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exiges

Sellers Inflated Asking Prices Risk Chasing Prices Downward Spiral

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http://www.marketoracle.co.uk/Article28594.html

The UK housing market depression continues as Labours election bounce has long since evaporated, many home owners relieved that the house price crash had stopped during early 2009 had put their plans to sell on the back burner as they envisaged a return to the 'norm' of rising house prices, this expectation continued even after the coalition government took office and announced unprecedented spending cuts and tax rises during mid 2010, and scheduled to start from April 2011.

uk-house-price-forecasts-may2011.gif

Potential sellers who held off from selling during the election bounce of 2010, will have increasingly been alarmed by the return of falling house prices during late 2010 and into 2011, which especially has had wide regional variations in trend which is in line with local economies that are reliant on the public sector which encompasses most of the UK outside of the South East and especially cities in the North of England, Wales and Northern Ireland.

UK Home Sellers Inflated Asking Prices - Sheffield Example

However as the following analysis illustrates, most sellers are making the same mistake today that was made during the housing market crash of 2007-2009 in that asking prices for houses for sale are far above the market valuations for their properties, the result of this is for home owners to effectively chase house prices lower as they are forced to cut prices in response to falling house prices and thus in the end delaying sales as well as receiving far less than they would have originally sold their properties for if they had attached more realistic values in the first place.

sheffield-home-sellers-asking--prices-may2011.jpg

This analysis is for the North England city of Sheffield where the asking prices of 300 properties out of approx 2,500 properties for sale during the month of May 2011 were analysed against valuations obtained from a number of free property valuation sites.

The analysis concludes in an overall overvaluation of asking prices of approx 13%, which is inline with what was typical during the boom years. However the average masks wide variations between areas of the city that range between properties being typically 6% over valued against 21% over valued. The over valuations where not related to either wealthier or poorer areas but rather a mix of both.

Conclusions

1. One possible reason why over valuations and realistic valuations tend to cluster by area's is because home sellers tend to look at what price others in an area are also selling for.

2. There may be greater competition in overvalued areas between estate agents for business therefore a tendency to give properties higher valuations so as to secure business and shut out other agents, then a few months down the road when properties have failed to sell ask clients to cut asking prices.

Sellers

The net result is that grossly over valued properties will fail to sell, and thus sellers risk chasing the market ever lower remaining just out of reach of buyers interest. Therefore sellers need to get multiple valuations to get a more realistic price and if their property fails to attract any interest to not delay in cutting their price by as much as 10% or more so as to attract buyer interest. Else you risk wishing you had cut earlier and thus obtained a higher final sale price.

Buyers

If buying do your research, look at what similar previous properties actually sold for in the area you are targeting. If a house looks fairly priced compared against others in the area then ensure that there is not a reason why it differs in price, which may be due to issues such as the property is leasehold instead of freehold, or that there is an issue for instance with flooding.

Expand your analysis of house prices city wide so that you can appreciate if areas are over or fairly valued as there is a tendency for over valuations to cluster in areas as sellers tend to price according to what other sellers in an area are expecting to achieve.

This analysis shows that properties tend to be over valued by an average of 13%, therefore you should aim for initial offers to be at least 10% below the asking price in most cases for cities such as Sheffield.

Implications for House Prices

Confirms existing conclusion for a continuing depression with prices drifting lower towards new bear market lows due to over hang of supply as many sellers repeat the mistake of not valuing their property inline with what the market will bear.

UK House Prices Trend Forecast

This analysis forms part of series that aims to conclude towards a multi-year trend forecast for UK house prices that aims to replicate the accuracy of past analysis (more than 150 housing market analysis articles) and concluding trend forecasts as illustrated by the first graph, including the original forecast made right at the very peak of the UK housing market in August 2007:

Edited by exiges

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Interesting article.

thanks for posting

I cannot understand why sellers continue to prefer to opt for the estate agent who gives their home the highest "valuation", often meaning they do not stand a chance of selling, because said agent has overvalued it so much.

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Interesting article.

thanks for posting

I cannot understand why sellers continue to prefer to opt for the estate agent who gives their home the highest "valuation", often meaning they do not stand a chance of selling, because said agent has overvalued it so much.

Ooh me Sir! me Sir!

Let me see..is it...a potent mixture of greed and stupidity?

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I cannot understand why sellers continue to prefer to opt for the estate agent who gives their home the highest "valuation", often meaning they do not stand a chance of selling, because said agent has overvalued it so much.

Because it's better to put your house up at an inflated price, in the offchance you get a good price, but will accept an offer that's a good deal under asking, than put it on for a low price and get offers that are much lower still.

When we STRd in 2008, we had 3 valuations, which varied by over a whopping £300,000. We went for the highest valuation, but accepted 10% off asking, which was still more than the other 2 valuations.

