Page 17 - The Negotiator Mag 52pp

Beware false profits
Pun intended, as Adam Walker looks at how the old chestnut of overvaluing properties to win instructions isn’t just confined to the housing market.
Back in the 1980s, I used to write
a regular property column for
The Sunday Times. The article that attracted the most attention by far
was entitled, “Beware False Prophets.” It was
a warning to the public about how to avoid being caught out by estate agents who overvalue their property in order to gain a business advantage. I received a huge number of letters from people who had been caught out by this scam and I was flattered to learn that quite a number of my estate agency clients kept a copy of my article in their presentation packs for years afterwards.
Overvaluing is the oldest trick in the book. Agent A advises correctly that a property should be put onto the market for £400,000. Agent B advises a sale price of £500,000
and gets the job. Over the next two or three months, they work to get the price down and eventually sell the property for £400,000. Shortly after completion, the two agents bump into each other in the street. Agent A says,
“I was right about that property in such and such a street then?” Agent B says, “You were, but who got paid?!”
Protect your patch
The best way to avoid your competitors from taking instructions off you by overvaluing
is to provide copious amounts of comparable evidence during your valuation appointment. I would start by showing the vendor just three properties, one that is cheaper than theirs
to manage their expectations, one that is obviously better than theirs to put a cap on their expectations and one that is as close
as possible to their own. Their response and body language as you present these properties will give you valuable feedback about their expectations.
If this doesn’t work, you need to have further evidence in your presentation pack of other properties sold and the prices achieved, and properties that are overpriced and have stuck on the market. You will also need statistics about your competitors such as their instructions to sales ratio, average time on
the market and average percentage of asking price achieved.
There is, however, no point in pressing your argument so hard that you offend the vendor
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It’s the oldest trick in the book... but you can’t sell what you haven’t got...
and lose the instruction. As the old saying goes, you can’t sell what you haven’t got. There comes a time therefore when you will have to agree to take the property on at a price that is a little higher than you advised with
a view to going for a price reduction later.
Overvaluing a business
Overvaluing does not only affect the housing market. It is also prevalent in many other sectors such as auction houses and cars that are sold on a sale or return basis. It also affects business transfer agents and I have come across some shocking examples recently of firms that have grossly overvalued a business.
The scam usually starts with an email, a letter to your office, a letter to your home address or even a cold call. “Have you ever thoughtofsellingyourbusiness?”,theyask. “If so, we have a fabulous buyer for a business like yours.” The salesman will push hard for
a face-to-face meeting and, at the meeting, they will tell you that your business is worth
£2 million. In reality, the established multiples of profit and turnover suggest that the business is only worth £1 million.
The next stage is to extract an upfront marketing fee from you. This can be anywhere from £2,000 to £20,000 or more, depending on the value of your business and what the
salesman thinks they can get away with.
In return, they will produce a glossy brochure about your business with lots of lovely pictures and pie-charts. This has very little to do with selling the business.
The next step in the scam is when they send you a list of dozens or even hundreds
of potential buyers for your business. This looks impressive but in reality they are often just bought from a commercial marketing list and are nothing more than a list of your competitors. You will then hear little or nothing more from the broker. When you chase them, you will get credible excuses for the lack of response. Then you will get less credible excuses until it finally dawns on you that you’ve been scammed and that the upfront fee paid has probably been lost.
Bear-trap clause
Unfortunately, this is not the end of the
matter. You will probably still want to sell your business and, if so, you will probably instruct another broker, hopefully one chosen with more care this time. Having had your fingers burned once, you will instruct them on a
No Sale, No Fee basis, and make sure that your business goes onto the market at the correct guide price. A buyer is found and the sale goes through. You start to look forward to your retirement. Then you receive a nasty surprise. The first broker sends you a huge bill for
the sale that the second broker was entirely responsible for. When you tell them to get stuffed, they refer you to Clause 192 of their Agreement which says that if your business is sold to any of the people on the list that they provided, then a fee will be due.
So, how can you avoid being caught out? Fortunately, there are five simple rules. One, choose your broker with care. Two, be very suspicious of brokers who cold call you. Three, take time to ensure that the recommended guide price is realistic. Ask to see comparable evidence of other sales. Four, don’t pay any
fee upfront. And five, read the terms and conditions carefully before you sign them.
Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years. www.adamjwalker.co.uk
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