Down Valuations of Properties in Essex

Property prices in Essex have been rising and rising quickly and the demand for these properties is high. At Bear Estate Agents we have experienced several people chasing the same properties who are all of the similar financial backgrounds.

Whilst this may seem fantastic for the vendor who feels the property is becoming more and more valuable as the bids for it climb, in practice, unless cash is being used for the purchase, there are constraints.

This constraint is the mortgage valuation, the basic valuation that has to be carried out by a qualified surveyor to determine whether or not a property is worth its price tag, in order to protect the financial institution on its loan on the asset, the property.

This may seem straightforward, but in a housing market where prices appear to be ever-increasing, down valuations are almost inevitable. House prices seem to rise at a rate that surveyors cannot keep up with. Down valuations occur when a surveyor finds the property to be worth less than the buyer has agreed to pay for it. Whilst the surveyor’s decision can be appealed, the results of the survey will generally be verified and rarely get changed.

So where does this leave the vendor, or indeed, the buyer?

If the buyer has ‘spare’ cash saved then there may not be a problem because the shortfall between what the bank or building society will lend and the cost of the property, could be met.

This is rarely the case as buyers, particularly first time buyers, have struggled to save a deposit, let alone have enough in reserve for a potential shortfall. Their options, therefore, are; pull out of the sale and lose the money spent on the survey and possible solicitor fees or renegotiate the sale price.

As for the vendor, does he/she search for another buyer who ultimately may be in the same financial situation and have a similar survey result, or search for a vendor with more cash to spend?

Obviously, these questions depend on individual situations. The vendor, for example, may need to realise a certain amount of money from the sale in order to purchase the chosen property, ‘higher up the chain’, at this point, the whole ‘chain’ may break down. It is in everyone’s interest to keep the chain complete, thus renegotiations may take place up and down the chain.

Can it be said that there is no such thing as a ‘down valuation’? That may be the original valuation from the estate agent was misguided or just plain wrong?

The estate agent is the person who interacts with the vendor and the buyer, the intermediator between them and the surveyor as well as the solicitor. Selling a property is an extremely emotive situation that often signifies an end of an era, whether it signals the expansion of the family, the end of a marriage or partnership, the need to release funds or even to start a new life with somebody. Blood, sweat and tears may have gone into the renovation of a property and nobody wants to sell below-perceived market value.

Here lies the difficulty. At present all around us, houses seem to be ‘selling like hot cakes’. On Rightmove and Zoopla, prices coupled with ‘sold’ signs can be plainly seen. If Mr. Smith up the road sold his property for £250,000 and he hasn’t got a Jacuzzi or a log cabin in the garden, then surely ours must be worth £260,000? Probably there will be someone who will pay that price in our buoyant market…..But will the surveyor agree? After all, that price shown was only one that the property was marketed at, not necessarily the one that the property completed on. In order to find out what it actually sold for, further research needs to be done at the Land registry database of properties in that area.

The estate agent at the valuation appointment will bring evidence of what the property value is in the form of comparables. These comparables are details of ‘like for like’ properties in the same area. It is the evidence that is used by surveyors when they value a property so the valuation should be safe from down valuation.

 As previously mentioned, selling a house can be an emotional experience and a buyer may not want to hear that the property is not worth quite as much as was expected. Furthermore, the estate agent may lose the chance to sell a property if vendor feels a higher price could be realised with another agent….even though it may lead to disappointment further down the sale’s path.

This is not the only difficulty an estate agent may experience. There might not have been a property sold in that area for over 6 months. He can ascertain the price from similar properties in similar areas, but when it comes to the survey, the historic evidence the surveyor would use, i.e. the property that sold 6 months or even three months ago, would show a greatly reduced price because houses have risen in price very sharply.

Somehow the property market prices have to level out in order for the basic survey valuation to be relevant.

Whilst interest rates remain low and investors’ return on houses bought for the rental market remain high, a lack of new property being built will keep prices increasing in the same way as they have done in and around London.

Furthermore, should the surveyor down value a property, remember that our fee is low and will save thousands. It may be possible, therefore, that by using Bear, a sale could be saved by using some of this money to renegotiate the price.

The most important point, however, is to do some research on what properties have actually sold for in the area and to listen to what the agent has to say regarding the sale price…..especially if it is a Bear Estate Agent as he has nothing to gain from either overpricing or under pricing your property and everything to lose if your property is not sold correctly.