Most residential purchases rely on mortgage finance, and therefore a lender’s valuation is usually required to establish that the price being paid for a property represents the ‘market value’.
Paying a purchase price over the estimated market value can place the lender and buyer to the sale at additional risk. Therefore, the lender instructs an RICS surveyor and registered valuer to undertake an RICS Redbook valuation and determine the market value of the property.
A ‘down-valuation’ may occur if the lender’s surveyor establishes a lower market value than the purchase price. In other words, the lender must establish that the purchase price for a property that has been agreed on is reasonable.
As for those who are remortgaging, the lender needs to establish that the home’s current market value is what the borrower says it is.
Bear in mind that the independent surveyor is not trying to be difficult by down-valuing the property to what you believe it is worth. They are under a professional obligation to act objectively and offer a realistic market value. Their criteria include but are not restricted to:
- Searching for similar properties in the local area and the prices they sold at
- Their knowledge of the local market conditions, including the supply and demand
- Their opinion of the property’s condition and its value
The lender’s surveyor will send the valuation report to the lender. In most cases, the lender will not reveal the market value to the buyer. They will simply notify the buyer whether the mortgage has been approved, approved subject to a higher deposit or rejected.
If they approve the mortgage subject to a higher deposit or reject it, the buyer may have to go through the hassle of increasing their deposit, seeking another mortgage product or an alternative property within their budget, which can be time-consuming and stressful.
For this reason, it is advisable to obtain a valuation before making an offer. It saves the buyer from wasting time and/or paying over the market value for the property. This is where one of our surveyors (registered valuers) can help you.
Alternatively, what can you do if your market value is less than your initial offer?
Renegotiation is often the easiest and quickest way to resolve this issue.
As a seller, you could consider lowering the sale price or meeting somewhere in the middle, especially if you have been struggling to sell. There may not have been much interest, or you may have already found another property to buy and don’t want to delay moving.
However, a seller is not obligated to lower their asking price and can walk away from the initial offer if he/she is not desperate to sell.
As a buyer, it can be a bit more complicated.
If you’re buying a house for £250,000 with a 90% loan of £225,000, you will have to finance a deposit of £25,000.
But if the surveyor values it at £230,000, a 90% loan will only provide £207,000.
To make up the balance of the £250,000 purchase price, you will need a larger deposit of £43,000 – a considerable increase (unless you renegotiate the price).
For most buyers, that’s a big ask.
Appeal Against the Valuation
Appeals are often unsuccessful. However, some lenders will consider a request if a buyer can produce clear evidence of comparable sale prices for similar properties in the area over the last six months.
You will need to find three comparable sold-house prices in the same area to appeal, preferably within the last six months.
A more comprehensive valuation could also be requested if a buyer is prepared to cover the cost and is convinced it will make a difference.
You can also ask the lender about the details of the valuation, for example, whether the surveyor checked inside the property because they may not be aware of significant renovation repair work to boost its value.
Keep in mind that surveyors don’t just make figures up out of thin air.
They need to justify valuations with supporting evidence of at least three recent comparable sales adjusted to reflect the subject property’s condition, location, and size, as well as current market trends.
Valuing is neither a science nor an art and surveyors operate within a -/+5% margin of error.
So, let’s say you’ve agreed to pay £200,000, and the surveyor thinks the property is only worth £194,000 (3% less); they might give it the benefit of the doubt and round it up.
Deriving an accurate valuation is much easier when similar properties recently sold on the same street as the subject property and/or the neighbouring streets. These can be compared against the subject property.
Problems are more likely to arise with unusual ‘one-off’ properties, areas with few property transactions and/or where an especially high price has been agreed. A lack of good comparable evidence may result in the surveyor adopting a cautious approach resulting in a lower valuation.
To challenge a down-valuation retrospectively, you as the buyer will need to find comparable evidence supporting a higher value.
In most cases, the surveyor should be willing to reopen the case and consider new evidence, revising the valuation if necessary.
The seller’s estate agent should be able to assist.
You might also be able to persuade the mortgage lender to get another valuation from a different locally-based surveyor hoping that they may come up with a more adequate figure. Still, there is no guarantee this would achieve a positive outcome.
For additional information on the appeal process, you can read more here.
Use a Different Lender
A buyer could apply again with a different mortgage lender, hoping their appointed surveyors view the property differently.
However, this may affect other application stages if numerous mortgage credit checks have been completed in a short period.
But if you go through a whole-of-market broker, you can keep formal inquiries to a minimum and stand the best chance of finding a lender whose valuation aligns with what you were expecting.
Lenders will generally use a panel of surveyors for their work. Using a different mortgage provider who uses a diverse panel of surveyors can give a different result if the new surveyor is more experienced in that locality.
You can also ask for a more senior surveyor to review the original valuation; however, there’s no guarantee of success and it will cost you more.
This route will undoubtedly show the vendor that you mean business but negotiating may solve the problem much quicker and potentially save you thousands.
You can check out this link for the UK’s top mortgage lenders.
Find a Cash Buyer
This final option is not standard, but it avoids the need for a mortgage, which means there will be no lender to perform a valuation.
Simply put, if you can find a cash buyer, you can altogether bypass the valuation process since there is no need for a lender.
If most buyers need a mortgage to buy a property, then the lender is necessary and will want reassurance that it is worth what you want to borrow for it.
Valuations are both a science and an art.
The surveyor/valuer’s opinion of the market value may not match up with someone else’s opinion of how much the property is worth.
It’s always a good idea to do some research and make sure the surveyors are knowledgeable and have extensive experience with the property type you’re looking to purchase.