What To Do If A Property Is Down Valued
Don't pop the champagne and celebrate too soon if you've shaken on the price of a home – a mortgage lender may disagree, and it may be downvalued.
The problem comes when the bank or building society sends out a surveyor who down values or undervalues the property – they are similar terms for the same thing. The surveyor believes the house is worth less than the agreed price. As a result, the amount the lender offers is less than the buyer needs to complete the sale. Don't despair if this happens to you – there are some things you can do to ease the deal through.
Dealing with a devalued sale
Don't worry too much – you are not the only one buying or selling a down-valued property. According to a London letting agent Benham & Reeves report, nearly 400,000 homes were valued at less than the agreed selling price in 2021. The research said the average amount struck off the value of a house was £7,500.
A property is devalued when a mortgage lender carries out a survey and decides the home is worth less than the price agreed between the buyer and seller. For example, a landlord agrees to buy a home for £250,000, but the valuer puts the price at £240,000, downvaluing the property by £10,000.
The shortfall scuppers the deal because the landlord cannot borrow the amount needed to complete the purchase. The options are walking away from the deal, renegotiating the price or stumping up more cash. Then there's the doubt about sticking to the agreed price because you are overpaying, in the professional's opinion.
What is a mortgage valuation?
A mortgage valuation is not a survey in the strictest sense of the term. A survey is a detailed inspection of the property from top to bottom that confirms a structurally sound home and incorporates a valuation.
A mortgage valuation is a lower-level report commissioned by a bank or building society. The valuation does not depend on the state of the home, but that the price is fair and based on the sale price of similar properties in the same neighbourhood. Most mortgage valuations are calculated online.
A surveyor may visit the property if the proposed loan-to-value is high or the property is of unusual construction.
Why are properties undervalued?
An estimated 390,285 were downvalued by surveyors last year because they thought the price agreed upon between the buyer and seller was too high, says the Benham & Reeves report. The average shortfall was between £5,000 and £10,000. This equates to a drop in value of 4.8 per cent in the North East and 1.8 per cent in London – the difference depends on house values in the region as properties in London are more expensive than those elsewhere.
According to the Royal Institution of Chartered Surveyors: "The market value is usually based on recent transactions of similar properties in the local area, other economic indicators and also the professional's knowledge of the local market and economy.
"For this reason, it is quite possible that the lender's valuation at market value does not match the asking price of a property set by a seller or agent."
Dealing with a down valuation
Here are some tips on what to do if your property deal is downvalued:
- Read the valuation report or speak to the surveyor to understand why the property price is downvalued
- Ask the lender what they will advance against the new valuation
- If you believe the valuation is wrong, ask for a second opinion, but bear in mind the price rarely changes on appeal
- If you are buying, ask the seller to renegotiate the price by meeting the valuation in full or at least halfway
- If you are selling, wait to see what action the buyer takes
- Making a mortgage application through another lender may work, but most firms work for several lenders, so you may end up with the same surveyor who downvalued the home for the first lender
- Sellers should keep the property on the market and look for another buyer
Generally, a down valuation has two scenarios:
- The seller refuses to renegotiate the price, so the buyer refuses to pay over the odds and drops out of the deal
- The seller takes the devaluation hit
Sometimes, the buyer injects extra cash into the deal to cover the shortfall.
What to do if a property is downvalued FAQ
What is a down or undervaluation?
A property price is down or undervalued when the price a surveyor puts on the home is less than the agreed sale price.
What is mortgage retention?
Retention is when the lender holds back some of the agreed advances while essential repairs are carried out. The lender hands the retention to the borrower once the builders finish the works.
Where can I find selling price data for a property?
It's easy to find a home's rough price from free online data. The data on commercial sites, like Rightmove and Zoopla, comes from the Land Registry, so try the official site first. The data is not real-time and lags the market by around three months. Web sites with sold property prices
Can I employ a valuer for the lender?
No, you cannot use your surveyor for a mortgage valuation. The lender will want to commission a valuation from a valuer who has a duty of care to them.
Can I ignore the valuation and pay what I like for a house?
Generally, buyers would be foolish to ignore the valuation as they will pay over the odds for a property. If it's your dream house or the land has the potential for splitting into plots to sell on, you may want to plough ahead with the deal regardless of the valuation.
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