Understanding House Prices and the Ability to Accurately Value a Property
I've been involved in property and estate agency for over 30 years. I've seen buoyant markets when selling properties is as easy as falling off a log and I've seen depressed markets, the worst being the financial crash of 2007/09. Understanding house prices and the ability to accurately value a property are two fundamentals of selling your home.
House Prices
Have you ever thought in any detail what determines how much a property actually sells for? When I say sell, I mean the money is in the bank and the buyers have moved in.
Most agents say it’s based on the market price that the property is being advertised at. Well, I don’t believe it is, and here’s why.
When it comes to property, price is what a buyer is willing to pay AND what a seller is willing to accept. It’s not like popping down to Tesco, getting to the till and beginning to negotiate on each item with the cashier. The price is the price.
With property, that’s not the case.
The amount a buyer wants to pay and the amount a seller wants to receive depends upon the individual circumstances of each one. Their goals, their objectives, their desired outcomes.
That being the case, an estate agent really needs to get to know both parties in as much detail as possible. Without an in depth knowledge of the individual desired outcomes, negotiation is almost impossible.
People seem to be obsessed with house prices. It’s a statistic that the media love to focus on and estate agents, including ourselves, seem intent on shouting from the rooftops.
“House prices are down 5% in the last 6 months.”
“My house is worth 10 grand less than it was a year ago”.
House prices increases or decreases are not that relevant for the majority of people who are looking to move home.
IF your house HAS decreased in value by 5%, and please bear in mind what I’ve already said about the price of a property, then the value of the house you are buying has also decreased by 5%. It’s a very broad way of looking at it, but I hope you understand what I’m saying.
There are, however, two sectors of the market where house price variances ARE relevant.
One is first time buyers who are obviously purchasing their first home which makes the timing of the purchase very important when asking prices are fluctuating so much – especially on new build homes.
The other group of people that are affected by house price changes are those who are selling up, but not buying another property. For those people, maximising the sale price is extremely important.
The number one piece of advice I can offer for all potential buyers and sellers, is BE READY. Be as ready as you can be to make your move at the best time to suit you.
For those of you looking to move home, get your current home on the market and speak with a mortgage advisor.
Many sellers will not even offer viewings to people without their property on the market or without some sort of mortgage agreement in principle. Sellers are even prioritising ‘proceedable’ buyers who make a lower offer on their property over those who make a higher offer who aren’t even on the market yet.
Remember what I said right at the start about prices and individual circumstances.
Valuing A Property
You’re thinking of selling your home to move to pastures new. So, you invite 2 or 3 estate agents out to ‘value’ your property. How on earth do they actually do that?
Many agents with turn up at your property with details of similar properties to yours, how much they are on the market for, how much they have previously sold for and how much local house prices have changed in your area.
Is it important? Relatively. But, there are far more important things to consider.
I believe there are three pieces of information that an estate agent needs BEFORE they can suggest a figure that you home should be marketed at.
Notice I’ve tried to avoid the word PRICE. If you’ve seen my video on house prices, you’ll know why I’ve avoided it.
A price is something you see on a loaf of bread at a supermarket, or a beer at the local pub. You don’t negotiate, you just pay it.
With property, the price is what the two parties, buyer and seller, eventually agree on to complete the sale. It’s NOT the correct term to use right at the start of the process. But, that’s what we’re all used to, so that’s that. Anyway, back to the valuation..
The market and sold prices of similar properties are the first of the three pieces of information that should be used to assess the value of a property. This does give an overall indication of the local market, however, many properties are often quite unique in their build and their location so don’t necessarily have similar properties to compare them with.
The second element to assessing a value are the individual characteristics of the property itself.
What aspects of the property would perhaps persuade a buyer to pay more for the property than a similar property down the road. Is the location more appealing? Are there any particularly nice views? Anything that stands out in this part of the assessment should be prominent in the property description when it is marketed.
The final element of the appraisal are the homeowners. Circumstances, goals, outcomes, objectives, timescales, the next property, in fact any information that creates a profile of the seller.
Is the seller planning or willing to do any renovations or improvements to the property prior to going to market? What type of improvements could increase the desirability of the property? It’s all important.
All of this information needs to be taken into account before the agent can put together a pricing and marketing strategy. A pricing and marketing strategy created to achieve the objectives of the seller. It’s not JUST a property valuation.
Anyway, that’s how our team conduct a Market Appraisal appointment and how we create our marketing strategy.
One final piece of advice.
You should choose the agent that you have the most confidence in to sell your home. Everything else is irrelevant.
Also, I would not choose an agent who gives you a suggested marketing price there and then. They cannot possibly have taken into account ALL the necessary information at their disposal.