Put your faith in an incorrect estimation of what you house is worth and you'll fall into one of three traps:
Actually they just give informal opinions of how much your house is worth.
An "opinion" means that there's no requirement in law for it to be accurate.
Only Chartered Surveyors are qualified and required to give un-biased, objective and accurate valuation of a home's true worth.
That's why only property valuations from a Chartered Surveyor are acceptable for mortgage and insurance valuation purposes.
Once you realize that Estate Agents don't have a duty towards you to be unbiased or accurate, you begin to understand why a £125,000 difference in valuation is possible.
Here are the 3 main valuation games you need to be aware of:
Estate Agents need a constant supply of houses to sell or they're out of business.
Essentially all agencies are the same:
The most successful agents are not successful because they're the best as selling houses - They're successful because they're the best at convincing you that you won't be able to sell without them.
Sadly, most property sellers base their choice of agent on the two worst criteria possible:
Estate agents win most of their business on this knowledge.
They will ignore the real value of a property and give their prospective client an inflated valuation figure - after all, it's what they want to hear.
This strategy for winning business works because most sellers overlook the tie-in period that's in most estate agency contracts.
An overvalued house will not sell until the price is reduced to a realistic level.
Having to drop your price is not a pleasant experience but estate agents know that as sure as night follows day, eventually the pressure to move becomes so great that you'll be left with no other choice.
You'll still be "in contract", your property will sell and the estate agent will have earned his commission cheque.
Once your need to sell becomes chronic, negotiating for the best price becomes almost impossible.
Often you're forced to sell for less than if you'd priced your house correctly from the start.
This is because buyers are quick to spot price reductions.
They recognize the signs of a seller having problems. They can smell the desperation and negotiate accordingly.
When business is slow, an under valuation can guarantee a quick sale and a quick commission cheque.
This is easy to spot if get valuations from more than one estate agency.
However, this is not a full-proof plan!
In areas with only a few estate agents, it's not unknown for two competing agents to be in cahoots!
Here's how this property valuation trick works:
It's likely you'll invite both agents to value your property.
Before the appointment they discuss and agree a valuation figure they'll independently present to you.
Like most sellers you've invited 3 estate agents to value your house but when two of them give you the same figure, you're going to assume that that figure is correct.
What about the 3rd agent?
To you it looks like a clear-cut case of blatant overvaluing.
Needless to say you don't give the 3rd agent your business (in fact you even feel a little smug for having flushed-out such a rogue).
Instead, you innocently choose one of the agents that conspired against you.
Your undervalued house is snapped-up; the agent's commission split and you loose out on £1,000's!
You may well be thinking that surely it's in an agent's best interests to get me the best possible price?
Thing is, the dirty little secret of estate agency is that agents make more money by turning-over property quickly than do from negotiating harder on their client's behalf.
This is all because fees are based on a percentage of the sale price.
With fees at 1.5 - 2% an extra £10,000 for you only makes an extra £150-200 for them - not much of an incentive for the agent I think you'll agree.
This is a similar swindle to the last one except that it's even a touch shadier.
This time the property will never even be offered on the open market.
Instead the estate agent is working with (or taking a backhander from) a property trader.
Here's how the swindle works:
You put your house on the market, a couple of weeks go but you receive no viewing's.
You ring the agent to find-out what the hell he's doing for his money.
He fobs you off with, "The markets slow at the moment, the buyers just aren't biting...blah...blah...blah".
Another couple of weeks go by and now you're starting to sweat because you've had an offer accepted on another property.
Now, unless you sell soon you're going to have to consider a short term bridging loan in order to finance the purchase.
Out of the blue your agent rings with words that are music to your ears:
"I've found you a buyer, a chain-free cash buyer - isn't that fantastic? His offer is below the asking price but he's ready to buy now!"
The offer's not what you hoped for but you accept! What else can you do?
The alternatives are the risky bridging-loan or loosing-out on the new house.
At this point you realize something's fishy but you just can't put your finger on it (and there's certainly nothing you can do about it).
Unfortunately the penny only drops 6 weeks later - You're flicking through the paper and you see your house - it's back on the market and the asking price is £75,000 more than what you sold for.
The estate agent and his property trader buddy will have made a hefty profit at your expense.
The consumer group Which? investigated the estate agency industry and guess what?
Researchers posed as sellers and invited 56 estate agents to value 14 properties across England.
In six cases the highest property valuation was 25% higher than the lowest!
The most shocking case of inaccurate property valuation was in Tyne and Wear - Halifax valued a home at £200k, while Moody and Co came in at £325k - that's a staggering £125k difference in valuation figures.
Thankfully it's quick and easy to protect yourself against the property valuation tricks estate agents play.
Just do a little research and form your own realistic idea of how much your house is worth.
Read: How Much is my House Worth (Pt.1) if you want to learn how to value your property yourself.
Alternatively you can find the recommended estate agent in your area that will give you an honest and accurate property valuation.