Downvaluing: say a little prayer

What do you do if a lender downvalues your home, ask Lucy Denyer and Emma Wells

When Sam Rous, 23, spotted a two-bedroom new-build house in the village of Fulbourn, Cambridgeshire, on sale for £215,000 this summer, he knew it was perfect. With 900 sq ft of space and a small garden, it was a great first-time buy for him and his girlfriend, Lucy Fox, also 23, who works for an exam body — and, unusually for first-time buyers, they had a 25% deposit. So when he was told by RBS, his mortgage lender, that its surveyor had valued the property at only £185,000 — leaving the couple to come up with another £23,000 for their deposit — he was not best pleased.

“We approached the surveyor directly to ask how he came to that conclusion,” says Rous, himself a graduate surveyor. “After all, other houses on the development, of exactly the same size and specification, were under offer at the same price. But we didn’t want to risk losing the house.”

Rous asked the selling agent to find comparable sales prices to back up their position, as requested by RBS. The process took too long, however, so Rous and Fox approached Abbey, which readily provided them with a mortgage based on the asking price. The couple hope to be settling into their new home this week.

Their experience is all too common. Last week, The Sunday Times’s Money section cited the case of one couple who had their home underpriced by Halifax by 35% — effectively denying them access to the best available remortgage deal. That might have been a one-off, but the practice of downvaluing appears to be far more widespread, and is having an even more damaging effect on those trying to buy.

Research conducted by the National Association of Estate Agents (NAEA) suggests some lenders are undervaluing properties by as much as 10% — meaning deals are falling through at the last moment because of lack of funds.

As Rous discovered, the problem is particularly severe when it comes to new-build properties: a reaction, perhaps, to overvaluation during the boom years, especially of off-plan flats in northern towns — some cases of which are under investigation by the Serious Fraud Office. “The problem with surveyors acting on behalf of the lenders is that they’re incredibly cautious,” says Mark Harris, a broker at Savills Private Finance. “They’ve been bitten hard over the past few years, when they’ve been too optimistic about pricing, so the reaction is to overcorrect.”

How, then, can buyers — and sellers — avoid the pitfalls of the valuation system and make it work to their advantage? After all, determining the “value” of anything, let alone a house, is an inexact science, especially in the current market. It helps to understand how the process works.

The surveyor called in by a bank or building society to value a property will be in search of “comparables” — that is, the prices at which similar properties in the area have recently sold. Both buyers and sellers can do their homework here — making sure the estate agent has a comprehensive list of sales in the area, and ringing around local agents to do as much research as they can. “Mortgage valuers will normally talk to local agents anyway — but they may not talk to all of them, so that’s a good starting point,” says Ray Boulger, senior technical manager at the mortgage broker John Charcol.

It is not foolproof, however, as surveyors are often basing their values on deals that have already gone through. “Completing on a property can take 12 weeks, and if you’ve got to ignore those properties that have been sold subject to contract, then you’re not being accurate,” says Peter Bolton King, chief executive of the NAEA. This, he says, means there is no excuse for downvaluing when the market is rising, as is the case now in much of the country.

What about the condition of the property? For those remortgaging or buying with large deposits, lenders may not bother to go at all — relying instead on “drive-bys” or “desk valuations”. In most cases, though, the surveyor will want to visit and look out for defects — some of which are easier to remedy than others.

“Having the hanging gardens of Babylon coming out of your gutter isn’t good, because it will cause blockage and leakage,” says Barry Hall, chairman of the survey and valuation group at the Royal Institution of Chartered Surveyors. So make sure your roof is in good repair and looks tidy. A lick of paint won’t go amiss, either — but don’t expect them to be swayed by the old trick of coffee brewing and bread baking in the oven.

The valuer will then assess how much the property is worth — at which point either a mortgage is agreed, and a sale goes through, or the value comes back too low.

At this stage, either buyer or seller can appeal and request a second valuation — although, even if this comes in higher, lenders may ask both valuers to justify their figure, then take a view — which might mean going with the first sum anyway.

Not that being downvalued is always bad news for buyers. “A lot depends on the state of the market, but if there are no other buyers in sight, you can use it as a good reason to renegotiate the property price lower,” Boulger says. If, as now, however, stock is in short supply, the seller may refuse to cut the price — leaving the buyer with the option of making up the shortfall or walking away.

Avoid that sinking feeling

There’s not a lot you can do about living next to a nightclub or a noisy road, but there are still ways, as a seller, to boost your valuation:

– Big jobs, such as roof repair, should be taken care of if you are trying to sell — you don’t want to give a prospective purchaser any bargaining power

– All repairs should be done thoroughly — simply patching up persistent problems, such as rising damp, will devalue your home

– Make sure your improvements are in keeping with the character of the home — especially if it has period features such as fireplaces

– Fit a good kitchen and bathroom, but don’t “over-spec” — high-end kit won’t suit a bog-standard semi

– Co-operation between buyers and sellers faced with a lower valuation can prevent deals falling through
(Lucy Denyer and Emma Wells)


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