The property market is a notoriously fickle beast. One month it’s rocketing up, then a few months of political or economic turmoil later it comes crashing down again. House prices can be affected by everything from pandemics to parliament, the war in Ukraine to the economy in America.
So how do cash house buyers value a home in such a volatile market? And what is the real value of your home at any given point?
It’s important to understand the true value of your home, because this is what your cash offers will be based on. 80% of what your estate agent initially tells you, can be very different to 80% of what your home would actually sell for in a real-life, open market sale.
One of the team here at the Cash House Buyer Guru has sold his house this year. Three different estate agents valued the property at £250,000 in January, but with little interest, it was reduced to £240,000 in May. It finally sold in June for £236,000. So while it may have appeared that the house was worth £250,000, the real market value was actually £14,000 less than this.
In short, ‘market value’ is not what you or your estate agent thinks your home is worth, but what someone is actually willing to pay for it. So how do cash house buyers value your house, and how can you help them to make this valuation as accurate as possible?
When you first contact a reputable Cash House Buyer, you’ll be asked a list of questions about your property. This covers the basics, like location, bedrooms and bathrooms and the general condition of the property. From this, they’ll be able to give you a rough valuation straight away, however they’ll need to do further research to confirm their offer.
Most will use the comparables method. This looks at similar properties that have sold in your street or your immediate area, and what their final sale price was. Remember, this is not their asking price, so even if there are similar properties for sale at a certain price in your neighbourhood, this is not necessarily the value of your home.
No, this is nothing to do with irritating meerkats on the TV. This is a comparison of your home to nearby homes with similar size, location, parking situation and amenities, taking into account the condition of both your home and the sold properties.
Even if the comparable properties sold a while ago, this can still be useful. There are lots of clever tools that valuers can use to correct these prices to today’s money.
Of course, the ultimate comparable is your own sale. If your home has been on the market for months with little interest, like our colleague here at the Guru, then the asking price is clearly not realistic. If you’re struggling to sell your home fast, and turning to a cash buyer for help, you can’t expect them to value your home at the current asking price. It clearly isn’t worth that or it would’ve already sold.
This is kind of an obvious one. A property that needs work is always going to be worth less than a similar property that’s well maintained or has been fully modernised. This is not just because of the cost of the work involved, but the inconvenience too. People are going to pay top dollar to live in a building site for a year or two, even if the end result is a gorgeous, modern home.
If work is needed, you’ll find your pool of potential buyers is much smaller, and this can affect the price, as there is less competition for your home. It can also take much longer to sell.
The good news is that the condition of your property will not deter cash house buying companies from making you an offer for a fast sale. This makes a house buying service a good option for you if your property needs work, but you don’t have the time, the money, or frankly the will to carry out the work yourself. However, you need to be aware that they will take the current state into account when they make their valuation. They’re not a charity!
Once the company has valued your property, and has made you an offer which you’ve accepted, they will book a RICS survey. This is a basic assessment of the property that will identify major defects. It’s the same inspection that mortgage lenders use when assessing if a property is fit for a mortgage.
If defects are identified, then a genuine house buying company will share the report with you immediately so you can see the problem. Inevitably, they’ll revise their offer at this point, and you’ll have the option to take it or leave it. (Unless you have signed a contract, in which case you could be forced to take the lower offer. This is why you should never sign a contract with a cash house buyer).
Once again, cash house buyers are businesses, not charities, so if you need £10,000 worth of work doing, expect the offer to be reduced accordingly. The cash buyer can’t simply absorb these costs as it could wipe out their profit margin entirely.
More often than not, as a seller, you’ll know that there’s an issue with your house, and there’s no point sticking your head in the sand and hoping that no one will notice, because they always will. If there’s a major issue with the property, you can guarantee it’ll get flagged up at some point. You may as well fess up from the start and be straight with your cash buyer. That way you’ll know where you stand with a realistic offer from the get go, instead of waiting and worrying that you’ll be found out.
