1. Your house will almost certainly be sold for less than it's worth:
There's a real danger, if you're not careful, that your agent will sell your house for much less than it's worth – 3.7% less to be precise.
That's the average by which estate agents undersell properties. On the sale of a £200,000 property that's a loss £7,400.
How do we know this? Because of an academic study of 100,000 house sales reported in the 2005 best selling book Freakonomics. Accounting for all the variables, the study found that if an agent was selling their own house they got a sale price 3.7% higher, on average, than if they were selling an identical property for a client.
Why would an estate agent, paid on commission, sell your house for less than it's worth? It doesn't make sense until you realise that the commission structure creates a powerful incentive to do just that.
What the study found was a "perverse incentive" to sell houses cheap. Let's go back to our £200,000 house to see how this works:
Based on the results of the study, the best price it could have sold for is £207,400. To us as the house seller that's a big difference — an extra £7,400 of equity and a real incentive to make sure we push hard for the best deal.
Unfortunately, the same is not true for the estate agent. For the extra effort that's required to get the best price the estate agent only gets £133 or 1.8% (the average commission rate) of £7,400. That amount is quickly wiped out by the extra marketing and staff costs of getting you the best deal.
As a result, your typical estate agency has a culture of pushing for a quick sale. And as we all know, the easiest way of getting a quick sale means getting you to accept a low offer.
Agents often push the seller to accept the first reasonable offer that comes along with a spiel that sounds something like this: "It's a reasonable offer... we can try for a bit more, but if we push too hard we might lose it... and then we might have to wait a long time for another and we don't want your listing to go stale..."
What the seller never knows...
What you, the seller, are not aware of is what the agent's doing behind your back.
Agents are constantly being asked by prospective buyers "How much would the seller accept?"
To answer this question would be the most blatant breach of trust as the agent is there to get you, the seller, the best price. Not only is it a breach of trust, it is also a breach of The Property Ombudsman code or practice and a breach of the law... and yet it happens all the time!
And it's how agents pull off the trick of getting a quick, cheap sale:
It starts with the agent telling the buyer the lowest price they think (or know, if you've told them) you would accept
Surprise, surprise, this leads to the buyer putting in a low offer!
The seller might reject the first low offer...
...but after two or three low offers from different buyers they start to think "maybe the house isn't worth as much as I though"
This, of course, is not helped by pressure from the agent to accept a low price
It becomes a self-fulfilling prophecy and – eventually – the seller gives in and accepts an offer for thousands less than their house is worth
The agent telling your buyer what you would accept is like a poker player showing their cards to the rest of the table: they've lost already – the other players know exactly what to bid and how to bet.
But as far as the agent is concerned, the sooner they can shift your property off their books the sooner they can begin working on their next commission. Far from losing money, the commission system means that agents actually end up getting paid more if they sell your house for less!
2. Your house may be "ring-fenced" (and you'll probably never know)
A 21 month investigation by the Office of Fair Trading found the most common complaint from sellers was that estate agents failed to keep them informed about all offers made by potential buyers.
Sometimes this was simply due to poor internal procedures or laziness.
Some cases, however, were much more sinister. Sellers had not been informed of offers because their property had been "ring-fenced" by the agent.
"Ring-fencing" is a completely illegal practice, whereby an agent arranges to sell the property at a discount to a friend, relative or property developer.
Sounds far-fetched? In its recent "Whistleblower" programme, the BBC secretly recorded a London estate agent offering to set up a deal for a property developer in which he would "ring-fence" the home of an elderly gentleman who was hoping to sell.
The agent told the developer that, in exchange for a £10,000 back hander, he would arrange to sell him the £190,000 property for £140,000 – cheating the pensioner out of £50,000 in the process. Easy for him to do because his poor client had no idea what the property was worth and trusted the agent. What an absolute scumbag!
How does the agent do it? Easy – they simply don't tell the seller about the offers that come in. They may even go as far as to arrange for some very low bogus offers to be made so that the seller's expectations are lowered.
After a few weeks with no apparent interest in the property, it's easy for the agent to persuade the seller to drop the price. Then, miraculously, an offer appears! It's very low, but the agent's really putting the pressure on as "This is the first person to show any serious interest".
After a bit of "negotiation" a price is agreed. It's much less than the seller had hoped for, but by this stage they feel grateful they were able to sell at all.
