Wednesday 20 March 2019

Home truths: Estate agents to blame for glut of overpriced homes

The big view on Ireland's property market

Overstated?: Ensure that an unusually high pitch estimate is backed up by penalty fee cuts for failure to hit targets
Overstated?: Ensure that an unusually high pitch estimate is backed up by penalty fee cuts for failure to hit targets
Mark Keenan

Mark Keenan

A long retired estate agent I knew was once one of the most effective sellers of luxury homes. We'll call him Tim. What interested me most about Tim, a dapper man with impeccable manners, was how he would treat the wealthiest people who turned up to view the magnificent homes he had for sale.

Unlike competitors who mollycoddled the wealthy, Tim gave viewers the tour of his big houses with a definite degree of detachment (albeit polite) and sometimes even abject disdain.

For example, if a viewer criticised the house or the price, they were met with a brusque closure of their viewing right then and there. As they were being escorted to the door they would be sniffily informed that they quite obviously weren't the "right type" of buyer for this "extraordinary home".

Tim knew what really got on the goat of the difficult alpha high net worth individual, be it the white collar Kong astride corporate floors, the silver spoon suckler or the self-made showboat; nothing got their goat more than being told that they "can't". Tim understood that sometimes "no" was needed.

A good number came right back to "show him and his vendor" by buying that house. Tim's "exclusions" got the quill flowing on many's a gilt-edged deposit cheque. Meantime, if his vendors were pricing too high, Tim told them politely to come back when they were prepared to adapt a "realistic" view. He knew he was better employed trying to push a single saleable house over the line rather than struggle with a book full of overpriced palaces.

So what's happening at the top end of the market today? The estate agents' windows are full of properties that have been for sale forever.

One Edwardian pile in South Dublin has been on the market for five years and had its price reduced in increments by €1.5m. It's still for sale. A big country house has also been on the market for five years with €7.5m shaved off. No one wants to buy them because they are overpriced.

Do the vendors know this? Will their agents man up like Tim and tell them so? While a certain amount of unrealistic expectation has always plagued the top end (vendors are less advisable and the most expensive pads do take much longer to shift), we can today drop down into the €1m to €3m bracket and find another batch of property that's been sitting around for a year or two, despite having had €100k shaved off here and €100k there.

Vendor expectations in the top and middle-to-top-end of the market in Dublin have been too high for some time. A lot of it has been based erroneously on generally surging house price figures, which we have experienced for a number of years in cities. But most of that inflation has been occurring at the affordable and middle end of the market. What's more, in the cities that now appears to have cooled.

The latest Irish Independent/REA Average House Price index shows that prices for three-bed semis in most parts of Dublin, Cork and Limerick cities have frozen through the last three months. But houses are still selling well in this segment because the vendors are more realistic and agents are presumably less prepared to allow their clients to be delusional when the commission cheque is smaller. And it's always good to have something nice in the shop window.

But agents too are to blame. Various agents have been heard to complain that some of their competitors have been strategically overvaluing properties at the pitch to vendor stage, in order to achieve the contract to sell the property.

It works like this: Agents A, B and C pitch for the right to sell. Agent A says he can get €1.1m and Agent B says €1.2m. But C says he can sell it for €1.45m, even though he doesn't believe it himself. Agent C gets the contract and months later persuades the owners to cut the price to €1.4m. Two months later it goes down to €1.2m and lastly he gets an offer of €1.1m and persuades his clients to take it. This price was, of course, exactly what Agent A originally stated.

But Agent A doesn't get the contract, the sale nor the commission. That's the idea of Agent C's strategy.

Valuations are always opinion based, so intent is hard to prove. But look at any estate agency which has a disproportionate amount of long unsold high-end homes on its books and you'll likely be looking in the right direction.

With the mid market also softening in some city locations, such a strategy is now backfiring badly on the culprits.

Meantime, banks and funds have been getting to grips with bad loans and pushing incumbents to sell. If you're thus strapped, placing your home on the market for an unsaleable price is a way of buying time. The deliberately overpriced category also includes divorced spouses who don't want to move when it's time to sell and divide.

Too many overpriced homes give other vendors "notions" on value and so it generally gums up the property chain.

Estate agents need to go through their books and mark out any property that's been hanging around for more than six months without proper offers (three months for mid-range homes). They need to inform vendors that the price of their home has to be cut to sell or those vendors get dropped.

Vendors meantime need to realise that if their home hasn't produced any worthwhile offers within three to six months, it is overpriced. You either sell at a reduced price that works or you take your home off the market.

Finally, if an estate agent comes to you pitching an "achievable" price which seems much higher than those put by his competitors, get him to put it in writing that his fee will be cut by 50pc down to zero for every incremental cut in your asking price that follows. Tell him to put the bobs with the gob and sign it.

Otherwise, like Tim, just say "no".

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