NAEA mistake: It’s Estate Agents over valuing property

| August 8, 2009
Estate Agents over valuing property

Surveyors are not undervaluing property as the NAEA claims – but instead, estate agents are over-valuing property.

The National Association of Estate Agents today claimed that surveyors are purposefully under-valuing properties, thus adversely impacting the property market.

This is especially when someone applies for a mortgage, only to find the mortgage lender will only lend a smaller amount, leaving the buyer in difficulties in either securely the mortgage, or retaining best terms.

However, the NAEA claims, widely reported, can only be regarded as facetious.

Closely observing the property market in Scotland over the past two years, it is very apparent that despite falling sales, Scottish estate agents have trying to raise asking prices on properties where they can.

If this underlines the NAEA’s complaint, then it becomes very apparent that surveyors are not undervaluing property – but, instead, estate agents are over valuing property.

It must be remembered that many estate agencies gain more money the higher the sale price, due to charging according to a percentage of value, rather than fixed fees.

Surveyors, on the other hand, have no financial incentive to try and fix the value of a property in the same way.

So the NAEA’s claims really need to be taken with a pinch of salt – it hardly seems convincing that an industry who has a self-serving interest to inflate prices, should therefore be able to complain that in an environment where property prices have fallen, that surveyor valuations have additionally fallen.

Perhaps the announcement by the NAEA was nothing more than a bit of posturing, and a desperate one at that.

In the meantime, despite the Spring and Summer period being traditionally the peak season for property sales, the Nationwide has only been able to report a small increase in property prices.

Therefore as we approach the Winter, don’t be surprised if we see property prices begin to fall more steeply as even this season’s weak interest falls back.

It’s worth remembering that even conservative organisations such as ratings agencies and even the FSA are presuming an overall fall from peak to trough of between 30%-40%, with rating and Basel II compliance being based on these projections.

With property prices now being claimed to have fallen only between 15%-17% so far, there is plenty more heartache in store for the UK property market.

Sales are flat in the areas I’m watching, and I’m incredulous to see that even under such conditions, estate agents and property solicitors are trying to inflate prices as if there’s a boom going on.

Additionally, we have a wave of fixed rate mortgages completing this autumn, which will result in a lot of home owners suddenly having increased difficulty in remortgaging, or else being left on mortgage deals with punishing rates. None of which can be imagined to be good for the property market.

In which case, the NAEA would better serve its members by trying to encourage more realistic valuations to promote larger sales volume, instead of the current practice of trying to charge more on a lower volume of properties.


Comments (5)

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  1. Peter Hendry says:

    Its ridiculous for estate agents to suggest that all the mortgage surveyor’s valuations are wrong in a falling market.

    The disagreement arises from estate agents having a different market view from surveyors.

    Why don’t estate agents learn to value houses like the surveyors which the building societies rely upon? Its not difficult.

    If they did that they would give a better service to their clients and help the housing market to function again. They themselves would get more sales that way too.

  2. garry fields says:

    Completely agree finding it very difficult at the moment as estate agents on the IOW are putting houses on the market higher than they were at peak price some even 20 to 30% higher??????????????

  3. Mark says:

    Estate Agents of course advise vendors on potential value and asking price, but it’s often the vendor themselves who wants to “test the market” with a higher asking price. The asking price is not a formal valuation, it is an invitation to offer. The market then finds it’s own level in terms of the amount interested parties are willing to pay.

    Also, it’s actually not necessarily in Estate Agent’s interests for property prices to increase. When prices rise, estate agents % commission usually drops because properties are easier to sell and there is more competition between agents to get new instructions. It is a higher volume of sales that would make Estate Agents more money, not higher property prices in the short-medium term.

    I believe the NAEA comments are correct. Many surveyors are overly-cautious in a depressed market, possibly because they are instructed to be so by mortgage lenders (who themselves are/were terrified about their OWN financial situation), or because they are scared something will come back on them later – it’s much safer for them to downvalue and not put their neck on the line – so yes, surveyors have a vested interest in down-valuing in some cases.

    I bet the contributor and commentators above would think differently if they were selling their own homes. You cannot have estate agents valuing property like surveyors otherwise the market would never move on! Estate Agents are employed to get the best possible price for their client – the seller. They are not working to get a cheap price for the buyer! the combination of Estate Agents and Surveyors is the necessary system to represent both sides of a transaction in a free market.

  4. Peter says:

    Mark,
    Sorry I did not get to answer sooner, just read yours.
    The thing is, the whole way estate agents appraise property needs to change, to get the market turning over houses faster. But instead, if every seller, as well as the agents and the Government all want to stoke up house prices, inflation will be the end result and this will largely defeat the object of doing that anyway.

    I think there’s a strategy between Government and estate agents where the government does not discourage agents (of vendors) from stoking up house prices because they want growth in the economy (at least on paper).
    Its high time a different approach was taken because this is damaging the economy and has been for years.

    If the housing sector is to become an integral part of the mainline UK economy, there now have to be root and branch changes in the way house valuations are initially carried out, and the means by which sales transactions are then achieved. Efficiency and transparency need to be brought in.

    If these changes are not made, the status quo will simply continue, i.e. booms followed by slumps in house prices on a cyclical basis; running out of sync with the main economy and causing incalculable damage to it.

    With the new Con-Lib coalition we have, probably for the first time ever, a clear choice whether to embrace change for the better in the way houses are marketed; or not.
    In my view, it is time we embraced change.

  5. Natalie says:

    The only reason our house sale may be about to fall through is because of an undervaluation by the surveyor. We have had plenty of interest and have a buyer who is more than happy with the sale agreed price – how is this the estate agent or seller overvaluing – the market value is what people are willing to pay in the current climate. The surveyor has valued a 3 bed semi freehold the same as a 2 bed terrace which sold 6 weeks ago less than 1/4 km away. Another comparable is a 3 bed end of terrace, no garden, leashold – how can they value these 2 properites the same. If these kinds of valuations continue, so that house sales fall through, then of course it will stiffle the market recovery.