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Because it's better to put your house up at an inflated price, in the offchance you get a good price, but will accept an offer that's a good deal under asking, than put it on for a low price and get offers that are much lower still.

When we STRd in 2008, we had 3 valuations, which varied by over a whopping £300,000. We went for the highest valuation, but accepted 10% off asking, which was still more than the other 2 valuations.

Yeah, in a rising market, maybe, but in any case with this post you lost my sympathy in any case. With those figures, you are implying a 900k sale in 2008 (otherwise how could you get a 300k valuation spread) and one has to guestimate a 500k profit after repaying mortgage. Why on earth are you posting self-righteous HPC posts and self-justifying charts with that amount of wonga in the bank to an audience of, largely, squeezed out FTBers without a pot to piss in? Hubris?

NEO72: :lol:

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Yeah, in a rising market, maybe, but in any case with this post you lost my sympathy in any case.

it was in a falling Market, in fact when it was falling hardest (November 2008). Sympathy ? Perhaps you misread my post.

The point I was making that while putting your house on too high can cost you if you chase the market down, there's also no point selling yourself short from the outset. Best put it up for a higher valuation but be prepared to move on the price.. You'll soon know if it's too high when you get no viewings and you can adjust your price accordingly.

The trouble at the moment is that people are going in at top valuation and being rigid on the price then wonder why it's not selling, and then resentfully lowering their price by degrees, with the usual "offers over" nonsense.

Best not make any more assumptions about my circumstances though, you'll only look more foolish. The numbers themselves don't matter, it was just an anecdote to justify my point of view. Whether its a £200,000 house or a £2,000,000 house my points still stands.

Edited by exiges

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Interesting article.

thanks for posting

I cannot understand why sellers continue to prefer to opt for the estate agent who gives their home the highest "valuation", often meaning they do not stand a chance of selling, because said agent has overvalued it so much.

You hire someone who supposedly knows the market. You are about to pay them a chunk of money to sell your home. You'd have to be arrogant or a fool to hire someone then ignore their advice.

Putting it on the market at a price higher than the highest of the three quotes... That is greedy.

Yeah, in a rising market, maybe, but in any case with this post you lost my sympathy in any case. With those figures, you are implying a 900k sale in 2008 (otherwise how could you get a 300k valuation spread) and one has to guestimate a 500k profit after repaying mortgage. Why on earth are you posting self-righteous HPC posts and self-justifying charts with that amount of wonga in the bank to an audience of, largely, squeezed out FTBers without a pot to piss in? Hubris?

NEO72: :lol:

Wow - finallly, the exemplar chippy hpcer. Sir or madam, I salute you.

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House near me was on sold last April for £177k asking price was £185k reduced from £195k been on the market over a year before it sold.

Well the buyers have put it back on the Market, after living there just 14 months. They've done nothing to it since moving in as it was developed by the previous owner. Asking price £199k WTF are these fools on? House nearby has been on the Market 4 years at £199k! It's bigger and it's end terraced but it has only got one bedroom whereas the first has one and half. (advertised as two but it's the size of a small closet with restricted headroom.)

Edit: saying that though I have also seen other houses with initial asking prices that are undercutting stuff that is already on the Market. These are normally on estates where there are lots of similar for sale.

Edited by Pent Up

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Sheffield? How about Berkshire or Surrey? 2007+10% deluded sellers? Get ******ed. Deluded buyers are the issue here.

Does a certain someone have an estate agent's sign outside their house perchance? :)

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Does a certain someone have an estate agent's sign outside their house perchance? :)

Ah that old canard.

Nope I have no mortgage and don't want one. I have two young boys and worry for them should they wish to live near here. I won't be selling this place fo 10 years.

However feel free to come and visit reading, winnersh, Twyford and Wokingham and point out houses selling for less than their 2007 prices. In fact hereabouts there's again a lack of supply directly caused by zirp protecting those on trackers. There may be fewer transactions than the stupid years but as yet no crash. Ir rises are the required trigger and how many of those have there been?

I want hpc because I believe it's crippling our country socially and economically. However in this neck of the woods tptb have engineered exactly the soft landing the ****** bulls were on about. What it doesn't address is the sift landing is at the expense of high and persistent price inflation. I'm sorry but real drops don't interest me. I like most people earn in pounds and haven't seen a real terms rise for 3 years now. I'm getting poorer but houses aren't getting cheaper.

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Although I agree with the sentiment/conclusion of the analysis, I think the Sheffield research was a bit flawed and he doesn't go into much detail of his methodology.

Some of the free valuations I have seen have been way out on what I believed a property to be worth.

