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 and 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 housing 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. This argument is completely wrong for the reasons I will now set out.
Firstly, the supply of houses coming onto their books is not IN-elastic and neither is it dependent upon the total number of houses actually built.
Here are some 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 from such confusion and begin to help those wishing to instruct them when moving house. They ought to be able to do this for those hoping to buy their next house in any case.
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 again mistaken.
In fact, agents very much affect the level of demand from buyers directly, (by affecting the number 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 completions, especially because buyer demand is not highly elastic at all.
Why is that? Because overstating the asking prices of houses going onto the market will put many buyers off, lessening demand. In addition, it also provides misleading information to sellers concerning apparently 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 thus onto the agents’ books.
Once agents realise that they do in fact influence the number of houses coming onto the market (i.e. by influencing the total supply of houses becoming available for purchase), then business will increase for the agents because this depends on the way in which they interact very much with the buyers as well as with sellers.
This means they should realise that they can and should influence the number of houses sold from a buyer’s point of view, since that must depend 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 who may be selling, for example, expensive cars and/or yachts, because house agents are dealing with capital assets, not depreciating assets or chattels. Capital assets require extra special skills, involving advising buyer-clients, rather than merely advising the seller, after having obtained a selling contract!
Please understand. No current asking prices indicate a house’s true market value. Neither should you think that whatever reduction you can negotiate will be the actual market value of the property. The asking price is just part of the marketing. Most sellers are optimistic, all selling agents are ambitious sales people and so most sales naturally complete for less than the initial asking price for that very reason.
Therefore and in conclusion for the reasons I have just provided, 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 every 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 incorrect and it is that which actually causes markets to begin a ripple, which then results in price peaks and troughs, inflating and then 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 explanation supports 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 net wealth but these are in fact more 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 all the details about how to improve housing affordability and sales throughput swiftly and economically, please follow the link below:
How to Improve all local housing markets in England and Wales
Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution otherwise known as The Hendry Solution.
What do you think about this idea for drastically improving the operation of all housing markets in Britain?
Constructive comments are very much welcomed.
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.