Many buyers don’t appreciate how difficult it can be to value properties. They think agents casually glance at previous sold prices or simply put their finger in the air when setting an asking price. The cheek.
The truth, however, is quite different. Although knowing what similar properties in the area have sold for is important, we’re talking about an illiquid market here. Each property is slightly different. And every buyer is different, too: they view homes subjectively, have specific preferences, and may be more or less desperate to secure their next home. All these things can impact what buyers are prepared to pay.
What’s more, sometimes there are no direct comparisons to go by. Unique properties, or those with very obvious problems, can be infuriatingly difficult to value. And that’s when agents have to consider a whole variety of factors when settling on an asking price. It’s a complex conundrum that can challenge even the canniest of agents.
There are a number of things that traditionally increase a home’s value. If the property is in the catchment area for good schools, near transport links, close to open space, and has natural kerb appeal, then it should clearly fetch a higher price. Size matters, too. That’s why we’re all familiar with the metric ‘price per square foot’.
On the other hand, some factors obviously undermine a property’s value. Poorly presented homes, smelly pets, those in high crime areas, and the dreaded Japanese knotweed always turn off buyers. Economic uncertainty, unusual or niche renovations, and an abundance of similar properties on the market also deflate values. And, as you know, all these things must be weighed up carefully before setting an asking price.
Unique or unusual properties
Sometimes the property you’re valuing can be unusual in itself, even if it has some, or even all, of the positive or negative characteristics above. For example, if it’s intrinsically different to the other properties on the same street, perhaps because the original structure was knocked down and replaced with something modern, or there’s an electricity substation in the garden, then all bets are off.
Did you know that being located close to an overhead powerline can reduce a home’s selling price by as much as 38%? Some features can overshadow all others, both metaphorically and literally. Consequently, even properties in prime locations don’t always fetch a pretty premium. And this is where you’ll need intuition to set that awkward asking price.
Made of the good stuff?
The materials used in the construction of a home can also have a big impact on its value - especially if the materials were non-standard. For example, properties made from concrete, steel frame, or timber are generally disliked by lenders. Consequently, agents will need to take this into account when setting an asking price.
While many high-rise flats were made from concrete in the 1960s and 1970s, concrete homes are often seen as soulless. Timber properties (or those with thatched roofs) represent a fire risk. Meanwhile, steel frame homes, despite the material being affordable and lightweight, have been revealed as structurally vulnerable in recent years. As a result, buyers can often find it tough to secure mortgages. Not good.
Smaller properties also sometimes put buyers off. Studio flats and micro flats, for example, might appeal to some because they’re compact and low-maintenance. However, this is very much a niche appeal; so many lenders stay away entirely or set a 30 square metre minimum. Studio flats tend to be the most difficult to sell so agents will need to price them accordingly.
The high life means lower prices
Homes in high-rise flats can also be tricky to value, especially if they’re located on the fourth floor or above. This isn’t just because of Grenfell, either. High-rise apartments have long struggled to retain their value.
Upper-floor flats are risky because upkeep of communal areas is always out of a buyers’ control. And run down communal areas will inevitably undermine a home’s value no matter how sparkly it is inside.
Finally, homes near social housing - even in a prime spot - can be challenging to value. This is because mortgage lenders prefer to see a balanced mixture of privately owned and local authority-owned homes within the same development. You’ll therefore need to be super diligent, and maybe work some unsociable hours, before setting prices near social housing.
Freehold versus leasehold
Although freehold properties tend to fetch a prettier penny, it’s not always that simple. For example, freehold flats can be extremely problematic if there’s no agreement in place between the owner of the building and the owners of the individual flats. Who pays for the maintenance? Furthermore, there are often disagreements between the flat owners themselves. So potential buyers best get ready to rumble.
“Flying freeholds”, where one part of a building (perhaps a garage or balcony) extends over a neighbouring home, are also sticky wickets. This is because access to make repairs isn’t guaranteed. All these things can make a valuation plummet like a stage-diver at a poorly attended concert.
None of this is to say that leasehold properties are a walk in the park, though. Leasehold flats with no management company can be a nightmare. Just watch those communal areas deteriorate. Meanwhile, homes with leases of 80 years or less will depreciate quickly. Extensions are usually possible but they won’t come cheaply. Agents will therefore need to alter the asking price proportionately.
Finally, there are a few other factors you need to be mindful of when setting an asking price. The first is whether a larger property has an annexe. After all, annexes can make lenders nervous for two reasons: buyers might rent this part of the property to someone else (which would break their regulations) and council tax might be impacted, which would make the property more expensive to own in the long run. Both these things can impact valuations.
Flats or maisonettes above commercial premises can also be an issue. Some buyers might love being able to pop downstairs to buy a kebab at midnight, but environmental issues like noise, smells, and potential rubbish will undermine what most buyers would be willing to pay.
Properties linked to agriculture, like farmhouses and some cottages, can also be more difficult to sell if occupation is restricted to agricultural workers. Ditto properties in very remote locations. And if something’s more difficult to sell, the asking price will obviously need to be enticing.
Asking price strategies
As you know, setting an asking price isn’t an exact science. It takes experience and judgement. The old adage that a home is only worth what someone is willing to pay is undoubtedly true, and until the deal is done, and the vendor’s money is in the bank, no agent knows how much a specific property will fetch. It’s essentially very educated guesswork up to this point so you’ve got to use your noggin.
The problem, of course, is that a significant percentage of a home’s value is purely subjective. This intrinsic value, where a buyer may overvalue or undervalue a property’s features for emotional or psychological reasons, is often unpredictable. And a unique property, or one with certain features that should (in theory) attract or repel buyers, might prove to be more or less attractive than even the most seasoned agent could have expected.
The best strategy, therefore, is to gather as much information as possible about the home you’re valuing - especially if it’s made from non-standard materials, is located in a high-rise block, or something concerns you about its lease. Then, if in doubt, trying setting a lower ‘offers over’ asking price.
The ‘offers over’ or ‘offers in excess of’ prefix will encourage potential buyers to make an offer and then you can sit back and see where things go. The seller’s minimum expectations will be met and, who knows, you might secure a much higher price than anticipated if multiple parties are interested. Basically, this strategy will give you greater margin for error if calculating a precise asking price is asking too much of yourself.