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Where are estate agents going wrong nowadays

Where are estate agents going wrong nowadays?

Well, first please fully understand that the vagaries of the housing market are complicated as most people will admit.

As a senior contributor and property surveyor of 30 years working experience I have watched how things have been going for several decades and a clear picture is at last emerging.

The estate agency sector, since the last war, has been increasingly failing to balance demand and supply in the housing market over the decades for reasons other than the imbalances in supply and demand!

The problem is that the estate agency sector itself is mistakenly working on the basis that the demand for housing is economically highly elastic whereas housing supply, they would frequently tell you, is highly IN-elastic. They say, that it is this mismatch which is causing price peaks and troughs in the housing market to occur. This argument is completely wrong for the reasons I will now set out.

Firstly, the supply of houses coming onto their books is not IN-elastic and neither is it dependent upon the total number of houses actually built.

Here are some other reasons why they are mistaken:
As just explained estate agents are actually only dealing with the number of houses currently on the market – or on their books, from a supply point of view. This is quite different from the total supply of all the houses currently built and in use in the whole country!

Once they ‘get this’, they can free themselves from such confusion and begin to help those wishing to instruct them when moving house. They ought to be able to do this for those hoping to buy their next house in any case.

Secondly, and on the fluctuating level of demand for houses from buyers, the agents generally assume this is highly elastic in nature but sadly this is again mistaken.

In fact, agents very much affect the level of demand from buyers directly, (by affecting the number of homes coming onto their books as mentioned above).

This is because buyer demand is greatly affected by the level of wealth of buyers wishing to buy houses at any one time.  Understanding this is very important for generating successful house completions, especially because buyer demand is not highly elastic at all.

Why is that? Because overstating the asking prices of houses going onto the market will put many buyers off, lessening demand. In addition, it also provides misleading information to sellers concerning apparently increasing prices, which can also put many sellers off; rather ironically.

I say this because if agents were to act for buyers instead of sellers, they would see the various opportunities available in the marketplace quadruple, bringing many more house hunters onto the marketplace and thus onto the agents’ books.

Once agents realise that they do in fact influence the number of houses coming onto the market (i.e. by influencing the total supply of houses becoming available for purchase), then business will increase for the agents because this depends on the way in which they interact very much with the buyers as well as with sellers.

This means they should realise that they can and should influence the number of houses sold from a buyer’s point of view, since that must depend on the levels of wealth currently being enjoyed by those in the market to buy themselves a house at any one time.

It should be stressed, acting as an agent in housing is completely different from agents who may be selling, for example, expensive cars and/or yachts, because house agents are dealing with capital assets, not depreciating assets or chattels. Capital assets require extra special skills, involving advising buyer-clients, rather than merely advising the seller, after having obtained a selling contract!

Please understand. No current asking prices indicate a house’s true market value. Neither should you think that whatever reduction you can negotiate will be the actual market value of the property. The asking price is just part of the marketing. Most sellers are optimistic, all selling agents are ambitious sales people and so most sales naturally complete for less than the initial asking price for that very reason.

Therefore and in conclusion for the reasons I have just provided, prudent agents should be acting for or serving buyers as their primary clients instead of sellers, in order to bring about the greatest number of sales in every specific market situation.

Prices should be dependent upon or determined by what different buyers might be willing to pay. Where estate agents almost invariably go wrong, is they confuse this with how much buyers can each individually be made to pay!

Doing the latter is incorrect and it is that which actually causes markets to begin a ripple, which then results in price peaks and troughs, inflating and then deflating again and again on a regular or cyclical basis, throughout the various housing markets, spread across the whole of the UK.

Please notice these peaks and troughs do not always coincide with periods of greater and lesser wealth.

This explanation supports my argument that agents should change their mode of operation to one of acting for buyers rather than for sellers. As well as that, it fully explains that the massively increasing price levels we see currently are not as a result of increasing net wealth but these are in fact more to do with buyer coercion. Such coercion must be taken right out of the agency-equation if prices are to stabilise at safe and supportable market price levels.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

Footnote:
This is not to say new houses should not be built to provide new accommodation, wherever this is strategically necessary within each local jurisdiction.

What do you think about this analysis of the present situation please?

Comments are moderated but constructive ones are always welcomed.

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The Cure For The Malady Across All British Housing Markets

The cure for the malady across all British housing markets is to use a combination of two cures, in a similar way to a doctor using two specific antibiotics to cure a bacterial infection.

The expertise required to achieve that would involve first acquiring an accurate knowledge of the causes of such infections and following this, the ability to diagnose the correct medicinal cure for the specific infection involved.

It is of course imperative to be able to understand precisely how and why a specific illness or malaise will have occurred. Only then can the correct medicinal cure be prescribed.

