Top Secret: Why Are Asking Prices So Critical, Particularly In The Market Today?

You would think that common sense would prevail, when sellers or landlords are pitching their asking price in a challenging market wouldn’t you? If only it did.

Vendors or landlords of residential property, aided and abetted by duplicitous agents, are always trying to ‘crank’ the asking price of their properties, regardless of the negative effect that this has on the marketability of the property itself.

Greed and ignorance seem to be the by-words with this process and properties then remain on the market for an interminable amount of time, unsold or unlet, until desperation takes over. Invariably, there is then a cataclysmic price drop, that may benefit the ‘bottom feeder’ and certainly the agent, but not the owner or landlord.

The reasons for this are quite simple. In a ‘raging bull’ market there is usually an acute shortage of stock and you can ‘get away with’ quoting 10-15% more than value. The shortage provokes inflation that drives positive sentiment and in short, the vendor/landlord ‘make a killing’.

Challenging Market

Currently, we are in a challenging sales market, across all price ranges. At the top end, this is due to the Stamp Duty hikes and the Non-Dom fiscal changes, marginally helped by the lower Pound. At the bottom end, lack of confidence creates a malaise. It then becomes a vicious circle and as interest/mortgage rates start to rise, lenders become more difficult with their loans, which exacerbates the process. People feel poorer and stop spending, which otherwise would be a vital part of the stimulant for a consumer-led economy and is one of the reasons that UK growth is slowing, as we speak, and this has little to do with the uncertainty of Brexit.

At the moment, there is an over-supply of properties in the east of London, Nine Elms and at Battersea Power Station, where the foreign investor has stopped buying, partly due to the Stamp Duty surcharge and tax treatment of Buy-to-Let investments, as well as domestic issues in their various countries of origin.

Hitherto, this international Buy-to-Let market was a vital component of demand and is it any wonder, that developers are ‘pulling up their drawbridges’ on any new residential development in London, in favour for other parts of the country?

Unfortunately, this will provide less (not more) private and affordable housing in the Capital, just at a time when we need it most, to help repair the ‘broken’ housing market.

I am not sure what Mayor Sadiq Khan, is doing about this, but it does seem that he is absent, on leave.

Getting asking price right more important than ever

So, as activity slows in all sectors, buyers are fewer or encumbered with a chain of similarly frustrated sales, gauging the correct asking price is more important than ever. Let me explain why.

Usually, a prospective purchaser sets out with a budget, which could be 20% -30% short of what they finally end up spending. If a property is overpriced by 10% more than value, the gap for the buyer could then be as much as 40%. This is unbridgeable and is why fewer applicants inspect the property and/or are prepared to make an offer, which is the classic symptom of ‘overpricing’.

If the seller pitches the property at value (which is usually 10% lower than the asking price) and the buyer pays 20% more than their original budget, technically, a deal could be done.

My advice to sellers and landlords for that matter, is to keep the asking price of the property at, or near, ‘real underlying’ value. By all means, be tougher on negotiation and even if the buyer or tenant were, at first, to offer 20% less than value, it is better to have a ‘fish on the hook’ which you can ‘wrestle with,’ than no bite at all.

If you are a little more adventurous, why not try a ‘guide price,’ at or around value, which suggests to an incoming purchaser the approximate territory that the seller is looking for, but not in absolute terms, so that there is still room to go above or below this level, if you want. It is far preferable to have a ‘guide price’ at a sensible level than an asking price that is too full.

Remember, it doesn’t matter where a bidder starts with their opening offer, it is only where they ‘end up’, that matters.

No second chance at first impression

Time and time again, sellers cannot resist the temptation to ‘overcook’ the asking price and, by doing so, extinguishing any impact that would have been enjoyed at the start of the marketing process. Remember, you can never get a second, first impression.

Once you are then on the ‘slippery slope’ of price reduction, the process is the equivalent of ‘catching a falling knife’.

When an applicant phones our office, they only have to say these words, “I’ve had my property on the market…….” , and without knowing where, or what the property is, we can tell them, with great confidence, that their property is overpriced.

Price is the greatest catalyst or attenuator for the sale or rental of a property, particularly in difficult times, where supply exceeds demand.
There is a greater science about this than one would imagine and it takes considerable self-discipline to resist the natural forces at work, by pitching the asking price of a property correctly.

Note to our former Chancellor

Mr. Osborne; I know you wanted to slow the housing market, but you could have used ‘sleeping policemen, rather than stingers!”