How Do Estate Agents Come Up With Their Valuation?

Property Valuations - Trinity Sales Wakefield

One thing will never change when it comes to the business of selling houses. There will always be a healthy percentage of sellers who believe their house is worth more than the facts available state. Emotion and sentimental value is usually the reasoning behind it.

I've been on valuations where the vendor has told me that their house is worth its full asking price despite the fact it's been on the market with another agent for 6 months plus and they've not received an offer.

Sellers need to understand that their house's value is determined by one thing and one thing alone:

What someone is willing to pay for it at that moment in time

Sadly some unscrupulous agents pander to vulnerable sellers' emotions to win business. They tell them or worse, promise them their property is worth the figure they want, even if the facts hint otherwise. It's this type of practice that gives estate agents a bad name. The agent has no share of the risk if it doesn't sell for the promised figure. And there is little recourse for sellers to be compensated for this bad advice.

To help you avoid the same pitfalls, here's an explanation of what we as an agency do in order to value a property fairly for the benefit of our clients.

  • We look for recent sold price comparables in the area. Some of this information is freely available to the public through sold price tools like Comparables of recently agreed sold subject to contract prices are available through the estate agents software we have available to us.
  • Consider recent changes in the LOCAL property market. For us this doesn't mean just at a Wakefield and Yorkshire level. It means at a Micro Level; suburbs or even streets - are they going up, down or broadly flat in price?
  • We take into account the specific condition of the property we're valuing. How much work does it require? Has it been extended? Is there any development potential? Is there anything which may put off buyers/limit what people might want to offer on the property? - these can range from things which can be easily fixed by the buyer or seller (minor renovation or redecoration) to issues which just come with the property (such as a property in an area popular with families but which has no garden or is next to a main road - both turn-offs for couples with children)
  • We take into account any recent changes in the immediate area. Have new amenities / transport links been built? This should add value. Conversely if a huge new development of similar houses has been built this would likely depress prices in the short term as there is more competition.
  • What type of buyer will the property appeal to and what would they be willing to pay? If it doesn't need work it's more likely to appeal would appeal to the majority of buyers and because of this the seller has the potential to get a price premium. If it needs major work its likely to deter the majority of buyers and appeal more to developers and investors who buy property based on the figures not emotions, meaning it's likely the seller is going to get an offer based on the following equation in the buyers head:

    Offer price = Final value - (Cost of works + contingency + developer's margin)

After analysing all this information we come to a decision on a value that we feel it will likely sell for.

The marketing price we decide and advice we offer to achieve this likely sales price will then differ depending on the individual seller's situation.

Dilemma - What to do when one agent gives a higher valuation than another agent?

Too many times we have called a seller after we've appraised their property and they have told us "We found your advice extremely helpful but we have had another agent visit and we've decided to go with them because they said we would get more for it".

How so? Rationally speaking, as agents, we all have the same tools to hand so you'd expect we should come up with the same or very similar valuation. If basing valuations on the facts was the only thing at play it would be true. However, it's more complex than that. Agents are judged on their performance of winning instructions. Unfortunately there are still a lot of agents out there that focus more on the '% of instructions won' figure over the '% of sales achieving or exceeding valuation' figure.

REMEMBER - In most cases the agent is NOT helping you by overvaluing your house. If you actually need to sell they are in fact hindering you as you're probably going to be left with a house sitting on the market for months until the price is lowered.

We don't blame sellers for being swayed by higher valuations; it's human nature to want more. It's also quite natural to expect that if you have spent £x on your home you would get at least £x back, if not more, when you come to sell.

If only that was the way of the world, and yes for the lucky ones it is.

Things to bear in mind are - at what stage of the property market cycle did you buy? Right at the top or in a rising market? And do you think you bought it for a bargain or did you pay top whack? Because these things both come into account when you look at the likelihood of getting out what you put in. The reality is there are factors completely out of your, and anybody's control, as the 2008 economic crisis, from which the UK is only really just coming out of, taught us.

We've worked out that 84% of our clients have come to us AFTER having their house on with another agent!

By the time they come to us they are understandably disgruntled, upset and sometimes angry: "But they said our house was worth £135k and that they could definitely achieve that so why haven't they delivered any viewings?!"

At the end of the day, a house is only worth what someone will pay for it, as every estate agent knows.

When is it right to go with the highest property valuation?

The only answer to give is - if it's right for YOU. If a property is overvalued it will soon become obvious - there will be few or no viewings, and if offers are made they will be lower than the figure marketed at. Whether you choose to accept a low offer or hold out for a higher one - when the right buyer comes along or the market improves, however long that may take - is entirely your decision. If you have a figure that you need to achieve in order to move on to your next home, pay off debt or simply because you will only be happy getting a full asking price offer, and you are happy to wait until you get it, then that is what you should do. The market should catch up with your needs eventually.

Where we wouldn't suggest taking an overly optimistic valuation is if you need to sell the property within a short amount of time or if you're only going with a high valuation "because it couldn't hurt", when really you know it's probably not worth that much or if an agent seems too easy to say "we can definitely achieve that figure for you". One of the most damaging things you can do, in our opinion, if to have an over-valued property sitting on the market for a few months then, when no acceptable offers are forthcoming, drop the price. Then drop it again. All this says to prospective buyers is that you are desperate to sell or that there must be something 'wrong' with the property.

At Trinity we give our honest valuation of a property, but we will also always discuss with our clients whether they have a figure in mind that they would be happy with. We usually then market our properties 'at offers in excess of' that figure, or somewhere between that figure and our valuation, whichever the client is happy with. Our clients fully understand that if their property can't achieve the figure they want when marketed at 'offers in excess of' then there is little to no chance that it could reach an even higher figure given by another agent. As I can never say too many times: the market will decide.

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Published on 20 October 2014

Source Dominic Woodward

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