://www.property-match.co.uk/blog

In particular (and in chronological order): -

http://www.property-match.co.uk/blog/2010/06/14/estate-agents/up-coming-decisions-needed-to-be-taken-by-the-housing-minister/

http://www.property-match.co.uk/blog/2010/07/09/estate-agents/the-next-house-price-debacle/

http://www.property-match.co.uk/blog/2010/10/10/estate-agents/how-to-control-over-exuberant-pricing-by-estate-agents-giving-market-appraisals/

http://www.property-match.co.uk/blog/2010/10/30/estate-agents/if-house-prices-fall-further-direct-and-corrective-action-needs-to-be-taken-without-delay/

Links to Estateagenttoday blog conversations (in chronological order):

Call for agents to 'have to buy properties' they cannot sell

http://www.estateagenttoday.co.uk/News/Story/?storyid=3619&title=Call_for_agents_to_%27have_to_buy_properties%27_they_cannot_sell&type=news_features

Estate agents among worst rip-offs in Britain, says European Commission

http://www.estateagenttoday.co.uk/News/Story/?storyid=3651&title=Estate_agents_among_worst_rip-offs_in_Britain

House buyers sit on their hands as mortgage levels drop

http://www.estateagenttoday.co.uk/News/Story/?storyid=3661&type=news_features

House prices continue to slide downwards

http://www.estateagenttoday.co.uk/News/Story/?storyid=3667&title=House_prices_continue_to_slide_downwards&type=news_features

The Statistics:

The following graphs suggest that the latest house-price dip actually pre-dated the fall in National inflation statistics, by about six months. Therefore, whilst the two falls are linked, a fundamentally important time lag also exists; which statisticians currently seem to be unaware of.

This would suggest that a corresponding sustained rise in house prices (if and when it happens) will precede a rise in inflation.

This analysis also appears to suggest that a rise in house prices will not occur because of inflation itself.

Graphs:

House price graphs:

http://www.houseprices.uk.net/

http://henrypryor.com/blog/

The current, rather disturbing, statistics, as recorded in graphs by Henry Prior, using Land Registry data as well as data from Rightmove etc. These appear to support my theories about incorrect house asking prices.

http://www.housepricecrash.co.uk/graphs-average-house-price.php

Inflation graph:

http://www.bbc.co.uk/news/10612209

Government Data:

http://uk-house-prices.com/

US Home price indices (Shows problems had started happening in the USA by 2006):

http://www.mortgagenewsdaily.com/05252010_housing_good_bad_ugly.asp

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Finally, it is my view that unless the imperfections of the housing market are removed very soon - by the present government, the serious inconsistencies in prices that exist now, will become even greater if there is continued uncertainty in the economic situation and this is most likely to be the case.

Hence, now is the time to act if the situation is to be remedied at all successfully.

If anyone wishes to discuss these matters, or simply wishes to comment on them, please email us, using our contacts page and we shall be pleased to respond to any comment. Alternatively, you are welcome to go to our blog to discuss your thoughts - on the record.

Peter Hendry

Consultant in Housing Valuation

Property-Match (UK)

I qualified as a valuation surveyor in 1974 and have since gained wide-ranging experience in residential property issues. Whilst I’m no longer practicing as a surveyor, I'm happy to give advice to those involved in the buying and selling process. My research into the necessary / urgent improvements to the operation of the housing market started after the big housing crash of 69., which was then followed by the hyper-inflation of 1972, and my work has continued up to the house-price crash of 2008. From 2009 and beyond, we are having to experience the fallout from this because nothing effective has been done to improve the way houses are marketed, yet.

I have communicated with both RICS and the NAEA about my research, and in particular about the need for more accurate methods to measure current house prices.

“Remember, you saw it on this site First”

The ‘Set Price’ sales solution would demand the use of better valuation methods by estate agents

What is the ‘Set Price’ sales solution?

It’s a new valuation philosophy.

Most people would agree, any notion that everything is stable in the housing market is untenable. Big asking price variations are one of the key issues, but also big and repetitive swings from boom to slump in sold prices are the other problem.

The reason for such extreme price movements, seen especially in the last two years, is that agents tend, on average, to psyche-up prices when first visiting a client, in order to win the instruction.

Agents have openly admitted that they are doing this, in their recent blog discussions with our management.

The statistics show that about 60% of houses put up for sale with estate agents fail to sell, many simply because of initial over-pricing.

Agents giving sellers false hopes in this way, simply causes turmoil in the market - when the dreamt up figures, eventually fail to materialise.

“The current problems in the housing market have arisen from excessive asking prices in the past. The idea that they are derived from a shortage of mortgage finance is a complete myth.”

To examine the vagaries of the housing market in more depth, lets first take an overview of it.

Lets simply look at the two main parameters within it - supply and demand, and lets not discriminate by specific location or anything else more complicated.

If we are to look at just supply and demand, we have two variables to examine. However when we look at these individually we in fact double the tendencies. We have supply increasing, supply decreasing, demand increasing, demand decreasing. This means we now have four different states to consider.

To keep this uncomplicated, lets look at the market as if only one of these parameters is likely to vary at any one time - the effect of fluctuating supply. The result, is the discovery of a 4-stage, or 4-stroke cycle as outlined below. We call this the four-stroke cycle of house price chaos!

Here is a resumé of the 4 cycle process (looking at each cycle in brief; specifically from the viewpoint of trying to sell a house).

