Are some estate agents over-valuing homes to gain instructions?

(Senior Valuer and Property Director Keiran Newman and Consultant Michael Maloco tackle this vexed and contentious issue.)

I won’t lie, nine months into my consultancy and I am enjoying my “almost-retirement” immensely. We’ve travelled a fair amount – both home and abroad, spent time with family, gardened, “gymed”, walked a big chunk of The Fife Coastal Path and generally chilled. That said I do still miss the team and the banter so one of the other advantages of this quasi non-executive senior role –(for those old enough, think old Mr Grace in “Are You Being Served”!) is having plenty of time for a regular early morning Costa coffee and chin wag with Keiran. Not only do I catch up on all the office and town gossip (the Dunfermline property scene is a hot-bed of intrigue and subterfuge – lol!) but we also get a chance to chat about the property market and the current challenges that epitomise the life of property professionals.

Of late something we have increasingly found ourselves chatting about is the contentious issue of some agencies seemingly inclined to be, let’s say, cavalier with their valuations. Indeed, in some cases we would go as far as to say we have become aware of agencies who appear to regularly over value as a business model. Clearly I am aware that this could come across as sour grapes and a reaction to lost instructions and whilst losing out is never fun, I say this knowing that other agencies also asked to pitch arrived at the same valuation range as ourselves with there being only the one outlier who was unrealistically well above all other valuations.

But what is a realistic valuation and how does one arrive at it? It’s a fair question and one which Keiran as an experienced professional has not shied away from. Are the ultra-optimistic valuers correct and we and the more “realistic” valuers out off touch and too negative?

The question is particularly relevant in Scotland, where the property market operates differently from the rest of the UK, notably with the Home Report system. If a property’s asking price is at or a fraction below HR value it has to be right surely? In our opinion sadly no. It is a simple fact that weaker surveyors can on occasion buckle under pressure from a prolific instructor of home reports and can be persuaded against their better judgement to acquiesce and agree to a valuation they believe to be too high.

So where is the harm in this you might ask? Again a fair question. No matter how an unrealistic valuation has been arrived at, or what means have been employed to justify it, if it allows a seller to achieve a great sale price why should they care?

The Alleged Overvaluation Tactic

The purpose of over valuation is of course to turn a prospective client’s head and win the instruction. The seller in Scotland is then tied into a sole agency agreement and the agent has bought themselves time to sell the property and/or hope the market rises to meet them. In reality as all good agencies will tell you – and there are many good agencies in and around Dunfermline -is that the agent then reports minimal interest and a low volume of viewings, and after a few weeks begins advising the seller to reduce the asking price to stimulate activity.

Scottish Property Market Data

In 2023, the completion rate for properties listed by agents in Scotland within the first two months of marketing was approximately 55%, slightly higher than the UK average. While this might sound promising, it still means that nearly half of all properties brought to market do not sell within the initial listing period. In areas like the Highlands and Islands, this figure can drop even further due to the unique challenges of selling properties in more remote locations.

This raises the question: Is the responsibility for this situation on the agent, the seller, or perhaps a combination of both?

Our Own Experience

To put this into context, ESPC and Rightmove data show we are one of the agencies with the lowest percentage of price changes. The fact is we almost always get it right and have never knowingly overvalued a property simply to win an instruction although of course we’re not infallible. The fact is that no matter what, the reality of the Scottish market soon sets in, and the truth becomes clear. Overpriced homes don’t sell no matter how good a market. Be it a sellers’ market or not the key to selling a property is not just its location, but also its price.

The Importance of Price

The well-known adage that the three most important factors in selling a property are “location, location, location” is possibly outdated, particularly in the Scottish context. I would argue that it should be replaced with “price, price, price.” Even a property in the least desirable part of town will sell at the right price, while a property in even the best post code won’t attract buyers if the price is significantly above what the market suggests.

What Does the Evidence Show?

When valuing a property in Scotland, the Home Report provides a starting point. However, it’s essential to remember that the report’s valuation is just that – a starting point.

Keiran comments – “My approach is always to be evidence based. Look at recent sales evidence, what valuation does our own data and that of the ESPC and Rightmove support? It is only right that we manage clients’ expectations and that means sometimes advising that a home is worth a little less than was hoped for. It’s not uncommon and completely understandable that a prospective seller may query a lower than anticipated valuation by advising that the house further along the street or round the corner is on the market at a higher price. Having done our homework prior to visiting we will of course already know this and I will politely point out that of course the property to which they are referring is still on the market, that this in itself may say something and that we don’t want any seller to languish on the market having been overpriced. This I must stress is not sales pitch but based on fact. Almost every day I pass two properties in Dunfermline both of which have sadly now been on the market for over a year.”

Clear, concise communication along with reasoned, evidenced fact-based explanation of why an agent has arrived at his valuation is in most cases welcome and leads to productive collaborative relationships. As Keiran points out successful partnerships are all about collaboration and communication and that selling home a home is always a collaborative effort between agent and homeowner. Provided that the asking price is in line with what buyers are willing to pay, which is after all ultimately the true market value, a buyer will always be found.

The Role of the Agent and Seller

Keiran adds – “I’ve turned down instructions from sellers who insisted on asking prices far above what the evidence supported. In almost all such cases those properties remained unsold with other agents and were eventually withdrawn from the market. One assumes the homeowner had wanted to sell and had good reasons for moving but due to the false promises of an agent desperate to list at any cost, that goal was stymied. This experience reinforces my belief that overvaluing a property is not only unethical but also counterproductive in the Scottish market.”

Conclusion: Who Is Responsible?

So, who is responsible for the fact that nearly half of all properties in Scotland don’t sell within their initial listing period? The answer likely lies with both the agent and the seller and it comes back to managing expectations. Agents must provide honest, evidence-based valuations. Sometimes tough love and providing a disappointing but accurate valuation is what is best. Sellers meantime must be realistic about their expectations. Finally, remember the advice that if something looks too good to be true then it very likely is. By extension if a valuation sounds to be good to be true and flies in the face of all available evidence then it too is.

We’d love to hear your thoughts on this topic, particularly if you believe that, our approach is wrong, that the customer is always right and that the actual price/valuation being right is of secondary importance.