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Richard Rawlings. December 2023.
Helping the market fall? If ever there were a career-ending headline for an estate agency trainer, this has to be it. Surely doing anything that might prompt our clients to secure a lower figure than expected would be negligent, unprofessional, and contrary to the established aims of most estate agents, which is to secure the very highest price for their clients’ property.
Much of what we do points towards price. Indeed, whether we even get an instruction can hinge on whether our suggested asking price is high enough to impress the seller enough to give us the business (although good agents recognise that this is a simplistic and flawed way of securing instructions).
We advise sellers in respect of staging their home, timing their property for the market, and exposing it to the greatest number of well qualified buyers who, you hope, will be fighting over the property so that you can secure the “highest price the market will pay“.
Our very livelihood, the commission we make on every sale, is directly linked to the sale price. No wonder that in securing both the instruction and the fee, we have so readily focused on price, price, price.
Over the years, estate agents have played a pivotal role in helping their clients generate greater equity, by prompting, nudging, pushing buyers to pay more, supported of course by favourable economic conditions and lending resources.
The market rose to great heights, helped, during the good times at least, by competing estate agents quoting ever-higher asking prices, in order to secure the business. They then got lucky during favourable markets, because property that might have been regarded as bullish on price miraculously sold. The bullish agent was, unwittingly, correct!
Generally speaking, this has resulted in a mildly inflationary long-term effect, to the extent that people got used to expecting that the value of their property was bound to rise during their tenure. They now regard their property as an investment as much as they regard it a home. No wonder the average homeowner believes their property to be worth about 15% more than their estate agent's valuation. (Source Quick Move Now, Nov 2023).
Apart from the potentially career-ending headline above, of which more in a moment, I’m going to inflame that further by adding that pretty much every concept I have mentioned above is flawed. The seller’s primary objective is not to secure the highest price and therefore the agent’s objective should not necessarily be to secure the highest price. Nor have estate agents actually had much influence in UK house price inflation over the years!
Let me explain. Firstly, excluding property investors/developers (where the focus must, by default, be on profit), for most for most regular sellers, their primary objective is born out of a need which itself is usually born out of a problem. For example, the fact that there is a baby on the way generates a problem; the problem being that the property is too small for a couple due to become a family shortly. Therefore, they now need to move house.
Good agents understand this. But it’s interesting that when considering this critical primary objective, money has not yet come into it. In fact, if the need to move is the first objective, money is still not even the second objective, which is surely timing. This couple needs to move house before the baby is born. The career-climber needs to move house before the new job starts. The person in debt needs to move house before it’s repossessed. The family needs to move house before the beginning of the school term. These are the focal points for real sellers. Money is not the main objective. However, it is money that enables the primary objective, to move, to be fulfilled in a timely manner. The amount of money involved has nothing to do with the need, but is almost solely related to the relationship between local availability of similar stock, i.e. supply, with the number of people wishing to buy, i.e. demand.
It’s this balance of supply and demand (enabled or not by the availability of mortgage funding) that determines the value of the property. It has nothing to do with what the seller paid for the property, what they’ve spent on it, what their mortgage is, how much their onward purchase will cost, what the bloke down the pub thinks, what the taxi driver says, or simply what the seller feels their house is worth. You can’t allow “feel” value to trump real value. And as we all know, the real value of a property is solely determined by what a buyer would pay for it in a competitive environment.
So, as economist as Adam Smith documented in 1776 ,when there is high demand in relation to supply, prices inevitably rise. But this rise is not caused by estate agents, the economics of the scenario are too hard-wired for that - but this rise is facilitated by estate agents. Estate agents help people move, and in doing so facilitate whichever direction the market is inclined to move.
So if the climate is such that a property should rise in price, then estate agents are involved in helping this happen. But prices do not rise because of estate agents! (Here’s a question: if there were no estate agents, would there be no property sales?) We’re involved in the market, but we are not the market.
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Therefore, in the same way that estate agents facilitated a rise in prices during inflationary times, surely our role should be to help it fall during deflationary times.
It would actually be negligent of us to try to prop up something that is destined to fall. That would be contrary to the client’s primary objective, which is to move. And the higher the asking price, the less likely they are to move!