Peter Hendry says, “I can explain in simple terms why house prices are continuing to rise despite the increasing lack of affordability affecting ever more prospective buyers.”

In a nutshell, the housing market should find the values of houses in a quite specific way.

The true value (or the correct buy price), of any house being offered for sale should be arrived at by adding THREE separately-assessed components together:

1 The land value – which depends in part upon location.

2: The construction cost (including a profit element to the builder or developer).

3: A further amount of equity or profit produced as a result of having combined these two.

These are the things that a sensible buyer should theoretically be considering, even if only subliminally.

All too often however, anxious buyers will base their offers on a combination of how much they could possibly afford and borrow, together with knowing the asking price being quoted.

“What makes this task particularly difficult to quantify is that house prices in today’s housing marketplaces are not derived in perfect market conditions at all. The reason for this is because in a perfect marketplace, the whole amount of homes on the market would be sold and the demand for them would also be fully satisfied at all times.”

IF, housing markets around the whole country were near perfect, economically speaking, it wouldn’t take a year or more for each house-move to happen. Houses and flats going onto the market would take much less than a year to attract a buyer ready to complete on their purchase. 

There would then be fewer unsold and empty properties waiting to find buyers. Supply and demand would be in balance. House prices would enable this to happen and would facilitate sales to take place more swiftly than upwards of a year.

On the rental side of things, here markets are in a very different situation. There are far more people wanting to rent than there are rental properties available. Also, the supply of flats and houses is shrinking currently, which is forcing rent-levels to inflate. Demand for these properties seriously outstrips supply, economically speaking. Here, the obvious solution clearly has to be to provide more properties available for rent.

It should be noted however, if there were to be less unsold properties at any one time, there would be a lessening of demand for properties to rent, because more tenants would’ve become buyers! Therefore, improving buyers’ markets would clearly help with lessening the rental-demand side of things as well. That would be an important added bonus for both marketplaces, which is why ‘The House Price Solution’ is the final answer.

Instead, the present day housing markets have large overruns where, either there is too much property being offered at any one time or alternatively, there are too few properties being offered to purchasers.

Both extremes are most unsatisfactory for prospective purchasers of houses in the regional marketplaces and especially in tourist and second-home prevalent communities.

Unfortunately, current day estate agency does not assess house prices in the way described just now. Instead they peg asking prices at the level they might simply guess they could sell a house for but also they may well often include what their client (the seller) might hope to achieve when determining an asking price!

Worse, they base their asking prices on what other asking prices are, including what the other recent sales will have achieved, albeit these would have used skewed marketing comparisons themselves for the reasons just set out.

To justify what is being explained here, a year ago for example a typical estate agent had 37 properties available and 379 applicants on their register (according to statistics published by the NAEA). Today, after a spirited first half of the year and after COVID has started to reduce, a typical estate agent apparently has just 23 live listings and over 400 applicants on their register.

If knowledge such as this were to be broadcast, it would skew prices-levels downwards whilst the market is flush with houses for sale and it would skew prices-levels upwards when there were not enough houses coming onto the market – as now.

In the former case, sadly there is inherent pressure within estate agency to want to hide the true facts of an excess of properties being listed for sale compared with buyers so as not to spook the market and to keep things going as smoothly as possible, rather than face the reality of a downwards-changing market, with prices dipping.

In the latter case however, with too few properties on their books and too many buyers wanting them, broadcasting the lack of supply actually helps agents to justify trying for rising prices even against general economic trends! This has been what’s going on recently of course.

Selling agents may try to argue that it is the desperation of buyers which is forcing the prices up but that does not explain why the housing markets are operating at such low efficiency in terms of completed sales. This shows serious imperfections, resulting in their lack of stability which means these markets are in need of a completely new approach to buying and selling houses.

In my analysis and resultant diagnosis following understanding the true causes of these problems, two specific ways to deal with them emerge.

A: Firstly there should be restrictions on the right to occupy a proportion of houses in each locality as being permanent “Primary Residence” restricted. This would mean these houses would be for use only by local people, such as key workers for example.

Most people seem to agree that each locality absolutely needs housing to be affordable to those fulfilling the essential roles in their community. This should therefore be enshrined in each area’s local planning rules.

In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.

This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time.

The different local housing markets could be brought to balance and price levels better able to reflect local demand for housing, more appropriately.

Secondly and very importantly:

B: The emphasis on all prices should be changed so that these are set by ‘buyer offers’ rather than seller price-rigging, which is of course not an open market practice in any way if this is carefully scrutinised.

This is where The House Price Solution (formerly described as The Hendry Solution) could come in. It allows for both of the essential changes cited above.

It would do this by re-shaping house sales methods entirely and by including the use of “Primary Residence” restrictions on certain properties.

