"Price of £1m-Plus London Homes Slashed” screamed the front page headline in the Evening Standard on Tuesday. Their analysis of homes being advertised on Zoopla shows:

- Above £1m 1,897 or 18% have had their prices cut
- Above £2m 16% have had price reductions
- Prices in the capital inched forward by just 4.2% in the year to August

Run for the hills. It’s a disaster. Oh, hold on a minute. What do these figures actually tell us?

1. 82% of properties over £1m have not had their asking prices cut
2. 84% of properties over £2m have not had price reductions
3. The market is up 4% on last year

Not bad for a housing market in free fall…

Of course these figures and similar articles are really not very helpful unless you are trying to sell newspapers and the advertising space therein. In fact, I would suggest that these figures are totally misleading:

Firstly it would appear that the market over £2m is ever so slightly stronger than the sub £2m market. This is completely wrong. The market under £2m is still strong while transaction levels are considerably lower than normal becoming worse the higher the value.

Asking prices, upon which this entire article is founded, are also highly misleading. I always advise clients to ignore asking prices. They are merely an indication of what the seller would like to achieve, not necessarily what the market will pay. And sometimes the asking price can be completely mad. Two examples:

1. A house in Eccleston Square was initially valued at £6m – we agreed a price of £3.75m
2. An apartment in Notting Hill had an asking price of £2.75m – we acquired it for £1.925m

As I say, asking prices are merely a vague guide.This has been especially true this year. After the election a few opportunistic estate agents pronounced that the market would surge 20%. At the time I remarked that this was fanciful (although I admit I thought there would be a minor bounce in prices). But imagine if you had been planning to sell after the election. Suddenly you are reading predictions of a massive hike in prices so your expectations rise accordingly. This is reflected in the asking price.

There is another factor at play too: Low transaction levels hurt estate agents. High turnover is more important than higher prices to them. The lack of new properties coming to the market has been problematic – especially when you consider the sheer number of estate agencies that now exist. The less scrupulous agents have been overpricing properties to win the instructions.

To be fair this happens the entire time. In a rising market you can get away with it. But, in a stagnant market or one that is falling, however mildly, this is an exercise in futility for the owner. Meanwhile, the agents’ ploy is simply to win the instruction in the hope that the seller will agree to a price reduction after a few weeks if it does not sell. The agents know that the chances of a seller switching agent are small and so worth the risk.

It really is that simple.

So the fact that asking prices are being “slashed” – interestingly they don’t say by what percentage but “Slashed” is so much more exciting than “Reduced”… – does not mean that transactional prices are falling dramatically. Indeed the “London Property market” consists of dozens of different sub markets so what is happening to prices varies massively.

Nevertheless it is certainly true that in general properties over £7m have fallen in price – Savills estimates by 4-5%, i.e. by the same amount as the increase in the level of SDLT. This is not a coincidence.

Of course, you and your clients should use this and similar scare headlines to your advantage in negotiations. However, do not let false figures influence your thinking: it is essential that you are clear what the fair value of the property you are buying is. You must then decide what your “walk away” price is. Then you can create a negotiation strategy to achieve your price or better.

However, do not make the amateurish mistake of becoming focussed on the price reduction rather than acquiring the property at a price that works for you, e.g. A flat is priced at £2.5m, your walk away price is £2.25m, but you let yourself get emotionally involved in the negotiation and become obsessed with trying to achieve £2.1m because the papers say prices are falling. Someone else then buys the flat for £2.25m and you are annoyed.

Obviously there are many more nuances in a negotiation but I hope this makes the point.

If you have any specific questions about the prime London property market or would like to know more about how we can help your clients acquire property in prime central London please email me at [email protected] or call +44 (0)800 389 4280.