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It’s time to face the music and address the house price problem
brit1234
Posts: 5,385 Forumite
Peter Hendry Blog
Friday 11th March 2011
It’s time to face the music and address the house price problem:j
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.
How so?
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
:beer:
http://www.estateagenttoday.co.uk/news_features/Peter-Hendry-blog
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.
How so?
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
:beer:
http://www.estateagenttoday.co.uk/news_features/Peter-Hendry-blog
:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
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Comments
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If the answer is the eradication of Estate Agents entirely, then I'm all for it.
A trained monkey could do a better job in most instances.0 -
Ta Muchly.0
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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.”
It isn't impossible at all. The 'right house price' is the price agreed for a particular property between the seller and the buyer. These are the only two people who set the right price, as presumably they are both happy with the final figure.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).
I simply don't believe this figure. The average property is around £160,000 if I recall correctly. So they are saying that the average house that sells for £160,000 is put on the market, on average, for £220,000? Or to look at it another way, pretty much half the houses that sell for £160,000 were originally on the market at above £220,000? I just don't think that can be true.
I'm not for one minute suggesting that Estate Agents and sellers are pricing houses realistically. All the houses around my area have been on the market for ages and ages and ages, but I guess it's difficult to tell whether this is due to high asking prices or people just wanting to buy houses. Probably a bit of both, with the former being the main factor.
However, my simplistic market brain tells me that if an Estate Agent wants to stay in business then the only way to do this is sell houses. So there has to be a point where your own greed (or ambition to make lots of money) puts you out of business. So EAs have to sell houses and must price accordingly.
I actually have sympathy for EAs at the current time. I imagine that a lot of them are probably giving pretty realistic valuations to sellers who respond with, "I'm sorry, but I'm not selling for that, this place was worth £xx,xxx in 2007! We'll put it on the market for that price...", at which point there isn't a lot the EA can do.0 -
The author of the article has seemed to of really !!!!ed off other estate agents with his comments under the article. Its very bitter and hate filled over there in estate agent world.
http://www.estateagenttoday.co.uk/news_features/Peter-Hendry-blog:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
0 -
I actually have sympathy for EAs at the current time. I imagine that a lot of them are probably giving pretty realistic valuations to sellers who respond with, "I'm sorry, but I'm not selling for that, this place was worth £xx,xxx in 2007! We'll put it on the market for that price...", at which point there isn't a lot the EA can do.
I have a feeling that more sellers will come round in the coming months as there are more house price fall announcements.
I really don't know how the negative equity thing will effect things, maybe more negative equity mortgages.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
0 -
I have a feeling that more sellers will come round in the coming months as there are more house price fall announcements.
Yeah, maybe. I personally don't think so. Mortgages are cheap, people aren't really losing their jobs and I don't think many seemed that fussed about selling. The odd house near me sells quite quickly, because it's priced reasonably and the seller obviously wants (or needs) to sell quickly. The rest just sit their, as I presume the owner is happy to wait it out.
I personally see a scenario playing out where the price of houses stays flat for a good few years (maybe even 5+ years), meaning that they become relatively more and more affordable, especially when compared to the 2000 - 2007 period when people were used to seeing houses gain around 20% a year.I really don't know how the negative equity thing will effect things, maybe more negative equity mortgages.
For the reasons outlined above I don't think we'll see any more negative equity than we see at the moment as I don't think house prices will fall. But then I don't think that they'll rise either.0 -
I have a feeling that more sellers will come round in the coming months as there are more house price fall announcements.
I really don't know how the negative equity thing will effect things, maybe more negative equity mortgages.
That is quite an interesting thought.
If sellers stay away and there is only the dross left. Wont this have a huge effect on the 'average' price?
Ie buy not selling they are actually lowering their own valuation.0 -
Right, we have low mortgage approvals.
This article is saying that that's due to the valuation being wrong.
The majority of stuff I read states low approvals because the lending criteria for individuals is too tight and you need a spotless credit rating to get any money, regardless what the valuation is.
So which is it?
Edit: What we need is stats for mortgage denial reasons.This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0 -
Right, we have low mortgage approvals.
This article is saying that that's due to the valuation being wrong.
The majority of stuff I read states low approvals because the lending criteria for individuals is too tight and you need a spotless credit rating to get any money, regardless what the valuation is.
So which is it?
By historic levels lending is not tight.
It all depends on point of reference.0 -
Right, we have low mortgage approvals.
This article is saying that that's due to the valuation being wrong.
The majority of stuff I read states low approvals because the lending criteria for individuals is too tight and you need a spotless credit rating to get any money, regardless what the valuation is.
So which is it?
I think both. House prices are generally high, due to unrealistic sellers who aren't that bothered about selling. Plus mortgages are difficult to get. Put both together and you have low mortgage approvals.0
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