AND

It would enable all buyers to be free to participate and establish the price levels themselves, (subject to declared “Primary Residence” restrictions, which would be locally established using the local planning rules).

For the full details of how to address all these issues simultaneously, please follow the link:

The House Price Solution

How to Improve all local housing markets in England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant

Author of:– The House Price Solution otherwise known as The Hendry Solution.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

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Buyers need far better representation in the British housing markets

With estate agents acting primarily for sellers and land owners, buyers get poor advice or representation all too often.
Even though they are the ones raising (and usually borrowing) the money for each transaction, they are often the last ones to be told how things are progressing, especially where chains of other sales are involved. A lot of patching up of interlinking chains is frequently going on behind the scenes, which is not necessarily to the advantage of unsuspecting buyers further down the chain. Sale prices at the lower end may require to be re-evaluated.

This is inefficient and ought to be changed otherwise the different local housing markets across England and Wales cannot begin to function more like perfect marketplaces as they should do.

All this happens because estate agents are primarily motivated to try and obtain the best price they can for whatever asset it is they are selling, since they are contracted to act on behalf of the seller. The buyer is often the last person to be told when bids in competition with their own are are being negotiated by the selling agent and then the only remedy remaining for them is to have to find more cash to increase their offer!  It operates rather like a sort of clandestine bidding war usually conducted over a telephone.

House prices as a result, are now passing all time highs but also, they are increasing beyond average couples’ annual earning capabilities for maximum borrowing requirements. This is a big problem especially where earnings are falling. It’s vital that a more generally acceptable approach is available to everyone embarking on house moves, especially if they are first-time purchasers. Purchaser mobility ought to be what should be improved.

The only way this could be done would be to change the way residential property is sold by having agents acting for buyers instead of only acting for sellers.

It is clear that existing estate agents are understandably likely to be reluctant to consider such a change for as long as they can continue to control sales progress in the way they have done essentially since the 1920s.

It would require the buying public to start complaining about the anomalies they are having to contend with when using agents, as well as to prevail upon government to make the necessary improvements to bring about fairer but competitive pricing processes across all residential property markets. Only then could house prices track buyer purchasing power in the localities in which each particular property is located.
The correct solution to this problem does need further in-depth explanation in order for the concept to be fully understood.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

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Why are house prices still rising despite the downturn?

On the thorny subject of house prices, what we have right now are house prices still rising despite the economic downturn which is following the Covid 19 pandemic.

Why is this?
The reasons are actually straightforward but the current upward trajectory is not good news for those who need financial help to become home-owners in the future.

Research from Savills released in March 2021, estimates that the UK’s housing stock became worth £7.56 trillion – more than four times the value of the FTSE 100 index on the London Stock Exchange. These are seriously head-turning economic statistics!

What is particularly interesting, are the recent stats which explain that the value of mortgaged owner-occupied homes currently is only about £2.5 trillion, whereas there is £5.0 trillion worth of UK property which is owned completely mortgage-free. In other words this is twice as much as the value of today’s homes being purchased with a mortgage.

This would suggest that the main driver of the present government’s policy, is to continue to encourage capital growth in the housing sector. Such capital value increases obviously favour those who already have substantial property assets however, of course, the converse must therefore be true. These same policies can thus only hinder first-time buyers’ ability to become owners, as their purchasing ability is dependent upon and geared to earnings not capital values.

Polly Neate, the CEO of Shelter, is reported to be saying there is a “desperate shortage” of actually affordable homes for people on low incomes.

It’s simply no good putting up with what there is, or just continuing in exactly the same way as before.
We all have to change for the better. We should do this by treating first time buyers just the way we would like to be treated ourselves, even if we own houses outright. Houses are roofs over peoples’ heads rather than capital assets expected to appreciate in value before all else!

The House Price Solution has come up with the best possible new policy for the whole of the housing sector and for stabilising house prices within it.

In a nutshell the new policy is this:
Firstly, Neighbourhood Development Plans (or NDPs), which are readily available planning tools, should be adopted across the whole country and they ought to include similar purchasing restrictions to those which have more recently been enshrined in the St Ives, Cornwall Area NDP, the H2 policies.

These are to allow local earners a better chance to become local owners and to buy (rather than continue to rent) their principal residences.
As long as there are numbers of local earners who are not becoming mortgagor/owners, these people ought to be considered in preference to those simply having greater wealth and wishing to move to a new location of their choice.

The effect of this policy would be to help retain local communities functionally intact.
The alternative, which we have seen all too much of recently, is allowing whole areas to become ghost towns, owned by richer buyers from further afield. Allowing this destroys local communities of course.

