Wondering how estate agents value properties? This will teach you all you need to know about both the art and science behind property valuation.
Property valuation is complex; it’s not as simple as looking at what your neighbour’s house sold for three months ago and assuming yours will be similar. Here’s what an estate agent will consider when valuing your home…
Econometrics - Can you use statistics to value?
Various researchers have tried to apply theory and mathematical statistics to value. Looking something like the model of ‘Linear regression’ which uses data from previous sales to give you an estimated current value of a home, this is pretty much how price estimator tools work.
Price estimator tools
Most people nowadays are pretty familiar with property portals like Zoopla and use their estimates for house prices as a guide to their sales and purchases. As these estimator tools are based on average sales prices in your local area of course they can sometimes be misleading. Statistical analysis can be useful if you’ve got a lot of homes to look at that are similar to yours, but lets face it, some houses are pretty shabby and need a lot of work. Others are trendy and tasteful.
Errors in analysis
Some areas have sold a lot of houses that need renovating, especially relevant in areas like Leyton and Walthamstow. Others you are probably paying maximum value for a mid-century furnished, House of Hackney wallpapered, crittal windowed dream home. Sing, Ho & Tay report that statistical tools can also be prone to Random Error, biases and unable to take into account real world events that affect the fluctuating housing market.
What if people in your area don’t move?
There are certain streets (and immediate areas) where people simply move less. This could be because the houses are larger and there is less need for people to upsize. Larger homes also see less mobility because the high stamp duty on larger properties put people off swapping homes. Average age of residents also seems to have an influence on sales. Streets where many residents have raised their kids and are moving into retirement or older age and not ready to downsize will see less homes coming to market. In these cases, and many more, there is less data to compare and you will get a less accurate valuation.
Why do we need estate agents?
Kennedy suggests that the reason property valuers exist as a profession is because every asset is different from all other properties. Valuing your home can be tricky, and can require the study of ‘hundreds’ of factors. As such, it becomes part science and part artistic in its “interpretation of difference”. Sing, Ho & Tay believe that expert valuers without any judgemental biases are far more reliable than models.
How do we value your home?
We would start the process off by looking at sold prices in your road, then widen it to a quarter of a mile, or further if necessary. We also look at what is listed on the portals, what has gone under offer, and what hasn’t. This can often be the most telling. This information all helps to build a picture of the immediate area.
Value per square metre
We also work out an average price per square metre and see if this fits with the growing picture. This can vary by thousands of pounds from area to area. As an example Hackney can range from 7500-9500 per sqm, Walthamstow from £5000-9000 and Leyton £4500-7000. Influential factors in these can be whether there is a garden, the layout and configuration of the rooms, the size of the hallway. Variables that we consider would also be the view out the windows, the direction of the garden, the kerb appeal, the road, amenities, transport links etc.
More buyers, higher prices
Also prices per square metre tend to be towards the higher end the more affordable they are. Generally, there are more buyers in the market at the lower prices. Especially between £350-550,000. These homes tend to reach the higher end of the price per sqm chart due to the economics of Supply and Demand. If the demand is high and the supply less so, these will produce the most competitive prices. This increases prices and creates a rising market.
Why agents over-value
Quite simply often estate agents over-value to get your business. As a rule, we give realistic valuations and the amount of instructions I have lost simply because “another agent said more” is frustratingly high. It can be hard to do my job at the best of times, but especially hard when people believe that the amount that the agent tells you your home is worth equals the amount you are going to get for your property.
Politics, the media and property prices
As with anything else, real world events can often have a dramatic effect on the property market. From the Treasury’s bi-annual statements, to the latest Brexit shenanigans, the news and what is reported in the media, can directly influence buyers and sellers alike. Mark Carney, Governor of the Bank of England reports house prices are going to fall…guess what…most people don’t buy, a few people put low offers in and the market stagnates.
Down-valuations by the mortgage company
On the other hand, there are some people that may be willing to pay more, and you get a higher price. Only for the sellers to be bitterly tested with a down-valuation from the mortgage lender. In these circumstances some property purchases fall through and others are topped up by buyer’s with larger deposits who are willing to take a risk.
In a rising market the buyers set the price
Ultimately, something is worth what people are willing to pay for it. Whatever rough price you put it on for, people will either all bid against each other and the price will rise accordingly, or people won’t offer at all, and then you know its priced too high. Lets see what happens. After all, the buyers tend to set the price.