Browsing articles from "November, 2011"
Nov 26, 2011

London House Prices – To Fall or Not To Fall? – That is The Question

When looking at prices around central London and the posh suburbs of greater London one would ask have prices really fallen? The prices outside of London have seen quite significant falls and even some of the less popular suburbs around London have seen prices drop quite substantially. However, when you look at current house prices in places like Kensington & Chelsea, Paddington, Maida Vale, St. Johns Wood, Hampstead, West Hampstead, Golders Green, Mill Hill, Stanmore, Totteridge & Whetstone, you would be forgiven for asking have prices really fallen? Although the prices have come down from the heights reached at the peak in 2007, you will find that most of the areas mentioned above have fared much better, many would say that these areas are recession proof. I should add at this point that the list of areas I have given is not an exhaustive one.

So what is it about these areas that the properties seem to be maintaining their value? Well most of the areas mentioned are very affluent and although I don’t entirely agree with what I am about to say next but you will find the ‘upper echelons of society reside in these areas.’ Many young professionals aspire to live in these areas, as it is not only about status but there are good schools, transport facilities and of course some good properties. There is also a more important reason why these areas have not seen significant falls and that is agents in these areas are still valuing properties in excess of what they should be and this is being fuelled by sellers insistence that their properties are in areas which are highly sought-after and therefore the properties should command a premium price. There is also a refusal by vendors to believe that prices have gone down in these affluent areas and they are still demanding prices in the region of 2007 levels (which was the peak of the property boom).

Agents Over-inflating Prices

Not only do some agents over-inflate prices so that they gain instructions, but in some cases you find that the agents are achieving values in excess of the asking price. Yes you have read correctly buyers have paid in excess of the asking price. I know you are all thinking why and how? Let me give you an example, recently I viewed a property in the affluent suburb of Stanmore, the property was a three bedroom house on the market for £425K, the property was in need of a substantial amount of work to put it in order, there was also a five bedroom house on the same road which did not require much work at all and that had been placed by the same agent on the market for £525K. Now we had estimated that the work involved in putting the first property in order would be in the region of £135K, hence we had determined the maximum we should pay for the property is £400K. We placed a cash offer with the agent for £395K and instantly the agent came back and said the vendors will not accept it. The truth was that the agent had not even put our offer to the vendor, he told us that they had already received offers close to the full asking price and that there was a lot of interest in the property due to the location. Although I did not believe a word the agent said we decided that we would offer the full asking price and play the game the agent was playing. So we placed our cash offer of £425K and what do you think the agent said, we already have an offer for £425K and now if you want to secure the property then your offer has to be in excess of this!!! See what we have to remember here is that the agent is playing the same game with any other prospective buyers, he keeps playing one off the other to see how high each buyer is willing to go. Anyway in the end we told the agent we do not want to enter a bidding war and the offer of £425K (the full asking price) is already more than generous and we would not be improving on it. About a week after we had placed the offer we received an email from the agent saying that the vendor had gone with a higher offer received. I came to learn through some other sources that the offer was for £450K, which is unbelievable due to the fact that the property required so much work and by the time it was completed the house would not be worth more than say £575K at the most. However, one should remember that getting an offer and having it accepted is one thing, it is a long way to exchange of contracts and completion. I have a feeling that the agent might come back in the future, asking ‘are you still interested in that property in Stanmore’.

These tactics used by agents do not help the market. Often buyers get carried away by their emotions and fail to recognise what actual property values are. I see time and again buyers fail to value properties correctly and hence pay over and above the odds. This failure has resulted in over-inflated prices in the affluent areas mentioned. Agents will always play games with you and test how far you are prepared to go with an offer for a property. Buyers need to wise up and start offering fair prices and not get sucked in by dubious tactics employed by many estate agents. Right now we are in a situation where buyers have the upper hand and they should use it to their advantage. If buyers stopped offering some of these crazy prices then naturally the prices would have to come down to more realistic levels in the affluent areas in and around London. If properties do not sell, then the vendors and their agents will be forced to bring asking prices down. Now this is a novel thought coming from someone who is an agent himself.

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