One may easily understand that the present property-owning statistics demonstrate that a new policy is needed if we are to protect local individuality and preserve communities from societal desecration i.e. suffer the same fate that has befallen high streets up and down the country having become clones of one another lacking individuality over time. Specifically, I mean that we should save the character and cohesion of localities, from outside influences such as from those simply hoping to buy into a location just to gain an additional property investment for themselves.

BUT, something more than this is required if we are to stabilise the accelerating rise in house-prices and instead make way for a fairer and more inclusive house-price environment.
What is also required is a much better way to determine house prices themselves and it is this idea which I now put forward, naming it The House Price Solution.

In essence it is all about how to market houses in a way that can balance-out the different offers from competing buyers fairly and more equitably, resulting in a better marketplace for all those wishing to buy their next homes to live in.
It involves changing the way in which houses have traditionally been sold using vendor-led estate agency, to having new buyer-orientated agencies instead. Many of those who are employed in vendor-led estate agency practices currently could fairly easily get re-trained and become registered as buyer-advising agents.

These agents would handle incoming offers in a very different way by acting for and liaising with the different buyers. Sellers would be less able to influence the prices that are achieved because offers would be received directly from the buyers competing with one another, to the relevant buyers’ agents. These offers would be passed to the appropriate vendors by their own buying agents and this would allow house prices themselves to stabilise across the various different regions of the country. The mechanism by which this could happen would be by all offers becoming primarily dependent upon local buyers’ offer-price levels.

Only houses which are exempt from the H2 residence restrictions would be available for purchase by wealthier buyers from the rest of the country, these being outside the scope of these policies.

The above would help the success rate of individual housing transactions themselves, causing a general improvement in the number of house sales able to be made.

In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.

This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time. 

The different local housing markets could be brought to balance and price levels better able to reflect local demand for housing, more appropriately.

The other necessary change would involve making housing markets operate more efficiently than currently happens, by requiring estate agents to work for buyers rather than being able to work for both buyers and sellers as happens currently.

As a retired residential property valuer I remain convinced that if democratically elected local councillors were to be granted full authority to decide local residential planning applications, the effect of this could resolve the whole housing crisis.

Decisions made by such elected representatives would not be based upon NIMBYism ‘Not In My Back Yard’; quite the contrary!

Instead it would be a question of ‘IN My Back Yard’, as these councillors would be representing the wishes and needs of the local community – not simply trying to resist necessary change!

There could be no finer outcome than this, especially where residential property is concerned, because with this solution these councillors could work to actually resolve the housing crisis which we are now all being affected by, particularly owing to its increasing severity.

As explained, the goal of preserving local communities by providing sufficient and affordable homes up and down the country, whilst still allowing a smaller number of the wealthier buyers to integrate, could be achieved. Better price stability within all UK housing markets also would be the clear result.

Resource links:
Savills:

https://www.twindig.com/market-views/houselungo-210321#slice

Shelter’s impact and activities:

https://england.shelter.org.uk/what_we_do/our_impact

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

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How much would you need to save a month to buy a house within 10 years?

Well in theory right now, if you were to make contributions of £200 a month into a stocks and shares Isa, (i.e. put aside earnings of £2,400 p.a.) and you aimed for a realistic yearly return of 4pc after fees, you’d reach your goal of £40,000 in nine years.
If your partner did the same, this could be £80,000.

In addition, if house prices were to fall over the same period, you could suddenly find yourself just about poised and ready to buy a place to start owner occupation in.
Unfortunately, there are quite a few ‘ifs’ in this scenario aren’t there.

The main obstacle to achieving such a dream for an increasing number of aspiring buyers is house prices themselves which, even at the lower end of the house-ownership spectrum, are out of reach for many would-be owner occupiers. This obstacle could however be removed using relatively straightforward improvements in the way that residential properties are marketed.

The present ‘government’ idea of trying to get prices to start reducing is to build many more housing units.
Unfortunately, this idea is fundamentally flawed. The reason is the effect of doing this would be marginal on price. Why?
Because unless upwards of 10% of the total number of existing houses in the system were to be constructed, little or no effect on house-prices themselves would actually be felt.

If you do the maths it becomes clear that it would be impossible to build enough new houses, even over a full ten-year stretch. The calculation tells you it would take building in excess of ten times the number of new units currently able to be built each and every year for at least the next ten years!

By deduction therefore, instead of attempting to do the impossible it would be better to look at the current methods of marketing all residential properties and change that. The sales and marketing of residential property the one thing that is highly inefficient, old fashioned and in need of significant improvement. This is the key to achieving the desired result – greater owner-occupation.

Reform the way privately owned residential properties or houses are bought and sold and you will make the process open, fair, and efficient.

Doing this would bring the prices of starter homes back within the reach of first-time buyers and they would no longer have to borrow the increasingly ridiculous amounts which are currently stopping the majority of those wishing to become owner-occupiers to do so.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.