Shortage of property and desperate buyers behind ‘down valuations’ ‒ analysis

Shortage of property and desperate buyers behind ‘down valuations’ ‒ analysis

So-called down valuations ‒ where the valuer determines a property is worth less than the price agreed between buyer and vendor ‒ have become a growing concern among property professionals in recent weeks. 

A report from HBB Solutions last week suggested that half of property transactions during the pandemic may have been down valued, with certain areas ‒ including Wales, London and Yorkshire ‒ most likely to be hit.

This was followed by Chris Sykes, a director at Private Finance, telling The Times that he was seeing around one in 30 cases hit by a down valuation at the moment. 

But brokers speaking to Mortgage Solutions were split over how common this is currently, though there was agreement that the lack of housing stock compared to demand from would-be buyers was playing a part.

Desperate buyers

Jane King, mortgage and equity release adviser at Ash Ridge Private Finance, said she had seen an upturn in down valuations, and suggested this was down to the lack of options faced by would-be buyers.

She explained: “My view is that with the shortage of supply, potential buyers are offering more than the property is worth in order to secure it and when the valuer visits on behalf of a lender they decide that the purchase price is not a reflection of the actual value as the price is more of a ‘one off’ from a desperate buyer.”  

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said that while there had not been a large number of down valuations for his clients of late, when they did take place the differences had been quite large. He said that surveyors had disagreed over the value of properties by “between 10 and 20 per cent” which was significant enough that in most cases it caused the deal to collapse.

“There is little feedback given to us as brokers, so we’re often left in the dark as to why the surveyor’s valuation is so far adrift from the client’s or estate agent’s figure, which then makes trying to explain what’s happened to a confused and upset client even harder,” he continued.

What types of property put off surveyors?

Certain types of property may be at greater risk of a down valuation. Rob Gill, managing director at Altura Mortgage Finance, said his clients had been on the receiving end of a number of down valuations when looking to buy flats in the capital.

He continued: “This reflects surveyor concerns that the long-term trend in demand for such properties in the post-pandemic world is a downward one. However, rental demand and rents for such properties are soaring, a good indicator that overall demand for such properties will remain strong.”

Surveyors can’t keep up with reality

“We’re seeing them left, right and centre,” said Rhys Schofield, managing director at Peak Mortgages and Protection, who suggested that surveyors were struggling “to keep up with the reality that house prices are going through the roof”.

Schofield noted that the sold comparables used by surveyors are likely based on sale prices agreed at least six months ago, but argued house prices have grown substantially since then.

He added: “It’s pretty frustrating when you have a queue of other would-be buyers willing to pay the same price for the property. The most insane examples though seem to be on rental valuations when we have surveyors giving a lower rental valuation than that currently being received by a landlord. How is that even possible in a booming rental market?”

There’s no such thing as a down valution

King noted that surveyors argue there is no such thing as a down valuation, just an actual valuation that happens to be lower than the amount offered for the property.

She added: “We also have to bear in mind that a lot of surveyors got into trouble during the 2007 credit crunch when some properties were significantly down valued after only a couple of years since the transaction. Surveyors do, after all, accept legal liability for values so I am not surprised that they are now considered more conservative.”

Lewis Shaw, founder and mortgage expert at Shaw Financial Services, echoed the point around down valuations not really existing, and agreed that the lack of stock combined with “idiotic at best, or parasitic at worst, estate agents and greedy vendors” had created a “perfect storm where people believe their homes is worth more than it is”.

Shaw added that continual house price growth is far from a good thing: “All that the ridiculous price increases do is make it hard for your children and grandchildren to keep a roof over their heads and allow banks to make greater profits to pay out in dividends to shareholders making the rich richer.”

Cost of living crisis will temper price rises

Martin Stewart, director of London Money, argued that the job of a valuer is extremely difficult, with house prices being a “moveable target made up of complex data and vested interests, while being underpinned by human emotion and saturated with government support”.

He noted that his firm had seen only sporadic valuation issues, adding: “The simple fact of the matter is the housing market has been dysfunctional for over 20 years and there doesn’t seem to be anything on the horizon that will put that right. That said, the elephant in the room is likely to be the cost of living crisis which may well temper house prices quicker and more effectively than whoever this week’s housing minister is.”