If you’re thinking of putting your property on the market, it’s always a good idea to plan your campaign.before entrusting your main asset to an estate agent.


How much is my property worth?

To get a realistic idea of how much you can afford to spend on the place you want to buy you obviously need to know how much is your present home actually worth.

If you can nail this down early in the process, it will help you stay on course later when buyers start haggling for price reductions.

However, this is a subject with potential to seriously ruffle feathers. Estate agents are very conscious that informing proud home owners that their property is worth less than they’d fondly imagined is tantamount to hurling a personal insult. The same holds true at a national level. Voters will tolerate all manner of dishonesty and ineptitude from politicians, but if house prices start to slide, governments generally do too.

To muddy these waters even further, estate agents have their own agenda – to win business, which is rarely achieved by being overly cautious with valuations.

There’s an old adage that if you ask three different agents you’ll get three wildly different opinions of what your house is worth. To be fair, even highly qualified valuation officers assessing properties for tax purposes accept that there is a permissible leeway of up to ten per cent accuracy.

But there’s no good reason why local estate agents should be too far apart when valuing conventional properties.

For example, there is normally no shortage of standard three-bed semis around town to use as comparisons. So unless an agent is incompetent or desperate for business, significant differences of opinion are only likely to occur with odd, one-off properties, such as converted chapels or sprawling manor houses.


How to value

When it comes to valuing our own homes, there’s a tendency in most of us to view them through rose-tinted specs. It’s obvious that our personal good taste in flowery wallpaper and coloured bidets must make our house worth considerably more than that ghastly place down the road that was on the market last year at an outrageous price.


How do the professionals do it?

Residential property is normally valued by making comparisons with recent sales of similar types of houses in the local neighbourhood.

Accurate valuation requires an ability to stand well back and take a long, hard, objective look.

But as noted earlier, this puts estate agents at an immediate disadvantage, because there’s an obvious conflict with the need to win business. Disappointing potential clients with honest, but lower than anticipated valuations is not necessarily the best way to do this.

Agents rarely have formal qualifications in valuation, but those with experience and good local knowledge usually have a pretty shrewd idea as to what price a property will actually sell at – which is why surveyors routinely phone them for comparable evidence and frequently seek their opinion of value.


Comparing one property with another isn’t the only method of valuing property

For example, you could instead base the property’s value on its investment potential, a method widely employed with commercial and retail property. This involves assessing the amount of rent the property is likely to generate in the space of a year.

This rental income is looked at as equivalent to the interest you could earn from a sum of money sitting safely in a building society account. The question is, what capital lump sum (or value of property) would you need in order to generate this annual income? Because of the relatively high risk involved in collecting rent (your tenant could disappear without paying), you would expect to earn a higher interest rate or yield than you’d get from a ‘safe’ High Street savings account.

So if banks are paying five per cent interest, you might expect to earn a rental yield of eight per cent. By working backwards you can calculate a property’s approximate ‘capital value’. Suppose the annual rent is £10,000, and you need a yield of eight per cent, then the property would be valued at £125,000.

But calculations aren’t always this simple.

To judge what sort of return you need to earn it’s necessary to weigh up the benefits of any additional future growth in the building’s value against drawbacks, such as property being a notoriously ‘illiquid’ investment – ie you can’t get your money out in a hurry by suddenly ‘liquidating’ your house or flat.

You also need to take into account the projected returns from alternative investments such as stocks and bonds, the term and quality of the lease and how yields and inflation are expected to perform over the years ahead. Nonetheless, this can still be a useful rule of thumb in helping buy-to-let investors judge whether a property is overvalued.


Detective work

To get an idea of the true value of your house, a good place to start is by checking actual Land Registry sale prices of other properties in your street. This information is widely available on rightmove.co.uk etc so you can see the actual selling prices your neighbours accepted for homes – a tempting proposition even if you’re not selling!

Another useful guide to the true value of your property is to take the price you paid when you bought it, and then ‘index it up’ using one of the leading online house-price calculators such as Nationwide or Halifax.

