How Do We Combat Agents and Agencies That Overvalue a Property Just to Get the Instruction Only to Then Reduce the Price a Couple of Months Later?

Introduction

As an estate agent, one of the biggest challenges we face is dealing with agents and agencies who overvalue properties in order to secure the listing and I am afraid this also happens in New Zealand. Unfortunately, this practice can lead to disappointments for both sellers and buyers when the property doesn't sell at the inflated price and requires a reduction later on. In this article, I will explore the strategies and tactics to combat such situations, ensuring a fair and successful property transaction for all parties involved. By being honest, transparent, and informed, real estate agents can uphold their expertise, authority, and trustworthiness in the industry.

The Consequences of Overvaluing a Property

Overvaluing a property may seem like an enticing strategy to win an instruction, but it can have severe consequences in the long run. Here are some of the negative outcomes I have found associated with this practice:

• Extended Time on the Market: An overpriced property tends to stay on the market for longer periods, as buyers are deterred by the inflated price tag.
• Decreased Buyer Interest: High listing prices can discourage potential buyers from even considering the property, leading to fewer showings and offers.
• Loss of Buyer Trust: Buyers may lose confidence in both the agent and the property if they feel misled by an inflated asking price.
• Limited Negotiation Power: Overpricing eliminates the possibility of negotiation, as buyers may not see room for further reductions.
• Affecting Appraisal Results: If the property doesn't sell and requires a price reduction later, the initial overvaluation can impact the appraisal value.
• Stigmatisation of the Property: A property that lingers on the market due to overvaluation can be perceived as undesirable or flawed, leading to a stigma that's difficult to shake off.

Understanding the Motives Behind Overvaluation

Before we explore the methods to combat overvaluation, it's essential for us to understand the motives some agents and agencies have behind this practice:

• Winning Listings: Some agents might overvalue properties to secure the listing by appealing to the sellers' desire for a higher sale price.?Unfortunately we do come across sellers who are just money driven and some agents play to their greed.
• Higher Commissions: A higher listing price translates to a higher commission for the selling agent, which can incentivise overvaluation.
• Agency Pressure: In competitive markets, real estate agencies may put pressure on agents to win listings at any cost, including overvaluing properties.
• Lack of Market Knowledge: Inexperienced agents may struggle to accurately assess a property's value, leading to overestimations as they are desperate to get the listing.
• Seller Expectations: Unrealistic seller expectations can push agents to list the property at an inflated price, hoping for a willing buyer but as a agent you have to be honest and up front with your client.

Strategies to Combat Overvaluation

As responsible estate agents, combating overvaluation is crucial for maintaining our credibility and providing a positive experience for our clients. Here are some effective strategies to address this issue:

1. Conduct Comprehensive Market Analysis

Before listing a property, conduct a thorough market analysis to determine its fair market value. Utilise comparable sales data, consider the property's unique features, and take into account current market conditions. Presenting this data to the seller can help them understand the rationale behind the recommended listing price.?Don’t just rely on data, go out and walk the area.?Get right up close to the action. ?

2. Be Honest and Transparent with Sellers

Communicate openly with sellers about the risks of overpricing. Explain the potential consequences and the importance of setting a realistic asking price. Building trust with clients is essential, and honest communication is the foundation of that trust. ?

3. Educate Sellers About the Market

Educate sellers about market trends and buyer behaviour. Help them comprehend that an accurately priced property will attract more interest and lead to a smoother transaction process.?If they are still not convinced with your evidence then you may have to make the decision to walk away from this instruction.?You and only you can make that call.

4. Showcase Past Success Stories

Share some of your own success stories of properties that were priced correctly and sold quickly. Demonstrating your track record of successful transactions will instill confidence in your abilities as an agent.

5. Stay Informed About Market Changes

Keep a close eye on the market and be prepared to adjust the listing price if necessary. Regularly update sellers on market shifts and their potential impact on their property's value.?Go through your marketing plan with your client and make sure you communicate what you are hoping to achieve on their behalf. ?

6. Collaborate with Appraisers

Something to consider is involving appraisers early in the process to obtain an unbiased opinion on the property's value. A professional appraisal can provide an objective assessment to support your recommended listing price.

7. Set Realistic Seller Expectations

Manage seller expectations from the beginning is so important. Discuss the potential time frame for selling the property and the likelihood of price adjustments if necessary.

8. Present a Marketing Plan

Develop a robust marketing plan to attract potential buyers and showcase the property's best features. Emphasise the importance of attracting serious buyers who are willing to pay a fair price.

9. Demonstrate In-Depth Knowledge

Exhibit your expertise and in-depth knowledge of the local real estate market. Sellers will be more likely to trust your judgment if they see you as a knowledgeable and reliable professional.

10. Use Case Studies

Present case studies of properties that were initially overpriced (you will find lots on Rightmove and Zoopla) and had to undergo price reductions. Highlight the negative impact of overvaluation on the selling process.