The only true valuation would be a bank's surveyor or the actuial purchase price but unfortunately that data is too expensive to get or just not available.... Catch 22 I guess... At least he had a decent sample size....

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House in on an estate in Cheshire recently came on for £295k and sold within a fortnight.

Highest price ever paid in that street is £250k in March 2011 and it sold within a week.

Previous highs £230k 2007 & £236k in 2005

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it was in a falling Market, in fact when it was falling hardest (November 2008). Sympathy ? Perhaps you misread my post.

The point I was making that while putting your house on too high can cost you if you chase the market down, there's also no point selling yourself short from the outset. Best put it up for a higher valuation but be prepared to move on the price.. You'll soon know if it's too high when you get no viewings and you can adjust your price accordingly.

The trouble at the moment is that people are going in at top valuation and being rigid on the price then wonder why it's not selling, and then resentfully lowering their price by degrees, with the usual "offers over" nonsense.

Best not make any more assumptions about my circumstances though, you'll only look more foolish. The numbers themselves don't matter, it was just an anecdote to justify my point of view. Whether its a £200,000 house or a £2,000,000 house my points still stands.

Unlikely to have been 200k, though, with a 300k valuation spread, eh? Remember, these are your figures - shared publically - to prove a point they cannot possible prove. What else could be a better sign of smugness? In this case, the decision you made in 2008 that you are now trying to make sense of retroactively through bad science could equally be seen as equivalent to putting the house on the market at 10% less to start with and taking the asking price from the sellers. Which brings me to my main point. Your model of the behavioural economics of house buying needs to include at least four actors for the standard type of transaction - (1) vendor (2) buyer (3) agent (4) mortgage provider - for it to have any explanatory power generally (or explain the 'chasing down' effect specifically). I'd also add that you need to think about the legal regime also - Scotland and England indicate that the legal background can completely transform the bidding environment. Your model gives so too much price setting power to the vendor that it makes final asking prices almost a rational choice, rather than game theoretical, problem. In so doing conjures up entirely spurious reasons for the 'chasing down' effect. But, for fun, it would be useful to know exactly what the effect is: so if anyone can give 5 hypothetical or real examples that actually indicate such an effect then that would be fun. Remember it is not enough to show bad negotiation technique (eg accepting a deal when a better one could be had, legally) but that the pure opening move in communication made that bad deal happen.

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Does a certain someone have an estate agent's sign outside their house perchance? :)

That's interesting, you read that completely different to me. When they said deluded buyers are the issue I thought they ment the fact that these people are deluded because they are happy to pay so much for homes.

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That's interesting, you read that completely different to me. When they said deluded buyers are the issue I thought they ment the fact that these people are deluded because they are happy to pay so much for homes.

Yup that was the intention. I simply dont understand what I'm seeing in the se. Those in the best positions that is cash or low ltv aren't bargaining at all. Asking price or asking price plus are not uncommon. Which is just ******ing stupid.

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Yup that was the intention. I simply dont understand what I'm seeing in the se. Those in the best positions that is cash or low ltv aren't bargaining at all. Asking price or asking price plus are not uncommon. Which is just ******ing stupid.

It's not all of the SE though. In Essex (at least the parts I see) things have been gradually falling for the last year. Albeit very slowly. The odd overpriced house sells now and then but it's mainly the cheaper stuff sells slowly while the expensive stuff just sits.

Even seen a few 2005 prices paid recently. Not great but it's certainly not 2007+ on the whole.

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Unlikely to have been 200k, though, with a 300k valuation spread, eh? Remember, these are your figures - shared publically - to prove a point they cannot possible prove. What else could be a better sign of smugness? In this case, the decision you made in 2008 that you are now trying to make sense of retroactively through bad science could equally be seen as equivalent to putting the house on the market at 10% less to start with and taking the asking price from the sellers. Which brings me to my main point. Your model of the behavioural economics of house buying needs to include at least four actors for the standard type of transaction - (1) vendor (2) buyer (3) agent (4) mortgage provider - for it to have any explanatory power generally (or explain the 'chasing down' effect specifically). I'd also add that you need to think about the legal regime also - Scotland and England indicate that the legal background can completely transform the bidding environment. Your model gives so too much price setting power to the vendor that it makes final asking prices almost a rational choice, rather than game theoretical, problem. In so doing conjures up entirely spurious reasons for the 'chasing down' effect. But, for fun, it would be useful to know exactly what the effect is: so if anyone can give 5 hypothetical or real examples that actually indicate such an effect then that would be fun. Remember it is not enough to show bad negotiation technique (eg accepting a deal when a better one could be had, legally) but that the pure opening move in communication made that bad deal happen.

The Rightmove asking price index is always a lot higher than mortgage approvals from Halifax/Nationwide or Land Registry recorded sales

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