Where are estate agents going wrong nowadays?
Well, first please fully understand that the vagaries of the housing market are complicated as most people will admit.
As a retired property professional I have watched how things have been going for several decades now. A clear picture is at last emerging.
The estate agency sector, since the last war, has been increasingly failing to balance demand and supply in the housing market over the decades for reasons other than the imbalances in supply and demand!
The problem is that the estate agency sector itself is mistakenly working on the basis that the demand for housing is economically highly elastic whereas supply, they would frequently tell you, is highly IN-elastic. They say, that it is this mismatch which is causing price peaks and troughs in the housing market to occur. The argument is completely wrong for the reasons I will now set out.
Firstly, the supply of houses coming onto their books is neither IN-elastic nor is it dependent upon the total number of houses actually built.
Here are the other reasons why they are mistaken:
As just explained estate agents are actually only dealing with the number of houses currently on the market – or on their books from a supply point of view. This is quite different from the total supply of all the houses currently built and in use in the whole country.
Once they ‘get this’, they can free themselves to best help those wishing to instruct them on moving house, just as they ought to be able to do the same for those hoping to buy their next house.
Secondly, and on the fluctuating level of demand for houses from buyers, the agents generally assume this is highly elastic in nature but sadly this is equally mistaken!
In fact, agents very much affect the demand from buyers very directly, (as well as affecting the supply of homes coming onto their books as mentioned above).
This is because buyer demand is greatly affected by the level of wealth of buyers wishing to buy houses at any one time. Understanding this is very important for generating successful house completion transactions, especially because buyer demand it is not highly elastic.
Why is that? Because overstating the asking prices of houses going onto the market will put many buyers off and it also provides misleading information to sellers concerning increasing prices, which can also put many sellers off, rather ironically.
I say this because if agents were to act for buyers instead of sellers, they would see the various opportunities available in the marketplace quadruple, bringing many more house hunters onto the marketplace and on to the agents’ books.
Once agents realise that they do in fact influence the number of houses coming onto the market (i.e. their notional total supply of houses available for purchase), then business will increase because it seriously depends on the way in which they interact with buyers as well as with sellers.
At the same time they should realise that they can and should influence the number of houses sold from a buyer’s point of view, since this all depends on the levels of wealth currently being enjoyed by those in the market to buy themselves a house at any one time.
It should be stressed, acting as an agent in housing is completely different from agents selling say expensive cars and/or yachts, because house agents are dealing with capital assets not mere chattels. Capital assets require extra special skills, involving advising buyer-clients, rather than merely advising the seller after having obtained a selling contract!
Therefore and in conclusion, prudent agents should be acting for or serving buyers as their primary clients instead of sellers, in order to bring about the greatest number of sales in any specific market situation.
Prices should be dependent upon or determined by what different buyers might be willing to pay. Where estate agents almost invariably go wrong, is they confuse this with how much buyers can each individually be made to pay!
Doing the latter is a whole different ball game and it is that which actually causes markets to ripple, which then results in price peaks and troughs inflating and deflating again and again on a regular or cyclical basis throughout the various housing markets, spread across the whole of the UK.
Please notice these peaks and troughs do not always coincide with periods of greater and lesser wealth.
This emphatically confirms my argument that agents should change their mode of operation to one of acting for buyers rather than for sellers. As well as that it fully explains that the massively increasing price levels we see currently are not as a result of increasing median net wealth but are in fact to do with buyer coercion. Such coercion must be taken right out of the agency-equation if prices are to stabilise at safe and supportable market price levels.
For more about how this situation may be fully resolved, both swiftly and economically, please follow the link below entitled:
The House Price Virtuoso Solution
How to Improve Housing Markets in England and Wales.
This is not to say new houses should not be built to provide new accommodation, wherever this is strategically necessary within each local jurisdiction.
What do you think about this analysis of the present situation please?
Comments are moderated but constructive ones are always welcomed.
Posted by: Peter Hendry, Housing Valuation Consultant
Author:– The House Price Virtuoso Solution