As we all know, the property market, at least in London and the South East, is at the time of writing (early 2015) a sellers’ market. As such, sellers are in the driving seat and feeling very bullish. Of course, as always, that will change but at the moment that is the way it is.
What IS the Price?
Once upon a time when you saw a property you were interested in, you’d look at the price, view the property and if you liked it, make an offer either under the advertised price or perhaps at the actual asking price. Then the vendor could choose to either accept or reject your offer. If accepted, then a Memorandum of Sale would be produced and you would proceed with the purchase. The thing was, you KNEW the maximum price they wanted before you even phoned the agent. But that has changed…enter the Guide Price…
The Guide Price
For the past year (2014) many agents have been advising their clients to not set a maximum or asking price, but instead to agree with them a ‘guide’ price. This being an attractive price, often at the lower end of the vendor’s expectations. And a price that the agent believes will ‘generate a lot of interest’. Thus, a buyer may look over a property, sometimes travelling a long distance to view it, only to discover that the price asked is not really the price, and in fact, ‘Someone has already offered £25,000.00 over, because we have had a lot of interest in this house…’
So, this practice by agents in collusion with vendors, just wastes buyers’ time on an epic scale. Bear in mind that many buyers may spend several hours travelling to, viewing and travelling back from a property they might be interested in. Virtually everyone has a maximum they can spend and also a maximum they wish to spend, so if they see a property they like advertised at, say £600,000 and after viewing it it transpires that the vendors have actually been offered £625,000 then, assuming £600,000 is the purchasers’ maximum budget, then the agents have completely wasted those people’s time!
Auctions and Blind Auctions
Of course auctioneers have always used a guide price to tempt buyers to auctions, but that is different, because everybody knows that it’s an AUCTION and that the property may fetch less or more than the guide price. And what’s more, everyone will actually be aware of what the bids are in the room at the time of the auction. It’s close to what economists call a perfect market.
However, this new practice of agents using ‘guide prices’ to generate interest is very different. Sometimes you find that they even ask purchasers to submit full and final sealed bids – thus buyers have no idea what others are bidding, so it’s effectively a blind auction.
It may back-fire
Obviously estate agents quite rightly try to get as high a price as possible for their clients’ property – that’s their job. But not when it involves wasting buyers’ valuable time and money.
It’s hard work enough as it is buying a property, particularly if it’s for owner-occupation, but this scurrilous practice of encouraging vendors to tempt buyers in with a juicy low guide price only for buyers to find that they have been ‘outbid’ could, I hope, back-fire. I think that many buyers will withdraw from viewing properties simply because they just do not want to waste their time…but time and perhaps Mark Carney and his interest rates will tell.