It's common for this sort of thing to happen in probate sales. Because people are not actually selling their own house they often don't pay as much attention as normal. Plus, it's often a painful, emotional time for relatives who understandably want to get things sorted out as soon as they can so they can move on and make some of that pain go away.
Perfect for an unscrupulous agent who can prey on this vulnerability and lack of proper attention and make a few thousand extra by "ring-fencing" the property.
3. Your house is overvalued and undersold
According to the consumer affairs magazine Which? "deliberate overvaluing" by estate agents is "a common problem". Why? Because if they exaggerate the value of your home they are more likely to get your business than if they allow themselves to be "outbid" by a rival.
They know that in reality your home is only worth what someone will pay for it, but that doesn't matter. What matters is that they get you on their books and lock you into a long contract.
Then, after three or four weeks when there's little or no interest, they can suggest that you should "lower your asking price" – and, as we've already seen, agents are incentivised to get you to lower it as much as possible. And of course, by locking you into a long contract the agent has the all time they need.
This has several effects and none of them are good:
For you, as the seller, it is frustrating, inconvenient and disappointing
It can easily add a month or more to the time it you takes to sell
It's likely to lead to a lower sale price as disappointed sellers are easily persuaded to "over-discount"
4. Your house takes much longer to sell than it should
This happens as a direct result of overvaluing properties to win instructions and then locking sellers into long contracts, as we saw above.
A typical estate agent's contract will lock the seller in to an exclusive agreement for three months, but some will be for as long as six. Plus, there's often an additional notice period of up to a month.
Locking you into a long contract that grants them exclusivity means two things for agents: 1) they can play the "overvalue and undersell" game that we talked about above; and 2) there is a general lack of urgency to push the sale forward.
As well as the frustration and inconvenience, a slow or delayed sale can have much more serious consequences. Most importantly, it may lead to you missing out on the property you want to buy.
It's well known that a seller will always favour a buyer who is in a position to move quickly over one who isn't. And the longer it takes you to find a buyer the more likely it is that your offer will be the one that is rejected. Or, instead you may end up having to pay more than your rival to make up for being in a weaker position.
5. The real cost to you is probably much higher than you think
We tend to think of the cost of selling a house in terms of percentage of asking price. That's how it's always presented to us after all.
But the real cost is a little different. The real cost to us personally is how much it will cost us as a percentage of our equity. And unless you've paid off your mortgage in full, the real cost will always be higher than the percentage of commission you are quoted. And don't forget to factor in the amount you are likely to lose because your house is sold for less than it's worth (see above).
For example, on a £200,000 property the real cost is likely to be as follows:
Cost of agent's fees at 1.8% = £3,600
VAT on fees at 20% = £720
Loss of 3.7% of value because property sold for less than it's worth = £7,400
Total cost = £11,720
And the lifetime cost to you of using a typical estate agent is...
According to recent research by the Halifax, the average UK home owner will have moved six times (and sold five times) by the time they reach 65, spending an average of £200,000 on each property.
If the real cost to them is £11,720 each time they move then the lifetime cost is a staggering £58,600. At a time when people are increasingly worried about paying for retirement, that's a huge amount to lose, especially if your property is going to be a part of your pension plan.
How to protect yourself and get the best possible price
1. Get the negotiations right!
Getting the negotiations right is critical to selling for the best possible price.
We saw above how agents are incentivised to give away vital information by telling buyers what they think you would accept. That’s like being the world’s worst poker player and showing everyone your cards!
You need to find an agent who won’t – as a matter of principle – tell buyers what you would accept. In other words you will need to find an agent who is not just thinking about the quick sale. But how can you know? How can you tell what’s being said when you’re not there?
Ultimately you can never be sure. But what you can do is look at the evidence...
The evidence comes in the form of the percentage of asking price achieved compared to the average agent. We already know that the average agent gets a sale price that’s 3.7% below the best price that could be achieved.
So if we know the percentage that the average agent is achieving then we have a benchmark to compare against. How much above or below that figure are they?
Sadly, many agents wouldn’t have the first idea of what percentage they’re achieving. It’s not something they track, because it’s not something they care about. So if they can’t even answer the question then that should give you a pretty good idea about whether or not they’re worth using!
