Is your mortgage valuation lower than the offer price?
Discover what down-valuations are and how they affect your house ...
When it comes to selling your home, the most important issue is establishing exactly what it is worth. This might seem simple and straightforward, but recent figures show that this is not always the case.
Estate agents might have one idea of the value of your home, while the official valuer for the bank or building society may well think differently. The difference in these two prices can mean the difference between a successful sale and the whole chain breaking down.
What is a down-valuation?
The difference between what agree to sell for, and the value that a bank or building society is prepared to lend against on a property is called a down-valuation, and this can be as much as ten or twenty thousand pounds.
To make matters worse, a down-valuation often doesn’t come to light until you are a long way into the process of selling or buying. You will have agreed your sale, either at the asking price or at a lower offer price, and all parties will be ready to go ahead.
At this point, the buyer will apply for a mortgage and the bank or building society will ask their appointed representatives to value the property. If this then comes back at a lower price than the asking price, or lower than the agreed offer, then it can cause serious problems.
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How a down-valuation affects sellers
If you are selling a house, then a down-valuation could mean that you lose the sale. This can be costly and inconvenient, and put you right back to square one. You will have lost all other interested buyers when you agreed the sale.
In many cases, the original buyers will come back to you to try and renegotiate a lower price, based on the valuation. You are not obliged to renegotiate, but if you are in a chain and have your heart set on your next move, you could find yourself backed into a corner and taking a substantial financial hit.
How a down-valuation affects buyers
If you are buying, and you need a mortgage, then a down-valuation means that you will have to either find more cash up front or negotiate a higher loan to value mortgage at a higher rate. Quite simply, you might be prepared to pay over the odds for your dream home, but your lender isn’t.
You could try to get the sellers to drop the price, but you still might not get the deal you hope for. Once again, if you have your heart set on the move, and have a chain of buyers behind you, with someone waiting to get moving into your current property, you could find that your hands are tied and your options are very limited.
Watch: All About Mortgage Valuations
How common are down-valuations?
Down-valuations on property are currently at their highest level since the financial crash of 2008. The BBC reports that Britain’s biggest online estate agents, Emoov, claims that as many as one in five properties now receives a down-valuation, compared to one in twenty just two years ago. Add this to the fact that homes are consistently selling for less than the asking price, and it’s easy to see why the property market could be facing a crisis.
According to the National Association of Estate Agents, as many as 86% of properties in March sold for less than the asking price. What’s more, Rightmove estimate that the average reduction has risen from 2.8% to 3.3% in the last few years.
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Why are more homes becoming down-valued?
There are many theories behind the rise in down-valuations, but the most likely reason is that valuers are simply covering their backs in case of problems resulting from Brexit. There is a huge amount of uncertainty in the economy at the moment, with no one really sure what will happen as the lengthy Brexit process unfolds.
Valuers have a duty, both to their employers, the banks and building societies, and to themselves, to take this uncertainty into account. They’re either erring on the side of caution or predicting a crash, and either way, who can blame them?
Naturally, the lenders want to make sure that their investment is protected by the value of property it is secured on. In the worst case scenario, a valuer could be sued for an incorrect mortgage company valuation if the bank loses money, so they are always going to cover themselves.
On the other hand, estate agents are in the business of helping you get the best possible price for your home, and of course, the highest possible commission for themselves. They take a much more short-term view, valuing your property at what it is worth right now, rather than what it might be worth in a few months or a few years.
The conflict between these two approaches to valuation is what is causing the current rise in down-valuations. So which value is right?
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How are homes valued?
The Royal Institution of Chartered Surveyors (RICS) does not like the phrase ‘down-valuation’, as they believe that their valuations are accurate, and that it is the estate agents who are inflating asking prices. “It is questionable whether the term down-valuation is an accurate reflection,” a spokesman told This is Money recently.
RICS Registered Valuation Professionals mortgage valuation process uses what is called the International Valuation Standards. This includes the overall condition of the property, the sale price of at least three similar local properties, a knowledge of supply and demand in the local area, and an understanding of the prevailing market. It is this final element that can cause the discrepancy, especially when that prevailing market holds such uncertainty.
It is worth remembering that this type of survey is done on behalf of the bank or building society, not for the buyer or seller. It may not cover the same elements as a home buyer’s survey and should not be used in place of a full survey. While it should involve more than a drive by and some basic background research, it will never be a thorough, in-depth assessment of the property.
Of course, all valuations, whether by your estate agent or by the bank’s valuer, are only ever best guesses. Unless an identical house, in the same street, sold just last week, the influence of various issues on the realistic value of your home can only be estimated.
How to deal with a down-valuation?
Many people do not know what to do if the house valuation is less than the offer. In theory, you can challenge a valuation, but this rarely succeeds. Lenders have the right to lend as much or as little as they want against a property, and they are unlikely to be persuaded to take a bigger risk.
As a buyer, you can apply to a different lender and hope that they will come up with a higher valuation. The problem is that this means writing off the fees you have already paid to the first bank or building society, and then paying more fees to a different bank with no guarantee of a different result.
As a seller, you can either walk away, or take the hit and reduce your asking price significantly. Once you add this price cut to your estate agent’s fees and all the other costs of preparing and selling your home, you may be better off seeking the services of prompt, professional property purchasers, such as Yes! Homebuyers.
They will agree a price from the start and guarantee not to reduce this, or down-value your property, except in the most extreme circumstances.
With yet another new hurdle to get over in the property market, services such as this can be more valuable than ever, fixing broken chains, getting your home sold without delay and helping you to move on to your new life without worrying what the bank’s valuation will do to your dreams.