What to do if a property is down-valued: advice for buyers and sellers
Estimated reading time: 5 minutes.
One of the most crucial steps once having an offer accepted for a property is ensuring you get your full mortgage offer as soon as possible. This will ensure things move as quickly as they can and ensure nobody incurs any unnecessary costs in the instance that the mortgage company doesn’t agree on the valuation at the agreed purchase price.
In an increasingly competitive property market, ‘down valuations’ happen quite often. So what can you do to avoid this and, in the instance, they do happen, continue to progress and see things through?
The application process
Let’s start by looking at the mortgage application process. To have had your offer accepted, you will have to have provided the selling agent with a copy of your mortgage in principle. This is an initial agreement from a lender; a certificate or statement declaring that they will lend you a certain amount ‘in principle’, provided they are happy with credit checks carried out and a satisfactory valuation of the property you wish to buy.
Getting your full application submitted the same day your solicitors receive the memorandum of sale is therefore paramount.
Getting a property valuation
Usually, within 7-10 days of submitting, a surveyor will attend the property to carry out an independent valuation on behalf of the lender. Something to remember here is that they are acting for the lender and not directly for the purchaser. Ultimately, it’s the lender stumping up the funds and buying the property until the day the mortgage is repaid.
A wide selection of factors are considered by the valuer including condition and size, but ultimately, they need to have comparable evidence of properties that have been sold and completed. In a rising market, prices largely rise faster than what supporting evidence can support, which in turn leads to down valuations.
For this reason, it’s important to sell and buy from an agent prominent in the area who can ensure evidence can be given to the mortgage surveyor of other properties that have sold at similar prices. It takes between 3-6 months for sold prices to be recorded with the land registry.
The reason for the sharp spike in prices is that buyers are all competing for the same properties. It’s common to have 15+ offers for every house we list, so it’s crucial that each offer is weighed upon the strength of the buyer's position by the seller.
Cash buyers
A cash buyer who can purchase a property exclusively with cash, without the help of a mortgage or a loan, will always be in the strongest position. These buyers can afford a new property without relying on money from selling a previous one and have the money available at the time of putting in their offer. If, as a buyer, you’ve ever had the frustrating call from an agent to say sadly the owner has decided to accept an offer from a cash buyer, it’s usually because their offer can’t be altered by a mortgage valuer further down the line. It’s common for sellers to accept offers at 5%-10% less from a cash buyer for this very reason.
So, if there aren’t any cash offers, the next best thing to look for is the buyer with the highest deposit. This is because if the buyer has a 50% deposit and the property was down valued, there is wriggle room for that buyer to adjust their deposit against the mortgage amount to bridge the gap. A buyer with a 5% deposit experiencing a £25,000 down valuation would be dead in the water.
In any instance, a buyer's immediate reaction will be to renegotiate the asking price based upon a down valuation report. However, any valuation is subjective and is the opinion of the specific valuer visiting on the day. If an owner has had multiple offers all in the same region, they’ve had the colour of the money wafted in their faces, so they aren’t going to just roll over and take the reduction.
Your options
Options are to change lender. The easiest and quickest way of doing this is to make sure you are signed up to a good broker from the start. A good broker in this climate is crucial to your success. They will turn things around quickly and you will be able to fire a new application to an alternative lender within the hour rather than have to start all over again if you decide to do these directly. You’ll also have the benefit of ensuring you're getting the best rates available at the time.
If a second mortgage valuer comes back at the same valuation figure, the weight of your argument for the seller to look at the price is heavy and more likely to come to fruition.
Key advice for sellers and buyers
Down valuations, although incredibly frustrating, do not spell the end for your property purchase or sale. They can cause delays, but both sellers and buyers have options available to them given the right support.
Sellers: Consider offers carefully. Insist your agent provide you the deposit to mortgage ratio and ask their opinion on who they think feels like the most solid buyer. Decide based upon the facts and pick the best buyer based on their position, not just the monetary amount.
Buyers: If you are a cash buyer or have a heavy deposit, you are in a strong position. Make sure you email the agent and request your comments be passed onto the owner to stress the strength of your position. That you may not be the highest offer, but you are serious and committed to seeing the purchase through.
If you are buying with a lower-level deposit or a first-time buyer, new builds with fixed asking prices have less competition and are less likely to see a down valuation. If you aren’t a fan of new builds, make sure you research the sold prices in the area and be realistic with your offer amount to give you the best chance of seeing things through. It is massively frustrating to be outbid, but it's better to be outbid and lose out that spend out monies on a purchase that simply won’t go through.