It all comes down to the business each one is in. A cash house buyer makes their money by buying and selling your home. An estate agent makes money by commission when someone else buys it. That means that the cash house buyer needs to make a realistic valuation to protect their profit margin, while the estate agent can value your home at whatever price they want to get you signed up, knowing that even if you have to reduce later to a more realistic price, they’ll still get the bulk of their commission.
For estate agents, signing you up is the name of the game, as one industry insider told us:
“The estate agent market is extremely competitive. You’ll often have 3 or 4 market leaders in an area that ferociously compete against each other! Each agent is heavily targeted on how many new listings they can achieve each month, and if they under-perform then they’re out. It’s ruthless”
Under this much pressure to secure your business, most estate agents will tell you whatever you want to hear. Let’s be honest, if estate agent A values your home at £230,000 and estate agent B values it at £250,000 who are you going to choose? Unfortunately, this encourages estate agents to over-value your property, because once they’ve signed you into a fixed term contract, you’re stuck.
Yes, agent B will initially market your home at the inflated price, but when it doesn’t sell, you’ll have no choice but to reduce it. Many sellers end up selling at the lower, more realistic valuation that agent A gave them, but only after wasting months waiting for a sale.
Sadly, this is standard practice. According to Rightmove, between 2005 and 2021 only 23% of properties listed on their website sold for their final asking price. (Note that is the ‘final asking price’, not the over-optimistic starting price). So it seems that when it comes to the true market value of your home, estate agent valuations are about as accurate as Mystic Meg.
Despite everything we’ve said above, cash buying companies will still use estate agent valuations. The difference is that they demand evidence to back up the price. Cash house buyers don’t want smoke blown up their behinds, or a flattering valuation to boost their ego, they want a realistic price, backed by cold hard facts.
It’s in the agent’s interest to provide accurate figures, because the cash house buyer will often list the property with them once they’ve bought it. Even then, most reputable house buying companies don’t just take the agent’s valuation at face value. They also use their own experience, and carry out their own research, to back up the agent’s numbers.
Cash house buying companies, make their money by buying your property at a discounted price, and selling it for full value on the open market. So it’s important for them to get the real market value right, or they could wipe out their profits and could even lose money on the deal.
Using the example of our Guru colleague, if the cash house buyer offered 80% of the original £250,000 valuation, then they would offer £200,000, giving them £50,000 to cover all the costs and make a small profit (read more about cash house buyer’s costs here). However, since the property only actually sold for £236,000, 80% of the true market value is only £188,800 – that’s £11,200 less. Cash house buyers rarely make more than £10,000 profit on a transaction, so using the asking price, rather than the true market value, could actually lead to a loss.
There are lots of cash house buying companies out there that want to buy your home, and so they’ll all try to offer you the best price that they can to get your business. However, you need to be on the lookout for scams and false promises that unscrupulous companies use to inflate their offers.
A genuine cash buyer will offer you around 80% on what they can prove to be the genuine market value of your home. This may be lower than some offers you receive, but it’s much more likely to be honoured.
Less reputable cash buying companies will falsely inflate your offer, just like an estate agent, in order to get your business, with no intention of ever paying anything like that. They do this either by over-valuing your home, or offering an unrealistic percentage. Some companies will even do both to try to create an offer you can’t refuse. But if they can’t justify that offer with hard facts, the refusing it is exactly what you should do.
We’ve all had a friend who’s snapped up a ‘bargain’ on eBay for £1 that they’re convinced they can sell for much more. But the truth is, if the item sold for £1 at auction, then that’s what it’s actually worth on the open market. The same is true for houses; you can put them on the market for whatever price you want, but their real value is what they actually sell for.
By choosing a reputable cash house buyer, you’ll get a genuine offer, based on a realistic property valuation, and you’re much more likely to actually get that amount when the sale goes through.
To read more about how to avoid choosing the wrong cash house buying company, read our article here, and to see the companies that the Guru thinks you should be talking to, click the button below.
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