When and why agents over-value

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One of the most common – and most harmful – problems that Estate Agents create for their clients is ‘over valuing’ a home.  In other words, the agent assures you they can sell your home for a really high price…. which in practice is higher than anyone is likely to pay.

Why is this harmful?

Because it means your house is on the market for a long time without selling.  Potential buyers might have visited, but they have used your house a the comparison to buy other houses…  they might like your place, but they can get a similar house cheaper elsewhere.

Worse, to find a buyer you’ll have to cut the price…  by which time, many buyers will know your home has been on the market quite a while, and will be suspicious that there’s something wrong with it.

Even worse than that, if buyers realise your home has been on the market for ages, they are much more likely to make a low offer, figuring (rightly!) that you’ll be getting more worried about ever finding a buyer.

So, an over valued house will take much longer to sell, and might well sell for less money, than one that is realistically priced from the beginning.

So Why Do Agents Do It??

The simple reason is – because they are desperate for you to choose their agency.  Many sellers choose the highest valuation…  it’s perfectly understandable, because we’d all like to get as much as possible when we sell!  And if an agent assures you that he or she can get more for your home than the next agent, well, it’s very tempting to believe them!

Add to that, many people will choose the middle valuation from three…   but people rarely choose the LOWEST valuation…  so many agents will tend to be overgenerous, hoping to be in the middle, because they don’t want to be the bottom valuation.

How agent’s commissions make this problem worse!

No estate agents will stay in business for long if they can’t persuade sellers to use them…  so in some respects its understandable that agents are keen to secure an instruction…  but many agencies make the problem worse by paying agents commission for getting instructions, regardless of whether the home sells at that price.

This means that the agent who visits your home has a personal financial incentive for ‘winning the business’, but not for getting the price right.  In other words, there’s a strong reason for the agent you meet to promise a really high price…  it might be persuasive enough to get the instruction and the commission, and it doesn’t matter financially to that agent if you end up selling for much less!

Some agencies even make matters worse still… by offering bonuses to staff members who persuade buyers to cut their price.  For the agency, a cheaper house is easier to sell, and the agency wants to sell things as quickly as possible.  But for the customer…  that’s YOU…  it means an even stronger incentive to win your business by promising a sale price that the agent knows you won’t get, meaning even more commissions when you have to reduce the price later. 

How to avoid agents that over-value

First – do your research!  The section in this magazine on ‘How Agents Value Your Home’ should help you through this.

Second – ask the agent to justify their valuation by showing you their research.  If an agent’s valuation seems high, demand to know what their evidence is for suggesting that their price is achievable.

Third – ask agents to explain EXACTLY how their commission structures work.  Knowing an agent gets commission if you sign up with them doesn’t necessarily mean their opinion is wrong…  but it’s important to know all the factors that might affect what they tell you.

Last – if one agent values much higher than others, ask them to explain what their company does that the other agents’ don’t do..   and then watch out for answers are just hot air.  Most buyers find homes online, so a very strong internet marketing presence will give one agent a real advantage over another. But having lots of ad-space in the local paper makes no difference – what does it matter if an agent takes out 6 pages in colour instead of 1, if your home is just one of 24 houses on each of those pages?  Having two offices in town does help, because it means that an agent will pick up prospective buyers from different suburbs. Fulfords, Bradleys and Underhills are the only companies currently with two offices in Exeter.  But having offices in other towns is totally irrelevant…  as if people buying in Exeter would go to an estate agent in Tavistock to search for property!

Think very carefully if the explanation you get sounds right… of course you want the highest possible price, but over-valuing is not the way to get it!

Summary – avoiding the trap of over-valuation

Don’t be tricked into going with the highest valuation, unless you are absolutely certain it is not an over-valuation.  Understand that all agents are under some pressure to err on the higher side of their opinions, and most agents have commission structures that encourage over-valuing.

Do your own research, so you know roughly how much your home might fetch in the current market.  Demand to see the agent’s own research, and insist they explain and justify their valuation.  Ask them how their own commission works, so you understand their motives.  If an agent does value highest, it doesn’t mean they are wrong…  but ask them to explain why their agency thinks it can get a higher price than the others, and work out whether their ‘reasons’ stand up to scrutiny!

Selling your home is a big decision; the more information you have to begin with, the more likely you are to make the best decisions when it comes to choosing an Estate Agent.

 

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