Obviously you also need to add something for any improvements you’ve made to your home.

But this doesn’t mean just adding the price you paid for your conservatory or loft conversion. As what you spend on a home improvement and the amount it adds to the value can be two very different things. The amount of value added will very much depend on the extent to which it overcomes a major drawback, such as a lack of parking or a tiny kitchen.

Some ‘improvements’ can actually reduce the value, such as fitting artificial stone cladding or installing plastic replacement windows in period properties.

If, when you bought your property, you managed to negotiate a substantial discount to the original asking price, it can be tempting to believe that the property is worth considerably more.

But this is not always the case…

It sold for the best price the seller could get at the time, and may not have been such an amazing bargain if, for example, the original asking price was set miles too high.


Setting the asking price

Before negotiating your sale it’s important to set two figures in your mind – the lowest price you are willing to accept, and the ideal price you would like to achieve.

Pitching your asking price correctly is a key strategic decision. Buyers normally expect to get something knocked off the asking price, so it needs to be set a few percentage points above what you consider the ‘true value’ to be.

This leaves room for buyers to negotiate a lower figure and enjoy basking in the warm money-saving afterglow…

As noted earlier, prices are sometimes set too high where agents are desperate to win business or where sellers have an unrealistically high opinion of value and insist on a stratospheric figure. Testing the market with a high asking price is sometimes justified on the basis that ‘you can always come down later’.

The trouble is, such properties can become a drag on the market, even after the price is later reduced. Buyers are wary of ‘dinosaurs’ that have been around forever, and may attempt to drive a hard bargain.


Being too ambitious can cause you to miss a good buyer

There is another approach, widely employed north of the border. When a property is hard to value, agents sometimes set a relatively low ‘offers in excess of’ guide price designed to stimulate interest. As with an auction, this is designed to generate competition, with rival buyers bidding the price up, sometimes way above the true market value.

Crucially, when setting an asking price you need to take account of stamp duty thresholds. A property priced even £10,000 or £20,000 above a threshold is realistically likely to stick just below the point where stamp duty kicks in. It has to be priced significantly higher for reluctant buyers to make the ‘jump’ and swallow the big hike in tax.


Getting the best price in a market downturn

It’s understandably very hard for home owners to regard falls in prices as anything other than bad news. But if you want to trade up to a more expensive property, it can work in your favour, as the extra money you have to pay gets smaller. For example, if you are selling a £200,000 flat and prices have fallen ten per cent, you will receive £20,000 less.

This will be more than offset, however, by the £40,000 you get off the £400,000 house you want to buy. In other words you can take a hit on your sale safe in the knowledge that you will do at least as well when negotiating on your purchase.

As they say, you can get away with being greedy on your sale or cheeky on your purchase, but rarely both.

The best strategy is to research your local market, and work out how big a hit you are prepared to take on your sale. When the market eventually bounces back, so too will the price of your next home.

However, in a falling market, prices of different properties tend to drop at different rates, as supply and demand varies across the spectrum of property types. Depending on what the planners have permitted in a particular area, there may be a local oversupply.

Flats can be especially vulnerable in a market downturn because of the high number of first-time owners who may have had to borrow up to the hilt, with limited income to manage interest rate hikes.

This in turn may lead to greater numbers of repossessions and quite dramatic falls in value, depending on local conditions. Small flats have a habit of ‘bombing’ in a downturn, only to catch up again when prices boom.

In a slow market, buyers can become incredibly sensitive to the slightest problem. Being too close to a road or near a pub, or simply in a postcode where there has been flooding, are suddenly major issues. It’s often fringe areas that suffer most.

These may be the very same places that are labelled ‘up and coming’ during boom years. But some potential issues can be pre-empted. As property-makeover programmes never fail to remind us, you can increase the price that someone is prepared to pay for your house with surprisingly little effort. Some carefully chosen quick-fixes prior to viewings can work wonders.

Another area you may find of interest is our section dedicated to getting you the best survey quotes when you’re buying a new home – click here for the best prices instantly.