The last decade has seen the UK experience an influx of incorrect property prices nationwide. Recent findings reveal that 31 percent of all properties on the market across the past ten years have had their asking price reduced to be able to achieve a sale. Stockton on Tees has reduced the largest number of asking prices with 49 percent of the market undergoing cuts before selling, closely followed by Aberdeen with 46 percent of the market experiencing drops. Only three of the top 20 locations across the UK were located in Southern England, meaning the majority of incorrect house prices are in North England and Scotland. London didn’t make the top 20, however still saw property price reductions on 30 percent of the market over the last decade.
In the prestigious neighbourhood of Mayfair, the esteemed real estate agents, Wetherell, have explored the matter and discovered that in 2017 so far, the number of properties withdrawn from the local market has exceeded the number of properties sold. At 26 sales so far, totalling around £83 million, 30 disappointed property vendors have removed their home from the market at a substantial value of £114 million.
The growth of multiple agency instructions and online agents are behind the mispricing increase
Typically, property mispricing and vendor withdrawals could be drilled down to a simple supply and demand matter, with stock being much higher than that of the demand. However, due to the political uncertainty currently shrouding the nation, potential vendors are reluctant to put their property on the market for the time being and demand is far outweighing the current stock levels.
The fact is that lack of knowledge and local market trends, and a highly competitive and saturated industry is leading to agents incorrectly valuing assets – sometimes through inexperience, other times as a means to assure a new client, fully aware that a price cut will be in order before a sale is secured. This approach is becoming modern practice due to the rise in multiple agency instructions and growing presence of online agents competing with traditional estate agents.
It is such a mainstream practice nowadays, that potential buyers are raking in discounts of around £25,000 in the UK, according to Zoopla, and even more than that in London, at £57,323.
Gone are the days when buyers would select one agent to value, market, and sell their property. This approach was the method used in the industry some 20 years ago across Prime Central London, and the extensive experience in the local market, sales trends, and demand in the area would ensure highly accurate pricing.
Unfortunately, as multiple agency instructions have increased, it is typical now for the agent selling a property to differ from the one who priced it. Online estate agents have also affected the rise in mispricing with inexperienced agents and unrealistic valuations, making false promises to vendors only to disappoint them down the line and lead to market withdrawals and price cuts.
The changes over the last ten years are quite clear in Mayfair’s sales figures from 2016, where exactly 45 percent of the market was instructed by multiple agencies, and 45 percent were initially mispriced and had to have the price reduced before selling.
Peter Wetherell, CEO of Wetherell, said “Mispricing is deeply unhealthy and extremely bad for the good reputation of estate agency professionals who are experts in their local marketplaces.”
Overpriced properties can take more than double the amount of time to sell
Between the years 2007 and 2016, 245 of the 1,047 property sales in Mayfair were initially overpriced. Upon reviewing data from LonRes sales, Wetherell discovered that an overvalued property on the market could take up to 14 months to sell, whereas, if priced correctly, it only typically takes between three and six months. In the rare occurrence of a property which has been undervalued, it was identified to only take one to two weeks before securing a sale.
As of March 2017, there are 160 properties on the market in Mayfair of which the average time for sale is ten months. From the data investigated, this would suggest that 70 percent of the current residential market in Mayfair is mispriced, totalling a significant £1.1 billion, based on a £4.6 million per unit average. It is suspected that only 25 percent of the market is actually priced correctly at present and a small five percent of homes are undervalued. These errors have led to slow sales rates and decreased trust levels in both sellers and buyers, which could have been avoided from the outset.
Robert Windsor, Development & Sales Director at Wetherell, says “It speaks volumes to us that 80% of the sales in Mayfair over 2015 and 2016 were handled by just two estate agents – Wetherell as the leading specialist boutique agent for Mayfair plus a leading corporate agent. Our local offices have highly experienced senior teams and a deep knowledge of the Mayfair marketplace. When Wetherell is instructed on a sole agency basis, or with another on a joint agency, the property is consistently priced correctly, marketed professionally and sold successfully.”
“However, so many times over the last five years, we have taken on properties which have previously been instructed with other agents or multiple agencies who have a far less knowledge of Mayfair or have slipped into a valuation “price war” in order to please the vendor and win the instruction, and the result has been mispricing and no sale. Eventually, these instructions have come back to Wetherell to resolve. It is interesting to see reports from portals of increasing price reductions – this does not mean that values have come down; merely that the properties have eventually reached their correct marketing price and are in line with local comparables.”
Having outperformed the rest of Prime Central London for the past decade at a rate of 90 percent sales compared to 70 percent, Mayfair hopes to continue this high performance. The welcoming of several new property developments over the next five years hope to support this goal and secure the crown for Mayfair as London’s number one residential spot.