How do I know if a property is overpriced or not?

[Propertyprice]

I'm considering buying a house that is on the market at £675,000.

5 years ago the owners bought the house for £500,000 (don't you just love the power of the internet nowadays for providing this information?)

Now that's an average yearly increase of 6.2% this seems very high to me.

To clarify the only "work" that has been done on the property is decorating, and replacement kitchen. Bathrooms are as was when moved in, features were all ready all there, double glazing was all in etc.

It's between South East and South West (depending where cut off is, as it's South), so looking at these 2 areas for average house prices courtesy of Halifax as that is what is always quoted in the news, doing the % increases and decreases that have taken place every quarter between 2006-2011. Gives us a figure of £600,000 if SE or £550,000 if SW.

This is an odd house to value as other houses in immediate area are a lot smaller and on at under £400,000 or a lot bigger and on at over £700,000.

I think this house is worth £600,000 based on % this seems fair price.

What do you think the response I would get from the agent would be if I contacted them and inquired how they came about at valuing at £675,000?

Could it be vendor has said we'll only sell at £675,000?

Any advice, or insight would be really appreciated.

My rule of thumb would be that a house shouldn't be worth more than it was in 2008 - they were over priced then and in general there is no reason for an increase in value.

However, if somebody else is prepared to pay £675K for it, that is what it is worth. If you make a very low offer, it is likely that they will want to wait a bit to see if anybody will pay more. However, if they want to move and nobody else will buy the house, you might be able to get it for £500K.

Price will also depend on how attractive you are as a buyer - can you move quickly or do you need to sell? Do you still need approval for a mortgage? Equally, they may just have put their house on the market to find out what it is worth and not be that desperate to move, in which case they are unlikely to accept below £675K.

Due to the stamp duty rise at 500k, just like the rise at 250k, you tend to get people who don't want offers bargaining them down to the threshold putting on a way higher price. So, for instance, something gets put on at 325k where they would take 290k but they won't put on at 290k as then people try to get it down to 250k or do deals with the stamp duty extra.
This might be going on here, price it way high so that no one thinks to get cheeky and offer 500k.
I would imagine, if you put this through the nationwide houseprice calculator www.nationwide.co.uk/hpi/calculator.asp it would be valued about the same price as 5 years ago if it is outer South East or South West, therefore, their problem is, if they put it on at the price they paid plus a bit to reflect their work, all will try to beat it down to 500k.
Research seems to show that, on average, the 3rd offer is accepted with house buying so don't go in with the offer you'd be prepared to make, start lower.

Cristina - I apologise for my sarcasm, but I am genuinely stunned that anyone would pay £130k more than the same house was bought for two years previously. That is a massive amount of money.

But monster, it sounds like the owners paid 130k less than the new purchasers are paying for it today. The owners may not have paid 'Market value' for it 2 years ago. Eg it could have been a distressed sale, or it could have been a relative selling it to another relative for below Market value at the time. Maybe the seller didn't have a clue or was badly advised by the agent. Maybe it was a dodgy deal where the declared price paid was lower than the actual price paid to reduce the stamp duty liability. Until you know the facts, you shouldn't dismiss paying 130k more in 2 years. As long as the price being paid today is comparable with similar properties transacting in the area, that is all that matters today. I'm a chartered surveyor so I do know what I'm talking about ;) . If you have any concerns you are paying over the odds you could commission a valuation from a chartered surveyor. However if you're getting a mortgage the bank will instruct a valuation and you'll find out further down the purchase process if you're paying above Market value.

I am looking to buy myself, and coming across massive increases in asking prices in comparison to purchase price in previous 5 years or less, taking into account any work/extension of living space and recent sales in vicinity. I imagine all those vendors also bought under some strange below 'Market Value' condition.
Perhaps the OP's vendors who bought at £500k and now asking £675 two years later were similarly fortunate.
Ah well, as long as the ludicrous house price inflation in this country is protected, who am I to argue.

Sorry - 5 years later. Bargain then, obviously.