The narrative around this tends to be something along the lines of it being something of a deliberate ploy, from either a lender, an employer or both.
I will attempt to debunk this myth once and for all. And a good place to start is getting to grips with the way we asses market value and what this means.
Activity boosting prices
A buyer might desperately want a property for a particular reason and will pay whatever price to seal the deal. This is more prevalent in fast, rising markets. The personal element might make the asset worth a certain price to one particular buyer but not to another.
After all, everyone is free to pay whatever they choose for any given item.
Similarly, where markets are particularly buoyant, selling an asset is easy and fast but the temptation to push the boundaries are clear to see. We all want to sell for the best price possible and agents strive to achieve that.
Operating within regulatory boundaries
But is this market value in the regulatory sense? Against which figure should a lender lend against? Would you want to lend money based on an evidence-based figure?
Any asset is only worth what somebody is willing to pay for it and equally what a seller is willing to sell it at. But one swallow doesn’t make a summer, meaning one out of kilter offer compared to normal prices isn’t necessarily reflective of the tone of values for a property of its type in its locality.
Some might want to pay more, some sellers might need to sell quickly and sell for less but market value is designed to disregard this.
From a residential valuation perspective, market value is the way we value a property.
Without wanting to rehearse the full definition word for word, it is the valuer’s opinion of what an asset will exchange for on the valuation date between a willing buyer and willing seller, acting knowledgeably and prudently, after a proper marketing period and without compulsion to buy or sell.
The regulatory regime we work to, RICS, is market value. It’s worth noting too that this is an internationally recognised definition.
In the world of secured lending we are required to provide a figure which is at or less than market value.
To clarify though, this is not a regulatory direction to value at less than market value but a direction not to value above market value.
This direction ignores the personal element of a single person’s desire to buy or indeed a single person’s need to sell quickly. Importantly it must be supported by evidence and we have guidance around what that evidence needs to look like.
Within this, the hierarchy of comparables is key. More reliance is placed on completed and actual transactions compared merely to asking prices.
Having said that, all data plays its part in building the story, generating a bigger picture to enable the valuer to make an informed decision about what that typical buyer and seller will transact at the date of the valuation.
So, is there really such a thing as a down valuation? We just have two different opinions of value.