A London Buying Agent's Guide on Property Valuation
As a buying agent, one of our main roles is helping clients pay a fair price for a property. This is especially important in central London where every percentage negotiated off a sale can represent tens of thousands of pounds saved.
To some extent pricing a property correctly is an art for both the buyer and seller. A good selling agent knows how to price a property to sell quickly or even better to start a bidding war. Bad ones simply overprice a property to win a listing – only for it to then sit unloved on Rightmove for months and months.
So how exactly to value a property you are considering making an offer on? Broadly speaking you need to be looking at a mix of quantitive and qualitative information which all informs the price. The below is by no means an exhaustive list but is a good starting point.
- The Asking Price. Has it been set by the vendor or the agent? Does it come with any incentives such as ‘SDLT Paid by Developer’ indicated a distressed vendor?
- Number of days on the market. Have there been any price reductions? How many and when?
- Annual Service Charge. Also ground rent/insurance payments etc. Do they seem reasonable? Is there evidence of the money being spent on the building?
- Years Remaining on the Lease. Be especially careful if it’s approaching 80. Read more about freehold and leasehold properties here.
- Price Per Square Foot. Price per square foot is an excellent starting point but can be misleading on its own. For instance, in central London the price per square foot is higher for detached homes (reflecting their scarcity) so you need to make sure you’re only reviewing ppsf data for the type of property you’re looking at. Also, ask yourself if the total square footage represents practical living space or is 10%-15% taken up by corridors, oversized staircases or cramped eaves areas? Lateral apartments are becoming increasingly popular in London due to their efficient use of space.
- Gross/Net Rental Yields. Always try to work off net rental yields and assume any estimates from a selling agent are gross yields and may be optimistic. Are the figures in line with the local market? Are more development coming onto the market nearby which threaten to saturate the market and change your projected yields?
- Medium and Short-Term Market Data. By what percentage have properties in the local area risen or fallen over the past 5 years? What about the last two months? If the recent direction of travel is negative then factor this into your offer.
- Macro-economic Factors. What are current interest rates and has the Bank of England given hints about their future direction?
- Recent Sold Data and Market Comparables. Be careful not base your offer on a single sold price in the same building a few months ago – a previous buyer could well have overpaid and you don’t want to follow their example! The more comparatives you have the better.
There are literally hundreds of other factors we consider when performing due diligence but here are 5 points many buyers overlook before making an offer.
- What is the vendor’s position? Is it a cash-strapped developer or is the sale a result of debt or divorce? Getting the inside track on the circumstances of the sale can make all the difference. Even if the agent isn’t forthcoming there are often clues around the house for the eagle-eyed.
- Is the layout practical? Are the bedrooms at least 3m wide? Can the living room be furnished without a sofa blocking the door? Be extra vigilant when viewing unfurnished properties which may draw attention away from small/awkward room sizes. Can you comfortably get a wardrobe and a king-size bed in the second bedroom?
- What is the local planning environment like? Does it look likely that the property could be extended and are there planning permission precedents on the same street? Are any major developments/infrastructure projects due to start nearby and will they have a positive or adverse effect?
- What is the condition of the neighbouring properties. Generally speaking, buying the best house on a street can be a risky move if you are not confident the surrounding area will improve quickly.
- Local High Street. Are there a lot of vacant units, charity shops and bookmakers or are there nice independent cafes and restaurants? Buying into an area whilst its local high street is showing early signs of positive change is usually a good thing.
These are just some examples and there are literally hundreds of factors which may influence a property’s value. As buying agents we also consider the condition of the communal areas, the tenure, crime statistics, transport links, natural light, external condition , ceiling heights, schools, whether the property is north/south facing, flight overpaths etc. to name just a few!
The Personal Factor
This final point shouldn’t be overlooked. Part of a property’s value is always subjective. If we are working with clients looking to invest, they are often better able to go along with our colder analysis of a property’s pros and cons. However, sometimes people fall in love with a property or find one which meets every one of their unique criteria (e.g. large Georgian Terrace with sash windows, South facing garden, wine cellar). Whilst finding a property which is a perfect fit is always great news, in this situation a buying agent’s detached input can stop buyers going overboard and significantly overpaying.
To summarise, when valuing a property, data is an excellent starting point but don’t let it be your master. You can never do enough due diligence but understand there is no such thing as a perfect property or you be left empty-handed.
If you are looking to buy or rent in London, contact us today for a no obligation consultation.