UK House Prices: How to Break the Boom Bust Cycle

On Monday night's Property Watch show (new program by the BBC) an estate agent said:

"[During the boom] it was a case of making your valuation, and then adding a bit on."

While it was obvious to the trained eye that this is what accounted for the massive UK house price inflation, it is nice for it to be finally said out loud.

Estate agents are paid a percentage of the sale price; so the more the house sells for the more they get paid, so who can blame them for charging as much as they can get for a house during the good times. The downside being that as house prices increase more rapidly; the more out of reach they become for first time buyers, and the more inevitable a correction becomes.

So, now, as we continue in this boom and bust cycle, each crash being worse than the one before it, one must ask, what can be done to break the cycle? For me the answer is simple: estate agents are paid a fixed fee; employed on a contractual basis that says, we will sell your property for £2,000 in a set-timeframe. If they do they get paid, and if not they don't.

Sure, one could say that agents may not work as hard without the carrot of the commission, and may just take longer to increase the money they make. But we mustn't forget, estate agent's need to sell houses, if they don't word will get around and only the best will survive.

In fact, for me, this is the best all round: good agents can still make a lot of money by selling quickly and having a high turnover or properties. The seller would be safe in the knowledge that the agent was working as hard as possible to sell their property -- as the commission system supposedly ensures. And there would be no onus on the agent to "add a bit on" to the asking price.

Under the current system it is inevitable that we will have another crash. Things will return to normal, prices will start to rise, times will get good, agents will over inflate asking prices, homes will become unaffordable to first time buyers, and the next crash will take place.

So, maybe I'm wrong about some of that, but I am certainly right that paying estate agents a set fee would help to regulate house valuation and make another housing market crash like this one less likely.