A recent publication we have come across was a growing gap between property average asking price (that supplied by Rightmove) and actual average sold price (published by ONS). Is it possible to achieve 100% of the asking price? Is the property market overbought?
There are a number of factors causing widening of the gap. The main factor is that we can see increased number of companies carrying out estate agency activities, not necessarily be qualified or experienced estate agents. Lifting up asking price on the property seems to guarantee the instruction and some agent’s job ends at this very starting point. A recent research on online estate agents showed one of the biggest one, who increased instructions level by 83% last year but sales were completed on only 57% of all listings. Overvaluing a property can be due to the fact there are no comparables available or an agent wanting the instruction at all costs simply inflates the price. Overpricing is well known and seems tempting during property market like this one, where the demand remains strong, mortgages are cheap and widely accessible, the economy is stable and Brits are encouraged to step onto the property ladder.
Expectations seem to be another fuel to the fire. We are being bombarded by the information on house prices continuing to rise on a monthly basis. Where the raise on average is probably true, each area or even each individual property is different and estate agent’s job is to carry out thorough research on that particular home and compare these findings with the wider property market data. In Gloucestershire, average property increased in value between April 2015 and April 2017 by 11.6% (see data from Rightmove below). Unfortunately, that doesn’t mean that we will be able to add 5.8% to each property we are invited to this year. We understand that our clients do expect to see an increase in value which we do sympathy with. Nobody wants to see their biggest life asset underperforming. Our job, however, is to be professional and to provide expert advice we will be happy to attach our name to.
Overvaluing properties is not only damaging for the whole sector as it gradually creates a speculative bubble, but is creating a very risky strategy for the property owner. We experienced prices £30,000 above market value. The market values in the buoyant markets are always higher than the actual worth of the asset anyway. This pattern is reversed during downturn cycles. Nothing wrong with testing the market and as Agents, we encourage this ourselves on the markets like this. Yet being reasonable and actually testing the market is one thing, where being greedy and unreasonable another. If you are not time constrained perhaps this will not affect you much. However, if the time is of the essence, a realistic price is a must. Working with property investors we regularly being asked for an opinion on the entry price on a buy to let property. Establishing whether the property asking price is exceptionally high is a relatively simple task. It is always a concern however when a property suddenly being downvalued and this should raise questions over its structural robustness. On rental market it has literally no impact, when you sell the property, on the other hand, some potential buyers may think it has been discovered there is something wrong with the property and they will walk away. This could be your buyer.
Therefore, when you are looking to establish the estimated value of your property answer the following five questions:
- When was your property build?
- When did you purchase the property and for what price?
- Have you done any improvements to the property?
- What’s the average property sold price on your street?
- Is there a possibility to build an extension?
We would like to direct your attention to question two and four. When did you purchase the property is a valid question a good agent will ask. We would ask that question to link the purchase and price you have paid for the property with the economic outlook. If you cannot achieve 5.8% increase in value it may not be due to your house underperforming but because you have bought it at a premium and that increase is already included in the current value of your property. I wouldn’t worry about this unless your asset is performing continuously under the average for the properties in your area. Yet, we strongly encourage you to look at sold prices, not the asking prices as seen on property portals. Until the property is sold and the right of ownership is exchanged, it is just a number which has no real value whatsoever. For that, you can visit Land Registry records to see what was the price property actually sold for.
In any case, your property is our pride and we will be more than happy to meet you and share our honest opinion with you. Talk to us and we will be able to assist you, build strategy and achieve your goals. Your interest always comes first.
Book your FREE, no obligation valuation here today.
So is the property market overbought? We don’t think so. Don’t forget about the ‘1 million homes’ promise by 2020 for which there is a little prospect of success at the current construction pace. The government’s support for the build to rent sector and smaller developers will certainly help. What is fascinating about it is that we should see more diversity in buildings, increased housing sustainability and stronger property prices in coming years. We don’t expect any turmoil until 2019. Even then though, demand is not going to disappear over the Brexit. If you are considering buying or growing your portfolio empire, property prices are driven by demand. There is no oversupply on the horizon and the property remains to be the best performer of all.
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