Protect yourself against Inaccurate Property Valuations – read this essential guide
Only Surveyors are qualified and required by law to give an independent and accurate valuation which is why only valuations from a Surveyor are acceptable for mortgage and insurance valuation purposes. Estate Agents do not perform Property Valuations they just give informal opinions of how much your house is worth. As it is just an “opinion” this means that there’s no requirement in law for it to be accurate and you have no legal comeback if it is not. However for reasons we shall explain your interests and that of your agent may be very different and this could lead to your agent over valuing or undervaluing the property. This could lose a sale or cost thousands. This means that you have to be extremely careful when dealing with agents. There are 3 main tricks that agents get up to:
• The overvaluation to win business
Local Estate Agents need a constant supply of houses to sell but have all got the same buyers on their books and market properties in the same places. So how do they attract your custom given that any could sell your property just as well as the next? Unfortunately most sellers base their choice of agent on the two worst reasons possible:
1. Which agent charges the lowest fee
2. Which agent provides the most generous property “valuation”
So Estate agents use this to win your sale by ignoring the real value of a property and instead give you an inflated valuation. Surely this will be to the disadvantage of the agent who will be left with an overpriced house he cannot sell I hear you say. No not true because of what is known as “the tie-in period” that’s in most estate agency contracts. An overvalued property will not sell until the price is reduced to the correct market level. Estate agents know that eventually the need to move becomes so great that you will have no other choice. You may even have to sell for less than if you had accepted a realistic valuation at the beginning rather than being led down the garden path. This is because buyers are quick to spot reductions which are a sure sign of a seller having problems and they will adopt a harder negotiating stance.
• The undervaluation to earn a quick fee
An undervaluation can achieve a quick sale and therefore commission for an agent during slow periods. So get more than one valuation. At least 3 valuations is best. Be careful – in areas with only a few estate agents it is not unknown for two “competing” agents to secretly fix the job. Here’s how it works: 3 agents are invited to value your property. However unknown to you before the appointment 2 of the agents discuss and agree a low valuation figure (lower than the market value which the 3rd Agent actually provides) they will “independently” present to you. Although you have invited 3 estate agents to value your property when 2 of them give you the same figure you are going to assume that that figure is correct and give one of them the job. Of course your undervalued property will rapidly sell. Unknown to you the agent’s commission is split between the 2 agents who rigged the valuation and you lose out on your sale price – possibly sold at value thousands of pounds below its true market price. Surely it is in an agent’s best interests to get me the best possible price I hear you say? Because fees are based on a percentage of the sale price agents secure a quick cash flow by selling property quickly rather than becoming bogged down in the work of negotiating properly on their client’s behalf. For example with a typical commission of 1.5 – 2% an extra £10,000 on the sale only makes an extra £150-200 for the agent – not worth the agent sweating over!
• The undervaluation for personal profit
Say you receive no viewings. You ring the agent who makes excuses why the market is slow etc. Unknown to you the estate agent is working with (or taking a backhander from) a property trader. As time goes by you start to worry because your offer has been accepted on another property. Unless you sell soon either you will lose the property you want to buy or may have to take out a bridging loan in order to finance the purchase.
Your agent rings advising he has found a cash buyer who is not in a chain but the offer is below the asking price. Shortly after selling your old house is back on the market and the asking price is tens of thousands more than what you sold it for! The estate agent and his secret property trader partner have made a significant profit at your cost.
So protect yourself against unscrupulous estate agents by doing a little research and form your own idea of your properties value.