It’s time to face the music and address the house price problem
There is an urgent need for estate agents to add new tools to their toolkit, in the present market conditions.
Markets work depending on prices. The inescapable reason why the housing market is not and has not been trading at adequate levels of completed transactions is because the prices currently being quoted are too high.
Why are estate agents, together with sellers, failing to recognise this fact?
It is because some agents exaggerate prices just to get the sales instruction, rather than basing them on the true value of the property. Many still openly admit they are forced to have to do this, because agents in competition do it.
What’s particularly curious is that in his online blog surgery on March 9, housing minister Grant Shapps wrote in answer to questions about excessive house prices: “It’s impossible to know precisely what constitutes the right house price.”
With the greatest possible respect to Mr Shapps, if that were true, then why do estate agents traditionally offer ‘free’ valuations to anyone thinking of selling? Why does the RICS have qualified ‘valuers’ who value houses for mortgage purposes? And, how could valuers be sued in the courts, thereby having to pay damages in the tort of negligence, after wrongly stating a house price, if there was no way of knowing precisely what constitutes the right house price?
I’m afraid that this type of statement does not appear to augur well for gaining confidence in ministers’ detailed knowledge about such affairs.
It almost seems as if estate agents simply do not care that over-pricing is a major contributing factor to the 40% of sellers whose houses will fail to sell at all this year.
Estate agents just seem to want to keep adding houses to their respective shop windows, working in competition with each other to see who can best survive the downturn.
The result is a yawning gap between asking prices and completed sale prices, which is now said to be approaching £60,000 per property, on average (Henry Pryor’s figures).
The need to correct this is more pressing that ever, and without definite and urgent correction, this will lead to a subdued housing market, possibly for several years.
But it does not have to be that way.
Most agents accept that there is a ‘glass ceiling’ for the price of any house (or residential property), at any one time. It is the maximum valuation that the mortgage lender’s surveyor places on the property.
If the agents try and sell it for more than this, they are pretty well limited to cash buyers only. Therefore, asking substantially more than this, in a falling market, is particularly counter-productive.
The difficulty in knowing this, comes because the lender’s surveyor will not have inspected the property until after it has been sold!
The only way to overcome this is for estate agents themselves to be able to estimate what that figure will be, at the time the property is taken on, when the asking price range is being decided in discussions with the vendor.
I have an analogy to help explain the issue more clearly and bring the need for change in the way houses are currently valued by estate agents, into stark contrast:
In real life: In the analogy
Estate agents: are the conductor(s)
Orchestras: are the groups of sellers
Audiences: are the groups of buyers
The music: is house price levels
The market: is itself.
Estate agents are like orchestral conductors. The movement of their hands and the expressions on their faces affect, profoundly, the sound made by individual instrumentalists in the orchestra (representing groups of sellers).
The buyers are the audience(s). They can see everything which the conductor(s) do as well as hear the resulting sounds from all the orchestras!
One can appreciate, in this analogy, that it’s no good the conductor simply deciding to ‘wave-in’ for more trumpeters which an audience then hear playing quite out of sequence with the rest of the music, only for the conductor to then shake his hands, indicating for them to stop, after realising his mistake. The audience (the buyers) will see and hear both what the conductor has done and the resultant sound of the orchestra.
It is time estate agents took a similar amount of responsibility for their role in what ‘tune’ the market plays, as if they were more like orchestral conductors.
This means if, for example, they encourage house prices to increase in a certain area of the country, they cannot then pretend the resultant ‘music’ is not in their control, or that they are not in any way responsible for its creation.
Estate agents, like orchestral conductors, need to accept ‘responsibility’ for the events taking place in the market place – and yes, that should include Rightmove by the way, as they are actually agents of the estate agents themselves. Neither are just bystanders.
Have estate agents ever wanted the market to produce a gentler, and more stable set of prices? Probably not, but if they ever did want that, they, like orchestral conductors, would have to be the ones to take the responsibility for making this happen.
Simply blaming sellers for dreaming up the high prices is clearly unacceptable. That is like the conductor blaming the orchestra for the resultant music, and pretending that his wild, but lively, gesticulations were nothing to do with the music being heard.
To be specific, there is a big difference between current asking prices and completed sale prices and it is not just on account of the time interval between offers being received and Land Registry figures being published – as some commentators have suggested.
To regain the respect of the buyers in this market, something new needs to be done by estate agents, who are as important to the housing market as a conductor is to an orchestra.
They need to figure out quite what they should do – as a corporate group, however – and then bring the necessary changes forward immediately, hopefully before the whole thing gets out of hand, once again.
The best thing for them to do is to learn how to value houses just as a surveyor would. It is reasonably simple to do and would give agents a pretty good fix on what price will materialise, when the mortgage valuer actually does come round to value the house that they have just sold subject to contract. Asking prices should bear these factors in mind, if they are to prove to be meaningful price guides.
If agents can ensure that there are no surprises when the mortgage valuer has been, the deal will be far more likely to go through, even in a falling market.
Providing that extra service is surely worth the effort, for those estate agents genuinely wishing to gain an edge on their competitors.
In essence, houses always have to be ‘affordable’: otherwise no one would be able to buy them or live in them.
Surveyor Peter Hendry has worked in a wide range of different jobs in the housing sector (including estate agency) since qualifying in the seventies