Why Do Estate Agents’ Valuations Vary So Much?

Why Do Estate Agents’ Valuations Vary So Much?
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It’s an issue that most home sellers will have come across and that’s the pricing of your property, but why do estate agents’ valuations vary so much?

There is no doubt that finding the right price will attract buyers and that pricing too high will put people off.

As you’ll see, estate agents all use a fairly standard process to value properties, yet there’s also an element of personal judgement in there too.

Agents are essentially ‘bidding’ for the right to try and sell your home and they know you’ll want to achieve the highest price possible. As a result, estate agent valuations are partly influenced by their confidence in selling your home.

The more confident the estate agent, the higher they’ll value your property.

When we last sold a property, we had three valuations ranging from £470,000 to £525,000. That’s a difference of £55,000 – more than 10% of the valuation! We’ll use this experience to explore exactly why that might have happened.

How an estate agent puts a valuation together

Let’s start by looking at how an estate agent puts a valuation together for you. Typically, this will include:

  • The agent will carry out some research based on your area;
  • The agent needs to understand what other houses have sold for nearby;
  • They need to detail amenities and schools that are close to the property;
  • They will measure each room.

All of this information is then used to put a valuation together – but obviously there are ‘grey’ areas because no two homes are the same and they won’t attract the same price.

Usually, an estate agent utilises the comparable method. It’s a traditional valuation method that looks at other similar properties to determine the selling price (Pagourtzi et al., 2003).

For our property, part of the reason for the big difference in valuations was because our house was unique. None of the properties on the street were like ours and so it made it more difficult for the agents.

Typically, the more unique your property is in your area, the more likely you are to get significantly different valuations.

A lot also depends on opinion and the agent’s experience – particularly if they have sold a similar home recently so they will know there is a demand for your property.

The agent will take into account the property’s quirks, its precise location and the amenities – and don’t forget that if you are close to a good local school, this will bump up the price.

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Why estate agent valuations vary

The market price of your house has many factors that can impact it. Make sure to do your research beforehand.

We’ve covered some of the big reasons why estate agent valuations can vary so much. Often it simply comes down to confidence and experience.

However, when you consider the key elements of what creates a property valuation, you can identify more areas that can be responsible for varying valuation amounts:

Size of property

You might assume that all estate agents value the size of the property equally. After all, a 4-bedroom property is a 4-bedroom property!

Yet, that’s not the case. The size of each of the rooms can be interpreted in different ways. Some agents might have more people on their books looking for a specific size property than others.

If an agent feels like there’s high demand for a certain size of property, they’ll be more confident they can sell it and will value it higher.

Market conditions

When the property market is booming, prices can be rising so fast that as soon as you put the property on the market, it’s already starting to look underpriced.

Likewise it can go the other way too, when demand is falling, property values can drop rapidly and previously correct valuations can soon start to look overpriced.

As early as 1994, Born & Pyhrr predicted how trough and peak market conditions bleed into succeeding property values. As costs become higher, rent also catches up which automatically drives up the selling price. You can check the interplay between the demand, supply, and equilibrium price cycles here.

How much an agent factors in and correctly predicts the market conditions can also impact how high, or low, they’ll value your home.

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Age of property

The age of the property is a key consideration for many people. Some love older properties and the charm of their history and quirky features. Others prefer newer properties that have all mod cons and a modern interior.

Estate agents are only human and their own personal preferences can lead them to increase or decrease their valuation. They may also have different views on the buyers an area is likely to attract and what they are most likely to want.

Condition of property

Judging the condition of a property is very much a subjective thing. Sure, in extreme cases most people will agree if the condition is good or bad. But most properties fall somewhere in-between with good parts and bad parts.

What the estate agent notices as they go around the property will very much affect the valuation they come up with.

Those with a keen eye for detail might spot things that others miss. Those that like to talk a lot, might overlook things while deep in conversation that a quieter agent spots.

Improvements made to the property

The changes you and previous owners of a property will all be factored in to the valuation of a property.

Changes can be both good and bad and add to the value or detract away from it. How good an agent is at identifying the impact of any changes made will also factor into how much their valuations vary.

In our previous home we found the improvements the previous owner had made to the property restricted the number of people it appealed to.

They’d converted the loft and made a huge master bedroom with ensuite. Yet all the other bedrooms were on the ground floor. While this suited our needs, when we came to sell we found the location and size of the property mostly appealed to young families.

However, the layout definitely didn’t suit young families and so we struggled to find a buyer and ended up reducing our asking price. Some agents had picked up on this during the valuation, whereas others had completely overlooked it. This contributed to some significantly different valuations.

Location of the property

Finally, the location of a property is always going to significantly affect its value. After all, it’s all about ‘location, location, location’ right?

Crompton (2001) infers that small parks in active use affect at least 20% of the property values of the surrounding properties. Meanwhile, a well-maintained park over 25 acres that promotes passive use may not have as much as a big impact.

But again, estate agents will judge the appeal (or otherwise) of a particular location differently to each other. Even when they agree on how much an area will appeal to buyers, it doesn’t mean they’ll agree on how much impact that has on the value.

As you can see, valuing a property means factoring in a wide range of different factors, many of which are subjective.

The skill, experience, personal preferences, and the ‘feeling’ the estate agent gets can all influence the valuation they arrive at – and that’s why estate agent valuations can vary so much!

Consequences of an incorrect estate agent valuation

As estate agents do not usually charge for valuations, the first real consequence is that it will be a waste of your time.

It will only have more serious consequences if you then instruct the estate agent to sell your home and you list at the price they have incorrectly valued your home.