Look for an agent that is getting a sale price significantly above the average. And make sure it’s not just because they’re under pricing the properties they list because that definitely isn’t a good reflection on their negotiating skills!
Finding the right agent to negotiate for you should mean that you walk away many thousands of pounds richer when you sell compared to using one who’s just in it for the quick sale.
2. Get regular feedback and be sure that you’re receiving all offers
Again, this is another area where it’s difficult to be sure if you have the full picture.
The best advice we can give you is to make sure you’re getting regular feedback from your agent. It’s amazing how many clients come to us after being on the market (unsuccessfully) for months with their previous agent, and when we ask what sort of feedback they’ve had they tell us that they haven’t really had any.
Your agent needs to keep you in the loop about what’s going on. There is often a pattern in the feedback with different buyers mentioning the same things. If there is a pattern and you know what it is you can discuss with your agent what to do about it. But if the agent’s not getting the feedback you’ll never know and that could add weeks or months to the time it takes you to sell.
It’s no guarantee, but an agent who gives you good, timely feedback is more likely to be passing offers on to you in a timely manner than one who doesn’t.
And if you’re really not sure you can always have someone “mystery shop” them, give feedback and put in an offer. Then see if it gets passed on to you.
3. Get the price right!
How do you strike the balance on price? How do you make sure your property is not overpriced (which means a delayed sale) and not underpriced (which means leaving money on the table)?
Broadly speaking, agents use comparables to estimate the price of a property. This means they will compare your property to similar properties in your area that have either sold recently or that are on the market.
They will need to factor in the differences between your property and those they are looking at. This includes the reasons for selling – for example, if someone has had to sell in a big hurry for personal or financial reasons, it’s likely that they won’t have achieved the best possible price.
They will also need to consider price trends in your area – both so that the comparisons are meaningful and to take into account where the market might be at the point where you are likely to actually sell (typically it takes around 3 months).
Ultimately, though, however good the comparable information is, it will always be a best guess – even if it is highly educated!
So does that get us any further forward? Well, because it’s impossible to know exactly what someone will actually pay in advance, picking an exact number is not the best strategy. In reality a property will fall into a certain price range that depends on all sorts of variables. The key is for your agent to have a good idea what that price range is based on the information available.
The next step is to get the best price without having to wait forever for a buyer!
Plus you need to factor in your own timescale.
What your agent needs to do is set your asking price so as to maximise the chance of you achieving the best possible sale price within the property’s price range, having taken into account your timescale.
But that’s not the final step. It’s also important for your agent to monitor the response to your listing as well as to gather any feedback from viewings.
By tracking the number of people who view your listing online, the number that click your listing to see more detail, and the number of and feedback from people who actually view, your agent should be able to get a good idea of whether your property is correctly priced. It’s as much an art as a science, but it can be done.
And as a general rule, it’s better to slightly overprice a property than to under price it – unless you’re in a big hurry to sell, of course! In today’s slow housing market it’s much easier to adjust a price down slightly than it is to push the price up.
4. Speed of sale: the 3 Ps
There are lots of things that can be done both by you and your agent to speed up your sale. But here are three of the most important: portals, photos and plans.
You must be on the 4 Big Portals.
Here they are in order of importance: Rightmove, Zoopla, FindaProperty and PrimeLocation.
And although there are hundreds of property portals, the Big 4 bring in well over 95% of all buyer enquiries.
Despite this, it’s amazing how many agents there are who still don’t advertise on all of the Big 4. The reason they don’t is simple: it’s expensive. As an agent you pay on a per property, per month basis, and it’s not uncommon for agents to advertise on only a couple of portals to save money.
Rightmove accounts for about 60% of the enquiries that come from the Big 4. Now that’s a lot, but what if your buyer is in the other 40%?!
Make sure you’re on all of them.
Before you can sell you need people to view. And good photos can make a huge difference to the number of viewers.
That’s because first impressions count. And surveys show that most buyers (as many as 97%) now do most or all of their searching online.
So it’s really important to have a range of good quality internal and external photos. Lighting is very important, especially on the internal shots. And while some rooms are best shown using a wide angle lense, others are best captured with a standard lense.
In other words, you need a skilled photographer with the right equipment. Too many of the photos taken by agents are poorly lit, poorly framed and taken with a simple point and shoot camera that just can’t show the property at its best.