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If we bang on about high price, high price, high price, at a time when more powerful economic, social, or political forces need it to fall, we are ignoring our clients' desire to move house in time to solve their problem.
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It gets worse, because if we vehemently defend high prices for whatever reason (securing the instruction, impressing the seller, commission, etc) then we are, in fact, preventing sales from happening, which is contrary to every understanding of our role. It is a disservice to our clients, it’s a disservice to the market, it’s a disservice to the health of our own business and the industry as a whole.
By helping the market fall we enable sales, we help people move, and we make a profit. What’s not to like? We’re certainly not “losing” money for our clients, because the reality is that so much pricing is based on a “hope” value in any event. The value was never there, not even on paper - only in the heart and mind of the seller and a couple of poorly trained estate agents.
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Frankly, it’s the difference between the seller’s sale price and their onward purchase price that matters more than the actual figure they achieve for their sale.
So how do we help the market fall? The answer is clear, just as it was when we helped the market to rise during inflationary times - it all comes down, as ever, to the professionalism of giving the right advice, in respect of both new stock and existing instructions.
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With new instructions, don’t be so desperate to get it on your books that you end up not helping anyone move, and simultaneously damaging your reputation into the bargain. Straight-talking, good advice is required, with a focus not just on what you have sold, (that was yesterday’s market) but on what your competitors are failing to sell today, and possibly tomorrow. Help the seller understand where their property fits in the local market, and how it might be perceived by buyers alongside others currently available for sale.
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It is far better to secure a new instruction at the right price and sell it, than allowing it to go stale. According to Tim Bannister, Rightmove’s Director of Property Science Innovation, a property that has been reduced takes twice as long to sell, has a 10% lower chance of selling at all, is twice as likely to fall through, and is more likely to be lost to a competitor.
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But, if you do have old stock that is sticking, the right advice after, say, a month on the market, is clearly to reduce the price (or, to use a better-informed phrase to “reposition” it in the market). This means having the skills in place to speak frankly, and persuade the seller to accept that, in the current market, they may not secure the figure they had hoped. (Don’t forget, it was never there anyway!)
But a general nod in the direction of a reduction is not usually the right advice, and is often a sign of a weak agent. That’s just offering the property to the same buyers for a lower price. A serious price reduction is designed to attract those buyers who would never have considered the property at the higher price – and it certainly needs to be one if not two portal bands down.
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Good agents have the courage to be slightly brutal if necessary. Tough love. And with good reason – let’s say a property worth £400,000 remains unsold at £430,000. By reducing it to the figure that it should’ve initially come on the market for, it’s too late because the market has slipped in the meantime. If it should have initially come to market at £400,000 and in the interim the market has dropped by say 5%, that actually puts it at £380,000 – an 11.6% drop. And that doesn’t even take account of the fact that the house might now be regarded as an old chestnut that has gone stale on the market, further devaluing it!
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And don’t allow your clients to be fooled by recent 1% pm house price increases as reported by The Nationwide and The Halifax - they are anomalies, as all the indications are that prices will fall further. As Anthony Codling, Economist at RBC Capital Markets, observed, the market is simply correcting itself following the unexpected and “artificial” house price hike during Covid, where mortgage approvals were three times what they are today (they are now down 30% on this time last year). The fact that Rightmove’s average asking price has fallen only half as much as the average sale price surely points to an urgent need to reduce prices.
Lower property prices are good! More people could own their own home. More people would move. Estate agents would thrive, especially if they charge the 2%+ fee they are worth (as many do, despite denials!) Plus, you'd enhance your reputation as the agent who sells relatively quickly, and with more of your sales go at or over your asking price.
So if you really want to help more clients move, help our industry, and your bank balance, may I suggest you get serious about this. Don't let price be the reason you get the instruction - you should be better than that! Look at every instruction that’s been on the market more than three weeks, and make a concerted effort, with well-reasoned arguments, to persuade those clients to substantially reposition their asking price, in order to sell. Ultimately, they will thank you for it as well your bank manager, your family and your future.
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Do let me know if you need a hand with some of the persuasion- or reasoning-skills required to do this exceptionally well, and then look back on 2023 as a great year. Remember, we don’t care about house prices - we care about helping more people move, and the more people who move, the more fluid the market becomes, and it will start to feed itself once more.
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