How do you know when offering on a house that you are offering the right amount?
Is getting 5% off the asking price good?
How do you know the price isn’t already 10% too expensive?
How much should you be offering on a house in a sealed bid scenario to be sure to secure it?
To answer this, we must establish why properties are valued and listed at the published price, and to do this, we must look at the interaction between the seller and the estate agent.
The seller will often already have a preconceived idea of what they believe their house is worth before engaging with selling agents.
This understanding is usually a result of watching the movement of other homes that they perceive as similar, sell but also, and do not underestimate this, based on how much they want to get for their home to move.
Sellers will typically select two or three agents to visit their home to hear the agent’s thoughts. In a city, town or village, agents are usually picked from recommendation, reputation, activity (usually board-based), fee and also, very often, based on the agent that scored the highest price locally.
Sellers of truly rural properties will usually select the agents they would like to value their homes based on recommendation and reputation alone, as boards and sufficient sales are unreliable indicators of an agent’s prowess in their location.
Due to many misunderstandings in the industry, it is worth noting at this point that sellers will often ask an agent, “How much are you offering.” Agents are not there offering on a house; they are there only to advise on its market value.
When asked, a genuine seller is likely to say, “I want a realistic price to sell”, but rarely, irrespective of any overwhelming evidence presented to them, will a seller instruct the agent that has valued their house at the lowest price, instead preferring to ask a price somewhere between the middle valuation and the top one, if not the top one.
Of course, some sellers will sell only if they get a market-beating price. They’ve heard that there is an opportunity to get a record price, and they will sell if they can get it.
And you know what; just occasionally, it does happen! It can be worth a go. The price they get offered is well above the market value, but for reasons known only to the buyer, that buyer wants that house, irrespective of its value.
Offering on a house like this will yield rewards, if emotionally and from a time pressure, it’s just the only perfect house for you.
Sadly, some sellers are forced to sell for many reasons, including death, divorce, financial hardships, job relocation, and many more. These sellers may opt to sell to one of the many house-buying companies that will pay substantially less than the house is worth or ask for a simple and very realistic price.
Few, if any, are willing to take a substantial drop, but their circumstances might mean their expectations are low to realistic. So when offering on a house, it is worth considering the seller’s position.
In my career of over 35 years in the industry, I have lost count of the number of times that a potential client has said to me, “My house is the best in the street because of XYZ”, or, “I live in the builder’s house” meaning that they believe that their house is marginally broader and more detailed than the others.
The second phrase is usually commonplace in larger conurbations. Still, it is symptomatic of the often typical expectation that the house they live in and have lovingly looked after and extended is not only the best house but also the best presented.
Don’t get me wrong, sometimes, it is the best house and the best decorated, but does that make it worth more than the last sold house? Not always.
For example, in a street of properties worth circa £500,000, would you want to live in the only house worth £800,000? The stand-alone house, the obvious target and beacon of your wealth over your neighbours.
The answer is that offering on a house that is notably more expensive than the others in the street does appeal to some people, but the market is much, much smaller than the market for the rest of the road, thus potentially limiting the property’s price.
Occasionally, agents are asked for a realistic valuation; however, most sellers will encourage their agents to pitch at the highest price in their meetings.
Not by asking directly but by what they indirectly say. For example. “The house has been recently decorated”, or “It’s a hand-built kitchen’.
Friends and family
It is worth noting at this point that friends and family are rarely helpful in this selling process. With the best of intentions, they will exaggerate how wonderful their friend’s house is. But, of course, this feeds into the seller’s justification for an inflated price.
It is rare to find a friend who will tell the seller, “You know, your house isn’t that special, and your decoration is terrible, so you need to lower your expectations!” Instead, almost everyone believes that their decoration is universally popular!
Just as a point of irony, I have had several clients who have informed me that for their house, the property market is strong but when at the same time and in the same market conditions they are offering on a house, the market for what they are looking at is weak.
The point about telling you this is simply that the belief that your own house is better than the rest is prevalent. You love your own decoration and modernisation, and now you’re looking at offering on a house to improve that one too. Let me be clear; my experience is across all markets, and in no market is anyone’s decoration universally liked!
The Estate Agent
The high street is full of estate agents. And now, so is the internet. Therefore, it stands to reason that agents feel pressure to compete for every house.
Aside from marketing and assuming they’ve been one of the lucky few to have been asked to value a target house, how do they ensure they win?