Make sure your agent takes good quality photos.
Floorplans are an essential part of your listing. They are there to make sure that the right people come to view your property.
There’s no point wasting time organising viewings for people who are going to take one look at the property and say that it won’t work for them because of the layout. This is something that can be avoided by including plans with your listing to filter out those who aren’t interested. Yet an amazing number of agents still list properties without plans!
Plans also help to manage the expectations of buyers who are interested. So even if the layout is not perfect for them they know in advance and can plan accordingly.
Psychologically, this is a big help as the buyer can get any feelings of disappointment out of the way before they view your house. This way they will leave with a better overall impression.
Make sure your listing includes a set of quality floorplans.
5. Rapid Response
Last year The Property Ombudsman received a record number of complaints (despite transaction levels being well down on normal) with the biggest cause being communications failure.
As well as being frustrating and a cause of uncertainty, poor communication can have more serious consequences. It can lead to you losing a sale – especially in a slow property market like the one we are experiencing now.
This is because if an interested buyer is waiting around a long time for a response then they start to lose confidence. And a buyer who lacks confidence is likely to continue looking at other properties.
Plus, the longer they are left waiting the more chance they have of finding another property. And if the agent selling that property is enthusiastic, committed and highly responsive then the buyer will naturally gravitate towards them and the property they are selling. That is the person who is likely to sell their house, not you.
So having an agent that is properly staffed and proactive in responding to both buyers and sellers is a critical part of your sale success. Plus, the faster the agent’s response time the faster your sale is likely to complete and the less time there is for something to go wrong.
How you could be £17,164 better off...
£17,164 is how much better off our clients are, on average, when they sell through House Hop:
£5,734 of this is the amount they save on estate agents commission fees (because we don’t charge any commission, just a fixed fee of £497 plus vat);
the remaining £11,430 is the extra money they put in their pockets because of the higher percentage of asking price that we get them.
Based on our 50 most recent sales, our clients sold for an average of 97% of asking price compared to a UK average of 93.1% (Hometrack figures, June 2012). That means House Hop is getting 3.9% more or £11,430 based on our average property price of £293,077 (independent figures compiled by Globrix, July 2012).
We work hard to get our clients the highest possible price. And because, unlike normal estate agents, we do not charge commission we are not incentivised to price cheaply and push for the quickest possible sale.
Sure, we could make our lives easier if we pushed people to accept low offers and sold their houses quickly and cheaply. But we don’t because we take great pride in doing the best job we can for our clients and getting them the best price. That extra £11,430 in equity is a lot of extra money for our clients to walk away with and we’re proud we can make that possible.
We’re not a traditional estate agent and, frankly, we don’t want to be. The stereotypical agent has a lousy reputation and, more often than not, is seen to be looking out for their own interests first, not their client’s.
By pioneering the Online Estate Agency model and by telling people the truth about the dangers of estate agency and how they can avoid them, we’re hoping to change the industry for the better. We feel that we are doing something different – something special.
By the way, if you’d also like to see estate agency change for the better and dramatically improve the way it looks after clients and their financial interests you can help too by letting people know that the online estate agency model exists.
And the good news is – the Office of Fair Trading (OFT) has come out in support of online estate agency as a way of cutting costs and providing greater choice for house sellers.
Our goal at House Hop is to get you the best possible price and, at the same time, to help you sell as quickly, easily and smoothly as possible.
So as well as advertising on each of the 4 Big Portals (Rightmove, Zoopla, FindaProperty and PrimeLocation), we use professional photographers so that our properties are presented in the best possible light. Floorplans come as standard with all our listings and are RICS (Royal Institute of Chartered Surveyors) approved.
Plus, we maintain a high staff to client ratio so that we can respond rapidly to enquiries both from our clients and from their potential buyers – a crucial part of securing and then successfully progressing a sale in today’s difficult market.
As a result, our client’s properties sell in an average of 54 days compared to a UK average of 67 days (Hometrack figures, June 2012).
Before you choose your agent, find out more about how House Hop can save you an average of £5,734 and add an average of £11,430 more to your sale price by calling us on 01235 250 789. We can have a no obligation chat, explain how online estate agency works and then answer any questions you may have. Then you can decide if House Hop is right for you. We look forward to speaking with you!