11. Offer Pricing Options

Provide sellers with pricing options based on different strategies, such as pricing at market value or slightly below to attract multiple offers.?This is always a good tactic. ?

12. Utilise Online Valuation Tools

Leverage online valuation tools to back up your recommended listing price with data-driven estimates.?Please note though that some online valuation are not a substitute for your own homework.

13. Monitor Listing Performance

Track the performance of your listings and be proactive in addressing any challenges. Regularly communicate with sellers about buyer feedback and market responses.?Talk with other agents selling in the area and get their feedback.

14. Negotiate with Buyers

Negotiate with potential buyers to bridge the gap between their offers and the seller's expectations. Emphasise the benefits of reaching a fair price for both parties. ?

15. Stay Professional Amidst Pressure

In competitive environments, there might be pressure to overvalue properties to win listings. However, it's crucial to stay professional and stick to ethical practices.?This is something that independent agents will need to think about as they rely on property sales for their income unlike the traditional high street agent.

16. Educate Buyers on Market Value

Educate buyers on market value, helping them understand why an overvalued property may not be a wise investment.

17. Highlight the Risks of Overpricing

Warn sellers about the risks of overpricing, such as limited buyer interest and eventual price reductions.

18. Network with Other Agents

Build strong relationships with other agents and collaborate to ensure a fair and transparent real estate market.

19. Stay Committed to Ethical Practices

Maintain your commitment to ethical practices, even if it means losing a listing opportunity due to unwillingness to overvalue a property.

How Do We Combat Agents and Agencies That Overvalue a Property Just to Get the Instruction Only to Then Reduce the Price a Couple of Months Later? - FAQs

• Q: Is it common for agents to overvalue properties to secure a listing

A: Yes, unfortunately, it's not uncommon for some agents and agencies to overvalue properties as a tactic to win an instruction. This practice can be tempting for agents looking to secure more business, especially in competitive markets or when facing pressure from their agency. However, it's essential to remember that this approach can have negative consequences for both sellers and buyers in the long run.

• Q: How can overvaluing a property affect the seller's experience?

A: Overvaluing a property can lead to a frustrating and disappointing experience for the seller. When a property is listed at an inflated price, it tends to sit on the market for extended periods, attracting fewer potential buyers. As time goes on without any offers, sellers may become increasingly anxious and feel pressured to reduce the price, eventually settling for less than the property's true value. Moreover, the property can develop a stigma as it lingers on the market like an out of date paint of milk on a supermarket shelf, making it even more challenging to attract serious buyers.

• Q: Can overvaluation lead to financial losses for sellers?

A: Yes, overvaluation can lead to financial losses for sellers. When a property is overpriced and if you go onto any of the property portals right now you can see how much money sellers are loosing almost every week, it's less likely to attract interested buyers, and potential offers may fall short of the inflated asking price. As a result, sellers might have to reduce the price to attract buyers, which could mean selling the property for less than it might have fetched if it were initially priced accurately. Additionally, the extended time on the market can lead to increased financial costs for the seller if their plans to move are based on the sale of the house.

• Q: How does overvaluation impact buyer interest?

A: Overvalued properties often deter potential buyers from showing interest. Buyers are usually well-informed about the local real estate market, and when they encounter an overpriced property, they may view it as either unreasonable or out of their budget. As a result, they may avoid visiting the property altogether or prioritise viewing more competitively priced alternatives. This lack of buyer interest can significantly delay the selling process.

• Q: What can buyers do to protect themselves from overvalued properties?

A: To protect themselves from overvalued properties, buyers should work with knowledgeable and reputable real estate agents who can provide accurate market insights. Additionally, they can include appraisal contingencies in their purchase offers, which allow them to back out of the deal if the property's appraised value falls short of the agreed-upon price. Conducting thorough research on comparable properties and market trends can also help buyers make informed decisions.

• Q: Are there any legal implications for agents who consistently overvalue properties?

A: While there might not be specific legal consequences for overvaluing a property, consistently engaging in this practice can harm an agent's reputation, credibility and the industry overall. Real estate agents are bound by a code of ethics, and misrepresenting a property's value can be considered a breach of those ethics. Additionally, clients who feel misled by an agent's overvaluation may file complaints or pursue legal action for potential damages.

Conclusion

As real estate professionals, it is our duty to prioritise the best interests of our clients and uphold ethical practices. Combatting agents and agencies that overvalue properties just to secure a listing, only to reduce the price later, is essential for maintaining our credibility and building long-lasting relationships with clients. By conducting thorough market analyses, educating clients, staying informed about market changes, and demonstrating expertise, we can avoid the pitfalls of overvaluation and provide a seamless and satisfactory experience for both sellers and buyers. ?

Remember, the real estate industry thrives on trust and transparency, and by adhering to these principles, we can strengthen our position as reliable, trusted and professional?estate agents.