2005-01-17

Money: 'Offers-Over' House Prices Under Investigation

House buyers in Scotland should not expect a property's advertised selling price to bear any resemblance to the likely selling price, according to a controversial ruling by the advertising 'watchdog'. 'The Advertising Standards Authority' (ASA) says buyers should view an 'offers-over' figure in the same way as a reserve price at an auction.
Consumer groups said the decision maintained a system that was inherently unfair, and wasted buyers' time and money. 'The Scottish Consumer Council' has called on 'The Office of Fair Trading' and 'The Law Society of Scotland' to investigate.
The ASA's ruling followed a six-month investigation after it received a complaint from Mr.Gordon Wright, an Edinburgh buyer, about the artificially low 'offers-over' price of property. He complained about two separate properties that sold for significantly more than the 'offers-over' price.
The first was a house in West Linton, 27_km south-west of Edinburgh, that was advertised at 'offers over' 65_000_GBP, but sold for 143_000_GBP. The second property was in the Liberton area of Edinburgh and was on the market at offers over 95_000_GBP, despite being independently valued at 180_000_GBP.
A letter from Ms.Marianne Slesser, the ASA's investigations executive, said:
'Our role is to regulate advertising, not to set rules to regulate the property market. The CAP [Committee of Advertising Practice] Code contains no specific rules for property advertising and the adjudication applies to the facts of the one case we investigated. 'Counsel decided that the advertisement did not mislead and, because it did not uphold the complaint, we will not investigate other, similar advertisements unless we have grounds to believe the facts differ significantly from this case'.
The ASA pointed out that the advertiser (the property agent 'Lindsays Residential') had said it was 'standard practice' to market a property with an 'offers-over' price that would 'stimulate multiple offers to help reach the price the seller hoped to achieve'. The ASA concluded that buyers would be likely to view the 'offers-over' price as 'similar to the reserve price in an auction' and were unlikely to believe the property could be secured for that price in an open market. Mr.Wright was 'incensed' by the response and said he had expected a much more detailed analysis of the reasons for the decision. He went on:
'Setting artificially low "upset" prices has been officially recognised, not only by the consumer and by some selling agents, but by "The Scottish Executive" and "The Scottish Consumer Council". 'It's surprising that it doesn't appear to have even been acknowledged by the ASA.
'I can only view the ASA's decision as a lost opportunity in helping to initiate change'.
Mr.Graeme Miller, who chairs 'The Scottish Consumer Council', was also unhappy at the decision. He said:
'I am somewhat surprised and disappointed at the reaction of the ASA. 'There have been far too many cases of the "offers-over" value being dramatically too low, and that will lead to consumers losing faith in the market. 'The idea that a property is put on the market with a price that is knowingly too low is totally unacceptable and leads to people's expectations being shattered. '"The Law Society of Scotland" should be concerned that their members are acting like this and should look into it. 'Also, any misrepresentation of professional practice would be of interest to "The Office of Fair Trading"'.
'The Law Society of Scotland's' 'Professional Practice Committee' looked into 'artificially low house prices' in 2004-08, but concluded that the proposed 'Single-Survey Scheme' -- currently in a pilot stage -- would negate the likelihood of low 'offers-over' prices. However, 'The Single-Survey Scheme', which is being piloted in four Scottish cities, has not had a high take-up rate, and property insiders suggest it is likely to be dropped. 'The Law Society of Scotland' admitted they may need to look into the matter again. A spokesman said:
'We feel that the property market has "steadied" in recent months, and this type of issue is less likely to arise because the market is not as "hot" as it was before. 'We are happy that these concerns have been raised with us, and if it is felt that there is a need for the society to develop rules or guidelines for solicitors in this area, then we would be happy to assess that'.
''Watchdog' won't act on 'offers-over' house prices' Michael Blackley, The Scotsman, 2005-01-17 Links: Mortgage and property news at The Scotsman Advertising Standards Authority Mid City Place 71 High Holborn London WC1V 6QT Telephone (0207) 492 2222 Textphone (0207) 242 8159 Fax (0207) 242 3696

2 Comments:

Anonymous Anonymous said...

What is this offers over??

1/17/2005 09:17:00 am  
Blogger Dave said...

'Offers Over' is a bizarre notion that brings the otherwise simple Scottish house-buying procedure into disrepute.

What I mean by this is that in any bartering system or market in the world, the procedure is like this:

'How much is it'?
'20'.
'I'll give you 10.'
'No, the lowest I'd go is 18'.
'How about 15'?
'Done'.

However, in Scotland, house-buying goes like this:
'How much is it'?
'"Offers Over" 20 000 GBP'.
'I'll give you 50 000 GBP.'
'Thanks, we'll let you know if that's the highest price at the "Closing Date"'.

-- Then (in secret) you might find that you own the house (the offer is legally binding in Scotland as soon as it is accepted) or if someone has offered more.

It is NOT at all like an auction; in an auction, you get a chance to hear the other offers and increase your bid or drop out of the bidding race.

The result is that the 'Offers Over' price is of no good at all if it is not very near the final price paid -- how much extra should a potential buyer offer to be sure to win the race? It's flying blind.

If you offer 50 000 GBP on an 'Offers Over' 20 000 GBP, it is possible that the second highest bid was 21 000 GBP -- in which case you have sentenced yourself to a massive mortgage for quarter of a century.

The system is more to do with buyers' ability to borrow/earnings than the value of the property per se.

As such it is a mockery.

It is however possible to offer a house on the market in Scotland at a 'Fixed Price' -- then it is simply the case of 'first come, first served'.

But sellers want to see how much they can get -- so the 'Offers Over' method is favoured, even though it gives sellers a lot of work and stress. Low price tags makes viewing traffic higher, so they are busy round showing people-who-cannot-afford-to-buy.

Estate Agents are the culprit here; they get a per centage of the final price as their fee -- so it's in their interests to have 'Offers Over'. The method also allows them to put a low price on properties to attract interest. This means that they need no real skill in estimating the value, and it makes them look good to sellers because there is a lot of traffic to view the property.

Getting rid of the 'Offers Over' system in no way affects the integrity of the Scottish system, it would merely improve it.

We could go for the more usual system -- such as in England & Wales -- where prices are maximum/desired or guide prices below which people offer.

We could simply remove the 'offers over' and leave the fixed price / first past the post system, or we could develope the public auction system (popular in Australia etc).

1/18/2005 12:20:00 pm  

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