Taking Property Valuation Seriously
Estimating a property's market value is an essential part of any property dealing and needs to be undertaken more rigorously by both buyers and sellers in the United Kingdom.
If you want to sell your house, you will have to set an asking price. If you want to buy a house, you will have to decide how much to offer for a property. There is no controversy surrounding these statements - the tasks are central to any property dealing. What is commonly overlooked, however, is the rigorous analysis and thorough investigation that individuals can and should perform to help them decide on a price that is in their best interests.
Individuals should not set an asking price without having a clear idea how much their property is worth. Neither should an offer to buy be made without prior analysis of whether the asking price reflects the property's actual market value.
Independent Property Valuation
When setting the asking price, most house sellers rely on an estate agent's estimate alone. Although estate agents can provide valuable insights they will only provide their opinion as to what house price may or may not be achievable; this opinion is not a substitute for an independent property valuation.
The consumers' charity Which? points out that estate agents' valuation assessments might be compromised by their financial interests. Unscrupulous agents may suggest an asking price above market value in order to win an instruction. House sellers are more likely to instruct the estate agent who promises the highest price, often to be forced to cut their price later because the property does not sell. On the other hand, an unscrupulous agent might suggest too low an asking price in order to guarantee a quick sale. Estate agents want a high turnover of properties on their books and may therefore have less incentive than the owner of a property to hold out for a high price. With the potential for conflicts of interest, buyers and sellers should not rely solely upon estate agents for house price and valuation advice.
Home buyers usually follow common practice and simply put in an offer 5 to 10 percent below the asking price, often without knowing whether the asking price reflects the property's actual market value. The house buyer often has limited market knowledge and lacks comparable price evidence to support his or her offer price; therefore they can be vulnerable to pressure from both the agent and the seller who are, of course, pushing for higher prices. The property market is one of the most price-ambiguous commercial sectors - it is therefore remarkable that so many people buying and sell property without rigorous investigation and analysis into valuation.
Mortgage lenders prove somewhat more prudent by requiring an independent property valuation before approving a loan, however they rarely lend the full price paid and their valuation concern only extends to providing adequate security for the loan in question.
Estimating Market Value Based on Actual House Sales Prices
A property's market value is the most probable price a seller can expect for it in an open and free market, under the condition that neither buyer nor seller are exposed to undue stress. The easiest way to gain a reasonable estimate of a property's market value is to compare the sales prices of similar property transactions. This method (common in places such as the USA and Scotland) relies on freely available comparable transaction data; such information has only recently become publicly available England and Wales.
The main obstacle to successful property valuation based on comparable sales has been a lack of factual data on actual house selling prices. Sales prices are recorded by HM Land Registry but have traditionally not been publicly available. Recently however HM Land Registry has licensed their data to various organisations, a move which has finally opened up its property transaction database to the wider public via the internet.
The data needed for a comparable sales analysis include sales price, transaction date, address, and information on property size, type and tenure. The aim is to assess the market value of a specific property in a specific location by finding out what people actually paid for similar properties. It is also worthwhile looking at the local market trend in house prices to assess the direction of prices over time in the location of interest.
The main benefit of factual property price data is that it provides insights into the property market based on actual sales prices as opposed to asking prices. The resulting transparency will lead to fairer dealings for both house buyers and sellers.
However, true market value of a property, taking into account the current condition of the property, is best assessed by a Chartered Surveyor. A professional survey may seem expensive to a home buyer but the fee is trivial when compared to costly mistake of overlooking remedial work or structural faults. The results of a professional property survey can also be a very useful bargaining tool when it comes to haggling over the price.
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