The invisible pitfall that could leave your client’s high-end home languishing on the market

By David Johnson, Managing Director – INHOUS

As an advisor to high-net worth (HNW) individuals, you will likely be aware that the high-end real estate market is littered with more pitfalls than ever before: the average time that properties in this segment spend on the market continues to move upwards triggered by a worrying trend that we believe is preventable. An increasing number of sales in the £3m - £5m segment are falling through [1] and we are seeing many client-advisor relationships suffer as a result.

In this article, I address the single-most important reason why your client’s home sale may fail and what you, as their advisor, can do about it.

The real estate sector is largely unregulated, and attractive to transient professionals who may not value the client relationship as much as you do. Last year saw a 95% rise in the number of properties that were withdrawn from the market [2] and we observe a direct link between these two phenomena.

While the rise in failed sales and withdrawals of high-end properties was no-doubt worsened by the pandemic, there is also one worrying underlying cause that we are seeing on the ground in our capacity as managed sales professionals.

The truth about valuations

Angus Dixon, Director of Private Clients at INHOUS, explains the invisible pitfall you should be aware of and how you can ensure your HNW client isn’t forced to undersell their home or withdraw it from the market incurring costs, both financially and to your relationship.

“What many people do not know is that the success of a real estate agency is measured, not by the number of properties they sell, but by their market share in the target area. The agent’s priority, therefore, is to get more properties onto their books. Selling those properties is ultimately a secondary concern.

“Many well-meaning agents are under a lot of pressure to win your client’s instruction. So what is the easiest way to win the instruction? They simply claim that they can sell the property for more than their competitors. Understandably, most sellers will go with that higher valuation. It’s not their fault or yours but that decision could ultimately cost your client millions. An overvalued property is more likely to languish on the market for months, even years, longer than necessary before being sold for less than it is worth or withdrawn from the market completely.”

Overvaluation is an increasingly widespread practice in the high-end segment of the market and it is often the advisor or intermediary that shoulders the responsibility. The solution is to build-in a level of transparency at the outset of the process to support you throughout the process. 

For example, at INHOUS, we were recently contacted by lawyers acting in a divorce case. Before we were called in, the property at the centre of the case was valued at £5m. This figure was agreed upon and incorporated into the settlement. The party who had been awarded the property, however, began to question the valuation as the property itself was attracting limited buyer interest and the seller had found themselves in the unenviable position of being a motivated seller. It was at this point that we were brought in as Managed Sales professionals to establish the true reason why the property was not selling and efficiently manage the sale.

On account of our expertise as property professionals and the existing relationships we had in the industry, we acted on the seller’s behalf at every stage of the sales process from then on, and established that the true value of the property was, in fact, £3m. At various points in the process, the sellers, their lawyers and advisors had been misled. The real estate agents themselves were under no obligation to stand by the valuation they had given and had, by that point, more or less moved on. As a result, the lawyers had to revise the divorce settlement at great time and financial cost to the client because one of the parties was now short £2m. The intermediaries involved, ultimately, endured significant reputational damage. We see this happening in the luxury property market all the time.

In this highly unregulated industry, we believe that sellers deserve full transparency and a property expert working on their behalf, ensuring their interests are represented at every stage of the process.

To find out more about how you can ensure your client gets the service they deserve at this key stage in their financial life, feel free to get in touch with me, David Johnson at david@inhous.com. I'd love to hear more about you and your client's experience.

[1] Source: Data refers to properties in Greater London, provided by LonRes.

[2] Source: Data refers to properties in Greater London, provided by LonRes.