If the estate agent has valued your property too high

Overvalued properties will find it much harder to attract buyers. You’ll find that you’ll get fewer viewing requests and next to no offers. Eventually, you may be forced into reducing your asking price.

While this can sometimes stimulate interest, it can also then put some people off as they think there must be something ‘wrong’ with your property if you’ve had to lower your asking price.

A property that has been reduced may also attract even lower offers, since people assume you must be desperate to sell.

We experienced this when we listed our property a little too high. After several months without serious offers, we knocked £25,000 off and made it ‘offers over’ to show we had reached the minimum we would accept.

However, we still received offers below our ‘offers over’ price and ended up having to sell at £30,000 less than our original asking price.

If the estate agent has valued your property too low

The main and most obvious consequence of pricing your property too low is that you don’t get as much money as you could have done. This can then restrict your budget for your next property purchase.

People will be guided by the asking price and assume it’s worth what you ask (or less), so an under-priced house won’t automatically attract offers over the asking price.

We experienced this when our first home was sold within the first weekend, with multiple asking price offers received. We encouraged people to make offers over the asking price but they all refused.

We’ll never know if the property was under-priced but the fact our neighbour sold an almost identical house for quite a bit more just a few months later suggests we probably should have asked for more.

Someone puts in an offer that’s higher than the ‘true’ value of your home

There is actually a third issue that can arise that isn’t necessarily linked to an incorrect valuation – though is more likely if your home has been overvalued.

That issue is when you accept an offer that’s too high and the buyer requires a mortgage to complete the purchase.

When this happens, you may find the mortgage lender conducts a valuation survey and discovers the house is worth less than the buyer has agreed to pay. This may restrict the mortgage amount the buyer can secure and may cause the sale to fall through – unless you agree to lower the sale price.

Mortgage companies valuing properties under the agreed price is more common when market conditions are slow so it’s definitely worth watching out for.

Estate agency valuations – FAQs

Now we have covered some of the reasons why estate agent valuations vary, let’s take a look at some of the more general questions you may have about valuations…

Should you get more than one house valuation?

Home sellers should always get more than one house valuation as this will give a better idea of what their property is worth and what potential buyers are prepared to offer.

As mentioned previously, the tradition is to ask three firms of estate agents to value your home – you can ask as many agents as you like. It’s also worth asking an online estate agent since they will offer an inclusive package for selling your home and their incentive is to sell quickly.

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Are estate agent valuations accurate?

Since estate agents are professionals, you should expect their valuation to be accurate. However, since they are in business, they will want to earn as much as possible from your house sale and may overprice your property.

Having said that, estate agents who are local to the area will know what properties are selling for and, more importantly, know what the demand will be for your home.

They will use this local knowledge and price your property as accurately as they can in a bid to find a buyer. This is the big difference between an estate agent and a surveyor valuing the property for a mortgage lender: the surveyor will be taking a more detailed look at what the property is worth should the buyer not be able to repay their mortgage.

Do estate agents overvalue properties?

Overvaluation is always a moot subject as any price is right as long as there is a bidder.

There will be homebuyers who believe that estate agents overvalue properties, but the agent is acting on behalf of a client and is finding the price that the market is willing to pay.

Whether that can be seen as being ‘overvalued’ is a moot subject since if the overvalued property finds a buyer happy at that price, then it has been priced correctly.

There’s also the risk that one particular estate agent may overvalue a property in a bid to win the home seller as a client and if no buyers have been found within a few months, then they may decide to reduce the home’s value price.

How do I know if my house is worth the asking price?

If you need to know whether your house is worth the asking price that an agent has suggested, you could:

  • Do some research and find out what other homes in your area sell for;
  • This data should reveal whether the buyer paid the asking price;
  • If your research points to the fact that your asking price is about right for the market, then that is what an expert believes it is worth.

How to choose an estate agent

Finally, the process of choosing an estate agent is an important one, and it’s not just about selecting the agent on the valuation they have put together.

If you have asked at least three agents in your area to value your home and you need to choose one to sell it, then these tips on choosing an estate agent may help:

  • Ask family and friends for recommendations;
  • Check the agent’s industry credentials – are they a member of the National Association of Estate Agents;
  • Find out how they will market your property;
  • Consider visiting an estate agent as a potential buyer to see how they deal with you;
  • Read the terms and conditions in their agreement very carefully;
  • Read reviews of your estate agent’s performance.

The bottom line when selecting an estate agent is to choose one that is going to be fair and honest and has not overvalued your property because they will set themselves up to fail in finding a buyer.

You also need to find out how many viewings they get for the properties they promote and where these potential buyers have been found.

You want your estate agent to effectively market your property and work hard for their commission – there’s also a lot to do with personal relationships and if the agent you like is also professional and friendly, then this will go a long way to you signing up with them because potential buyers will like them as well.

Ultimately, estate agents are human and that means their valuations aren’t always consistent or correct. This is why you’ll often get quite different valuations for each estate agent you speak to.

What you need to do is try and understand how each agent has arrived at their valuation, then choose the one you think is best placed to sell your home at a fair price.

Just remember, the true value of your home is simply the amount that someone is willing to pay for it. You can’t find that out until you’ve listed it for sale.

Authors

  • Steve Lumley

    Steve Lumley has years of experience writing about property. His output has covered everything from property investment, news for landlords and student tenants to articles on how to run a successful portfolio and starting out as a property investor. He has also written several books on the subject.

    View all posts
  • Paul James

    Paul James, is a marketing expert with a passion for property. As well as being a property investor, Paul has also worked within the marketing departments of some of the UK’s leading estate agents. Paul is the founder of Property Road.

    View all posts
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