OMBUDSMAN


be able to show that any figure advised as to an asking price or a likely selling price was given in good faith and reflected market conditions. It must be supportable, wherever possible with comparables. Marketing strategy must be kept under regular review. If an agent is asked to market at a price


they think is unrealistic, they should confirm their advice as to what is a suitable asking price and likely selling price in writing. Recollections of converations at the point of instruction are all too often a matter of dispute.


THE REDUCED PRICE


In a recent case, I considered the potential pitfalls associated with marketing valuations. The case exemplified the dilemma faced by estate agents. The sellers complained of overvaluation to secure their instruction and undervaluation to achieve a quick sale. Typically such complaints arise where the estate agent has


given advice on an asking price, is instructed, and later recommends a price reduction. If followed by a quick sale, sellers can sometimes feel that not only was their property initially over-valued to gain an instruction, but that they have then undersold so that the agent earns a quick commission. My office receives many complaints from sellers who feel they have been duped into instructing an agent by the prospect of a high price, only to discover that they achieve much less. In the recent case, the estate agent had


recommended an asking price which both parties understood was ‘high’. The complainants were aggrieved that only two weeks after they instructed the agent, they were advised to reduce the asking price by five per cent. They were then advised to accept an offer after six weeks marketing which was ten per cent below the original price. At first sight, it is easy to understand


why the complainants were disappointed and blamed the agent, but, again, closer investigation revealed that the situation was not as clearcut as the complaint suggested. At the time of the valuation, the complainants had no onward purchase in mind. They wanted to test the market and discussed a marketing strategy which involved starting at a high asking price with a view to reducing if needed. I commented that as long as it is clearly explained and suits the client’s circumstances, it is a fair tactic for an agent to suggest testing the market at an optimistic price to assess the level of interest and achieve the best possible price, provided the marketing strategy is kept under regular review. In the brief time the complainants’


complained of overvaluation to secure the instruction and under valuation to secure a sale!’


The sellers


property was being marketed at the initial price, there was one viewing, which attracted no adverse comment about the price. However, the complainants’ situation changed after two weeks when they found a house on which they wanted to offer. They needed to be in a proceedable position to compete with other applicants who were looking at the same property. In short, they needed to find a buyer quickly and asked the estate agent for their advice. I considered two questions. Was the


initial asking price supportable, reflecting market conditions, or was it inflated to secure instruction? The letters sent to the complainants and the market appraisal records within the agent’s file showed that the agent had acted in good faith and took all relevant factors into account, including what was then the complainants’ position as prospective sellers. There had been a viewing at the initial price. The final sale


price was within ten per cent of their initial recommendation. The ‘high’ asking price had not, it appeared, discouraged viewings or culminated in offers outside usual parameters for negotiation. There was nothing to support a conclusion that the price was so inflated as to amount to a misrepresentation of the value of the property in order to gain instruction. The second question I considered was


whether, once the agent realised that the complainants needed a buyer quickly, they gave the right advice to reduce and sell for less than initially hoped. Over the four weeks which followed the five per cent price reduction, there were seven viewings and two offers, one of which was accepted. It appeared to me to have been the right advice to achieve the complainants’ objectives, in that it stimulated interest and the offer achieved was a fair reflection of the complainants’ changed circumstances.


THE LESSONS


Key lessons for estate agents to take away: Keep good market appraisal records


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(Paragraphs 1h, 2a and 2b of the TPO Code of Practice).


Explain your reasoning on price and


advise the seller in writing whenever possible (Paragraph 2a of the TPO Code of Practice).


Be able to support your advice with


written contemporaneous records and keep with your file (Paragraphs 1h, 2a and 2b of the TPO Code of Practice).


Do not be afraid to refuse instructions to market at an over-inflated price.


Carefully explain tactics if they involve


testing the market at an optimistic price and make sure your client knows you will be reviewing the price and suggesting a reduction if viewings do not materialise or if their circumstances change (Paragraph 2c of the TPO Code of Practice). Keep the marketing strategy under


regular review, particularly after the first few weeks if there is little interest (Paragraph 2c of the TPO Code of Practice). Be prepared to terminate an


instruction if your client rejects your advice and insists on marketing at a price you consider stands no chance of success. Always make clear that a suggested


asking price, whether it is the price you suggest it or the one your client favours, is no guarantee that it will be the price your client will ultimately achieve.


Manage your client’s expectations from the start.


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PROPERTYdrum MARCH 2012 31


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