1.After failing to find buyers over a lengthy period, usually up to two years, vendors eventually give up and withdraw their houses from the market (unsold); thinking actual prices have fallen too far.
In fact, it is because they have been given false hopes in the first place, through over-optimistic agents' market appraisals, given in an attempt to win more instructions.

Economic supply contracts.

2.Buyers are simultaneously misled, by agents desperate to talk the market up, and also based on the high asking price levels still being quoted, they begin thinking that house values are increasing, when they’re not. Some become so convinced that they start rushing to buy before the supposed next boom.
They (wrongly) believe that they're buying before real house values go right out of their reach; owing to the high general tone of asking prices across the marketplace - even in a downturn. This is how house asking prices tend to stay on an increasing trajectory, without genuine market justification.

Economic demand increases. The price-zenith point.

3.Some buyers eventually fail to find a suitable house at a price level that they can afford, so they withdraw from the market.
This begins to cause buyer scarcity but, there’s a lag of six months or more, whilst this effect becomes sufficiently widespread. In other words, after stage 2 above finishes asking prices overshoot and stay high.

Economic demand contracts.

4.Vendors realise there’s a lack of demand at these prices and then start rushing onto the market to sell, before values 'really' slump. This then causes an increase in supply well in excess of demand and is the actual cause of the next fall in house values.

Economic supply increases. The price-nadir point.*

[* We are currently passing point 4 and moving on to point 1 again in the 4 cycle process.]

It’s stages 3 and 4, combined (in chronological order) that actually causes house prices to slump.

The cycle starts the incline once again, when sufficient numbers of vendors decide to give up and withdraw their unsold houses.

By observing the market over several decades, it seems clear that in the UK, each phase of the cycle has been taking about two years, the whole cycle taking between eight and nine years to complete up to now.

Using this model to predict approximately when prices will next be nearing their maximum, It seems, by attempting to include the more extreme difficulties facing the World economies currently, the next price zenith may not be before 2017 and might not be until 2020. We need to qualify this however, because of the unprecedented turmoil the country is currently experiencing in all markets.

Based on the historic model however, the best time to buy into the housing market, especially for first-time buyers is from next year until the beginning of 2015 (assuming that somewhere amongst the plethora of unreasonable asking prices being quoted out there, some prices may actually accord with true current market values).

Our 4-stroke model clearly demonstrates how, excessive turmoil in the housing market is created by a general lack of knowledge of what is happening in that market by the majority of the participants. For this reason the housing market is an extremely imperfect one, and therefore steps urgently need to be taken to improve it.

The ‘Set Price’ sales solution: - explained

When things are difficult, as they undoubtedly are right now, the solution will only be found by 'thinking out of the box'. Our unique proposal does just that.

If, instead of market appraisals, quality house price valuations were provided by estate agents (paid for up front by the vendor by law), then all agents could compete on service quality alone and not on who exaggerated the current price the most, as now.

Secondly, we should place a responsibility on all agents to have to buy any houses they fail to sell at their stated valuations - this option to be exercisable by the owner alone. (The proposal is that it should be open to the owner to exercise their option after an agreed period, say 3 months (or 12 weeks after an agent commenced marketing).

At the end of the agreed marketing time, a seller could do one of two things. Either extend the period if they believed their agent was doing a good job in selling the property and the valuation was still acceptable to both of them. Or, immediately elect to sell the house to the agent at the price that the agent previously advised the property should be sold for.

This proposal is the only change necessary to correct the faltering housing market. All agents should be made to offer this new service.

The result would be that all asking prices would become more realistic, and stabilise. Sales of houses would start to increase severalfold, because people would be able to move at prices which are relative to (and hence relevant to) what they are trying to buy or sell.

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 any agents having to buy houses they failed to sell, is already available through specialist lenders like Goldentree, the specialist short term property lender who already lends, at short notice, to agents who buy properties on spec., right now.

http://www.goldentreefs.co.uk/

The burden of responsibility would, in fact, only penalise those agents that continually over-value clients' houses, while at the same time, the change would help to keep the housing market itself turning over.

Estate agents should be paid for doing initial valuations (or market appraisals) and paid a further sum upfront if the client decides to appoint them as their agent.

By doing things this way the agent should be better placed to advise the client about where decorative enhancements, more substantial repairs, or general de-cluttering would be beneficial and agree with them what work they will do to present the house correctly for marketing.

Let's consider the advantages:

If agents valued confidently, house price levels (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, irrespective of whether the offers are above or below the asking price, the agents could simply negotiate between the parties (just as they should do now) to ascertain the best offer for the property on behalf of their client.

This would be competition, based purely on the value of houses, and operating for the the first time ever in the British housing market.

By comparison at present, highly exaggerated asking prices are often quoted, followed by lengthy and indeterminate delays before perhaps one unsuspecting buyer comes along. If s/he needs a mortgage, quite often the building society’s loan valuation comes in at considerably below the figure agreed; causing difficulties that sometimes result in sales falling through altogether!

A new Government response has recently been published to the OFT Market Study on home buying and selling.

The OFT found that the housing market remains dominated by traditional estate agents with weak competition between them on price. It believes that innovation in this sector could have a dramatic impact on the cost of buying and selling a home, in particular through the use of new business models such as online services - like Property Match UK.

The government is now considering changing the legislation to allow new, private ‘for sale by owner’ websites to be able to compete more directly with estate agents.

See: The Government pdf on this.

We are the first to offer some truly innovative solutions to both buyers and sellers in the housing market.

Our main proposal is the ‘Set Price’ sales solution, which could be adopted by all estate agents, as explained below.

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