That depends on many factors, one being the type of agency.
The Corporate Chain
Like many chains, estate agent chains will often follow a patter with a script and a source of data to impress the potential client. Chains can be highly influential in specific markets.
For example, take the Connells group; at the time of writing, they claim to have 1,200+ branches across the UK.
A senior broker or the branch manager will likely attend the market appraisal.
These are often multidisciplinary, with commercial, rural, renewable, financial and planning agents. They usually have agents working in specified value areas and often have a London Country Homes office
Partnerships usually employ similar tactics to the chains, often with a more expensive-looking folder package aiming to impress using their market positioning credentials.
Any one of their senior brokers or Partners will likely attend the market appraisal.
These, like partnerships, are often owner-led but will make decisions based on their location and target market.
Being smaller in company size but with similar overheads to the other local branches, unlike their competition, they have limited financial capacity to be unsuccessful in any financial year.
One of the owners will likely attend most of the market appraisals.
The Market Appraisal
For agents, valuations are called Market Appraisals to distinguish themselves from a qualified (RICS) surveyor’s professional property valuation rather than simple suggested marketing advice, including price. A property valuation is usually charged for whereas a market appraisal is usually free.
What do all agents do in common?
When asked to value a property regardless of the potential for sale or rental, they will likely assess who the competition is, and with good reason.
They will all research the property they are visiting by looking at historical data, planning permissions, and google maps for garden sizes and locations.
They will build a folder with sales they have completed locally and if a very rural property, from farther away but of a similar nature.
Having gathered all the information they can, they will assess the size and then work out a price per square foot based on a local average. This means that by the time they arrive, most decent agents will have a pretty good idea of what price they will suggest even before they arrive.
Sleight of hand
Variances will follow during the visit based on the cosmetic condition and any surprises, and this is the crucial part; in chatting to the seller, they will learn the expectations required, and poor agents will amend their appraisal to suit.
Rather than telling a seller what they should hear, their pitch may well alter to fit the perceived wants of the seller.
This is easier than you might think.
Sales data is usually six months to a year out of date. The price agreed was at the offer stage and is generally published about 3 to 6 months after completion. Agents can take a raft of data and select the data that’s required in the moment.
Not only that, it’s at this point that the agent might consider their competition. Knowing that, despite all the comparable evidence and all the evidence contrary to the seller’s perception of value, the seller is unlikely to select the lowest quoting agent, even with the lowest fee.
The result is that these weaker agents will quote a high price and inflate the seller’s ego creating a battle for realism for the other attendees.
I want to be clear, much of the above relates to the weaker agent, but it is still pertinent to remember that the seller is unlikely to instruct the lowest valuing agent! They are likely to believe that the lowest agent will have clients offering on a house at the lowest price.
How do you know that you are offering the right price?
Coming down to the core question. You don’t. Not unless you are a specialist and have the time and experience to devote to understanding the market as it is right now.
Without help, the best you can do is visit many properties and assume that you know roughly what they sell for, which you don’t.
Even in the hated sealed bid scenario, you don’t know the accepted offer. It could even be below your bid! Sealed bids are not all about the price; your position, your interaction, your availability all play apart.
Remember, around 1 in 3 sales fall through, so your presentation of yourself, knowing that the agent has to work with you for around 3 to 6 months and their opinion of how recommending you as buyers will affect the likely success, counts for a lot.
Should you take account of the future predicted price rises and falls? That’s up to you, but if it’s your home and you’re going to be in it for a while, then really, what’s it going to matter?
All investments go up and down in value, and it’s all relative anyway. So when your property price falls, it’s likely that so does the cost of the property that you want to move to.
What we do know is that it is likely that at least one agent valued the house that you are offering on at less than the asking price. And, of course, the more expensive the house, the more significant the discrepancy.
I’ve known differences in estate agents thoughts on value in the millions. Even at £500,000, the difference could be more significant than 10%.
So how do you know if you are offering the right amount to secure that house and not offering on a house at more than it’s worth?
Employ a buying agent such as Rowallan Buying Agents. Someone with the experience and knowledge to take on the agents and sellers on your behalf. Someone who understands the process, the values and the agents.
Someone offering on a house on your behalf is a much harder negotiation for the agents, and they’ll secure you the house, and they’ll achieve this at the best price, saving you thousands or even millions of pounds.