Busting the down valuation myth

With rising living costs eating into wages, and the UK narrowly avoiding a technical recession, no homeowner wants to find out that their property is worth less than they thought when they come to sell.

This outcome has become known as the dreaded ‘down valuation’ and is often pinned on cautious surveyors.

Malcolm Webb (pictured), technical director of Legal & General Surveying Services, said the problem is that this is not an accurate, or useful, term and does not help homeowners better understand or navigate the market.

“In reality, there simply is no such thing as a down valuation; what is actually being described is the difference between the worth of the property to the buyer and or seller, and the evidence available from the market to the valuer,” he said.

Turbulent times

Webb said the fallout following the government’s mini budget last year marked another stage in a turbulent period for the market – and this impacted valuations.

“We are now beginning to emerge on the other side, but this turbulent time meant that valuations did not always match asking price expectations,” he said.

Properties have marketing figures put on them when advertised for sale; depending on the property, the market and the agent’s strategy, the price agreed to be paid can be above or below the marketing figure. The responsibility is then on the Royal Institute of Charted Surveyors (RICS) qualified valuer to assess the valuation of the property, which Webb added is normally on the instruction of a bank or building society for secured lending.

In extreme cases, Webb said, the media has reported that lenders and surveyors may be knocking as much as £150,000 from properties’ asking prices, however he added that this does not suggest down valuations are soaring.

“What has, instead, been happening is that market factors at work since the mini budget have increased the volatility in the market,” he said.

Webb believes it is also more likely for differences in opinion on value to occur on remortgage cases rather than purchase. With a purchase, Webb said the property has been tested in the market as a willing buyer has agreed a certain price. However, with a remortgage, he said the property will not have been tested in the market and will be instructed with an estimated value (EV), which can come from multiple sources and may not be a realistic estimation.

Reflecting a property’s actual market value

As part of the mortgage application, Webb said a qualified surveyor typically carries out an independent valuation report to assess whether the property is a suitable security for a lender and provides a market value for the property.

From this information, he said the lender calculates the loan they are able to offer to their customer.

“To do this, the surveyor considers the sold prices of similar quality properties in the area, known as ‘comparables’,” Webb said.

Webb said the individual merits of the comparables are weighed up against the subject property and takes into consideration relevant attributes, for example, location, condition, amenities as well as mortgageability and saleability; the same process is used for remortgaging applications.

“It is also important to note that surveyors cannot speculate on value, they have to reach considered conclusions based on the evidence in front of them,” he said.

The valuer’s principal aim, Webb said, is to report accurate valuations in accordance with RICS requirements as the regulator for approved valuers, and to fulfil the terms of the instruction from the lender.

“On purchases, the difference between an agreed sale price and the valuation provided by the surveyor is usually much closer to 3%, according to research from property buying firm HBB Solutions,” Webb added.

What are the options for buyers and sellers?

When faced with an unexpected valuation, Webb said it is important that both buyers and sellers have discussions with their estate agents.

For sellers, he said they will need to discuss the best marketing strategy for their property, and added that estate agents will be close to the market and understand the complexities of it.

“We often view a property as an investment, but unless the property is part of a rental portfolio, it is ultimately a home and, as such, has an emotional aspect attached to it; therefore, all parties must be realistic when it comes to their expectations around valuations,” Webb said.

He believes it is important to mention that a lender’s valuation is not a survey of the property’s condition and does not highlight any possible issues the home may have.

The valuation is a limited check carried out on behalf of the lender to assess whether they can approve the mortgage application.

With this in mind, when purchasing a property, Webb said it is vital prospective homeowners get a homebuyer survey, on the state of the property, as well to make sure there are no unexpected repair costs when they move in.

“This will include a thorough assessment of the condition of the property, highlighting significant defects, and providing advice on repairs,” Webb added.

Webb said this not only helps prospective homeowners to budget effectively in their buying journey, but also provides them with peace of mind. 

“All parties in the process are ultimately aiming for the same end goal, to be able to make decisions based on concrete evidence and an accurate assessment of risk for all those involved,” Webb said.

What do you believe could be done to help improve education on valuations for buyers and sellers? Let us know in the comment section below.