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Special Report
Part 1:
1. Why do estate agents sell homes for an average of 3.7% less than they are worth?
2. Just how expensive are estate agents, really?
3. Why do estate agents deliberately overvalue homes (before they undersell them)?
4. Why do estate agents take 50% longer to make a sale than private sellers do?
5. How much poorer will using estate agents make you in retirement?
6. What are the other hidden costs of selling through an estate agent?
Part II: The 7 Things to Look For When You Sell
Methodology
1. Why do estate agents sell homes for an average of 3.7% less than they are worth?
2. Just how expensive are estate agents, really?
3. Why do estate agents deliberately overvalue homes (before they undersell them)?
4. Why do estate agents take 50% longer to make a sale than private sellers do?
5. How much poorer will using estate agents make you in retirement?
6. What are the other hidden costs of selling through an estate agent?
Part II: The 7 Things to Look For When You Sell
Methodology
5. How much poorer will using estate agents make you in retirement?
According to research by the Halifax, published in January 2008, 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.
At an average cost of £10,850 for each sale (more as you move up the property ladder) this adds up to £54,250 — equivalent to a 27.12% uplift in the value of that typical home — by the time the average home owner retires.
This figure, however, does not take into account three powerful factors that magnify the potential loss to the home owner who sells through an estate agent. These are:
i) rolling over the money saved into the next property
ii) the power of compounding
iii) the effects of house price inflation
The question of how much poorer you will be in retirement is important because of the typical house buying pattern:
During their working lives most people move up the property ladder before downsizing after retiring to release equity, which then part funds their retirement.
What if a lifetime of using estate agents had a hugely detrimental impact on that person's quality of life?
During their working lives most people move up the property ladder before downsizing after retiring to release equity, which then part funds their retirement.
What if a lifetime of using estate agents had a hugely detrimental impact on that person's quality of life?
i) rolling over savings
Once you factor in rolling over savings the uplift in a home's potential value rises to 30.82% or £61,640 on a £200,000 home.
(Halifax)
What do we mean by "rolling over savings"? Simply that the additional returns a seller makes by selling privately are invested in their next property, allowing them to take advantage of the power of compounding and the effects of house price inflation.
ii) the power of compounding and iii) the effects of house price inflation
These two factors work together to transform £61,640 into an amazing £174,248 of additional value in today's money after 45 years!How did we arrive at such a huge figure? We actually did so using some quite conservative estimates:
- Based on Land Registry figures for the current property cycle we worked out that — even if we factor in a 30% drop in house prices from their 2007 peak (currently it's about 20%) — house prices are doubling about every 15 years.
- This (a doubling every 15 years) is the rate we’ve used for our calculations, even though historically the rate is much faster: From 1930 to 2007 house prices doubled every 9 years on average (CLG Housing Statistics 2008).
- We then looked at the rate of non-house price inflation (CPI) over the same period using figures from the Office for National Statistics and found that it was doubling at a rate of only once every 42 years.
- Because we did not want to overstate the effects of house price inflation we estimated that CPI would double much faster: once every 30 years.
What this means is that over the 45 years during which our average home owner will buy their six properties house price inflation will go up 2.826 times more than non-house price inflation.
So — because the equity released on downsizing would be used to fund non-housing costs — the extra £61,640 of value from rolling over the additional returns is actually worth, in real terms: £61,640 x 2.826 = £174,248 in today's money.
That's equivalent to 87% of the value of a £200,000 home! No wonder Einstein described compound interest as "the eighth wonder of the world" (to see our full methodology click here).
That's equivalent to 87% of the value of a £200,000 home! No wonder Einstein described compound interest as "the eighth wonder of the world" (to see our full methodology click here).
(Land Registry, ONS, CLG)
Planning on retiring poor?
Currently, many retirees are struggling because the value of their pensions has plummeted due to the stock market crash. As a result, equity release from downsizing has become more important than ever.Imagine how much difference it would make to have an extra £174,000 to spend during your retirement!
