Research shows that potential property buyers in the UK can expect a reduction of the initial selling price by about £25,000 currently, and more than double that in London, at £57,323.
Britain has been facing an increase in mispriced properties for the last ten years, where 31 percent of all homes have had their sales price reduced before completing. The top 20 cities around the UK are mostly located in Northern England and Scotland, with Stockton on Tees leading the way at 49 percent, followed closely by Aberdeen at 46 percent. Only three of the top 20 can be found in Southern England, and London is not one of these cities. Although it didn't make the top 20, London has still experienced price cuts on 30 percent of their market over the past decade.
Looking at the affluent neighbourhood of Mayfair in London, estate agent Wetherell revealed that 26 properties had been sold so far in 2017 for a total of about £83 million. However, this has been surpassed by the 30 properties which have been withdrawn from the market by disappointed vendors who have been unable to secure a sale; totalling £114 million.
Mispricing can be drilled down to online competition and inexperienced agents
Looking at the market trends, it would be expected that the UK property market is currently flooded and trying to sell to a minimal number of potential buyers. However, the uncertain political landscape and pending Brexit has made the property overview quite the opposite across the nation. Uncertainty has caused the number of properties entering the market across the country to hit an all-time low.
Increasing competition from online estate agents and property search websites over the last decade has been a major driving force in the rising mispricing. Online agencies lack a substantial amount of knowledge when it comes to local markets and even experience level in the industry can be questioned in some instances. A lot of mispricing can also be traced back to competition and agents knowingly overpricing a property and promising unrealistic sales to a vendor to secure the client, knowing a reduction will need to be made in the following months.
Multiple agency instructions have also increased in line with this industry practice, which is extremely different from what the sales process used to look like two decades ago. Multi-agency instructions make it common practice that one agent could price a property where another could secure the sale. It used to be that one agent would be responsible for pricing, marketing and selling a property. These single agencies would be exceptionally knowledgeable about their local market, and therefore pricing would be highly accurate, and reductions would be rare.
This new way of working is evident when reviewing 2016 sales in Mayfair, of which 45 percent were initially mispriced and reduced, and 45 percent were instructed by multiple agencies.
Peter Wetherell, CEO of Wetherell, said:
"Mispricing is deeply unhealthy and extremely bad for the good reputation of estate agency professionals who are experts in their local marketplaces."
£1.1 billion of residential property is currently overpriced in Mayfair
There have been 1,047 residential sales in Mayfair since 2007, yet 245 have been identified to have been overvalued and reduced in price before achieving the sale. Sales trends show that an overvalue can cause a property to sit on the market for around 14 months, where a correct price will more than half that at only three to six months. Although very rare, a property which has been underpriced is usually snapped up in as little as one to two weeks.
The average time on the market for the 160 properties for sale in Mayfair is ten months, as of March 2017. This suggests a substantial 70 percent of the neighbourhood's market is overpriced, which equates to £1.1 billion in residential value, calculated from an average £4.6 million per property. Only 25 percent is thought to be priced correctly, while five percent is assumed to be underpriced.
Robert Windsor, Development & Sales Director at Wetherell, says:
"It speaks volumes to us that 80% of the sales in Mayfair over 2015 and 2016 were handled by just two estate agents – Wetherell as the leading specialist boutique agent for Mayfair plus a leading corporate agent. Our local offices have highly experienced senior teams and a deep knowledge of the Mayfair marketplace. When Wetherell is instructed on a sole agency basis, or with another on a joint agency, the property is consistently priced correctly, marketed professionally and sold successfully."
"However, so many times over the last five years, we have taken on properties which have previously been instructed with other agents or multiple agencies who have a far less knowledge of Mayfair or have slipped into a valuation "price war" in order to please the vendor and win the instruction, and the result has been mispricing and no sale. Eventually, these instructions have come back to Wetherell to resolve. It is interesting to see reports from portals of increasing price reductions – this does not mean that values have come down; merely that the properties have eventually reached their correct marketing price and are in line with local comparables."
Mayfair is expecting to have a successful five years with the addition of several new residential developments in the area. These improvements are likely to ensure the area continues outperforming the rest of Prime Central London, which it has done over the last ten years at 90 percent, compared with 70 percent. They are also expected to secure the crown as number one residential spot in London, which was earned back from Knightsbridge earlier this year.