Estate agents are increasingly overvaluing properties to gain listings in a challenging market and costing sellers an average of £20,000 according to a new study.
Tricky market conditions – which could be responsible for some agents overvaluing properties to secure much-needed instructions – have been well-documented in recent months. These challenging conditions could be put down to a combination of increased government regulation, business saturation, commission fee erosion and the rise of online and alternative competitors.
I have to say that I actively work as an estate agent and have witnessed this first hand. The feedback i’m consistently getting is that in a competitive and challenging market, some agents are overvaluing in order to get the instruction from the vendor. Then they will lock you in to an agreement for up to 26 weeks (for some agents) so they can start asking you to reduce the price.
The consumer watchdog Which? analysed more than 370,000 property sales in England and Wales and found that one in five (19%) had been heavily reduced from the initial asking price. The figure around Alfreton and Chesterfield where I work is actually higher than this figure.
According to the Home Owners Alliance estate agents usually charge between 0.75% and 3.5% of the agreed selling price. This could translate into as much as £7,800 commission earned for the sale of a £260,000 home so it’s easy to see why whey would exaggerate the price.
Which? found that homes which were sold after being reduced by more than 5% of their asking price had an average final sale price of £241,000.
Those that were bought for a price which was within 5% of the original asking price sold for an average of £19,000 more, at £260,000.
This indicates that by substantially overvaluing properties estate agents are actually costing sellers nearly 8% of the value of the home.
The problems associated with overvaluing properties for vendors are clear. A lack of buyer interest due to a high price could mean a property is left on the market for much longer than is necessary, while the subsequent need to reduce the price could put vendors on the back foot when it comes to negotiating.
Unsurprisingly the study also found that properties which had been reduced by more than 5% took an average of 64 days longer to sell than those which sold without such a significant reduction of the asking price.
There were no less than three agents in Alfreton and nine in Chesterfield who had heavily reduced at least 25% of their properties despite the average being 12%. This scenario represents a financial cost and loss of time for sellers. In the case of one agent in Chesterfield, it is 50% this year and in Alfreton there was an agent at over 35%.
These factors combined mean that property sellers whose homes are overvalued could end up selling for significantly less than if the property was marketed at the right asking price from the beginning.
Richard Headland, editor of Which?, said: “When selling your home, make sure your agent can provide evidence of similar sales to back up the valuation. If the valuation is not realistic, you could end up thousands of pounds worse off and wasting a lot of time.”
Paul Higgins, chief executive at the Homeowners Alliance, which represents homeowners, said: “The problem is that greedy sellers attract greedy estate agents. If an estate agent tells a seller they can get 10% more than other agents for their home they are likely to choose them. But sellers shouldn’t just consider the price agents claim they can get. They should be thinking about how the agent is going to sell the property and whether they are asking smart questions.”
The vast majority of agents value properties correctly and offer fantastic customer service, but it’s those who don’t that cause problems for the industry as a whole and ultimately cost sellers an average of £20,000