Matthew Yassin: What is it like to be some of the most hated people in the industry given the way you are seen as deal preventing from some corners of the industry?
Joe Arnold: Haha – I didn’t realise we were. As surveyors, we are independent professionals carrying out a job. Our role is to carry out an accurate valuation and we have no bias or incentive to value a property in any other way. I understand that brokers have frustrations when a property is not valued as they would expect.
For brokers who get frustrated with surveyors, I would say two things. The first, is that you are getting frustrated with the wrong people. When we carry out a valuation as part of a mortgage application, we do so on behalf of a lender. We are contracted to that lender and need to value that property in line with its guidance notes, as well as the RICS Red Book guidelines. As part of the contract we are also often bound by confidentiality so any query about the valuation has to be directed through the lender.
I would also say that if you are frustrated with valuations you should find a surveyor who you know, trust and like to work with. We are open to establishing strong working relationships with brokers so that we can have open lines of communication throughout the process.
So, for example, I might receive a call from a broker who is considering an application to a particular lender on a property in a high-rise block to ask whether it’s the sort of property they would be happy lending on.
Or, brokers can contact us if they have received a valuation from another surveyor they think is incorrect. We will carry out a desktop valuation and if we think it is unjust, we can provide some comparables that a broker can use to contest the valuation.
If a surveyor is presented with three robust comparables that they did not have sight of initially, they are allowed to change their opinion and valuation. Often, however, it is the case that brokers get frustrated and contest valuations with comparable properties that are not actually comparable. This compounds the frustrations further, but with a reasoned rationale you may have a more fruitful outcome.
What’s behind a down valuation?
MY: Is a down valuation attributed to a bad day in the office or is there a calculated methodology to work out value?
JA: There is no such thing as a down valuation. A surveyor provides the only formal valuation of the property. If this valuation is lower than the amount a buyer has agreed to pay, then it just shines a light on the property being over-inflated in the first place.
There can obviously be an element of individual judgement when a valuation is carried out by a person, rather than an automated model, but any valuation carried out by a chartered surveyor needs to be done so within the framework of the Red Book guidelines and the lender’s own guidance notes. Any disparity in valuations are most likely to be as a result of the different approach used by different lenders in their guidance notes, rather than the mood of the surveyor on the day.
MY: How can surveyors provide significantly different valuations on the same property? In no other industry can two professional representatives work on the same piece and have a completely different interpretation, especially when the market is supposed to be managed by a host of variables which determine value, how is this justified?
JA: This would most commonly be the result of different types of valuation instructions and the ability to accurately assess the condition of a property. For example, two properties may look exactly the same from the outside on a drive-by valuation, but an internal inspection could reveal that a property has a huge crack in the back wall and requires significant investment to put this right.
Or on a remortgage case where your customer has fully refurbished and extended the property, a physical inspection may reveal the property is worth a lot more than originally thought when simply looking at the front of the house.
Different lenders will also have different stipulations within their guidance notes and this can influence the surveyor’s decision. If you have a property which is unique, or perhaps on a tight loan-to-value (LTV) product, perhaps it would be wiser to select a physical inspection rather than an automated or drive-by valuation, this is the most accurate way to value a property.
MY: Surveyors are rarely held to account to explain the reasons for the figure, whether it be high or low. Would you change this to create more transparency?
JA: Absolutely. I am all for more transparency and greater communication earlier on in the process and take part in a number of working groups that strive to continue to raise standards in the industry. But what you must remember is that surveyors are always held to account by their client, the lender.
For example, we recently had 60 full files audited by Lloyds Banking Group and we had a fantastic audit result.
We are held to account on every valuation and fully transparent with our clients, however the broker is not our client so we often cannot discuss the case.
Tips for brokers
MY: Do you have any tips for brokers to reduce the chance of a case falling through because of a down valuation?
JA: Know your market, research the property and prices in the area and spot trends as we do in our monthly report. Get to know which agents inflate asking prices to secure instructions, and learn how to spot when a customer is inflating the estimated value on a remortgage.
If you have a specialist or unique property you should look to choose a lender or product that carries out a physical inspection.
I have a recent example where a sale was agreed on a unique period property in Surrey for £750,000. The lender carried out an automated valuation model (AVM) which valued the property at £700,000.
As a result of this AVM the buyer got cold feet and pulled out of the deal, then two days later the property was sold to a cash buyer for £765,000. A computer tried to work out the value and got it wrong as it couldn’t factor in the unique charm and character. The lender lost the opportunity to advance £500,000 and the broker was not a happy chap.
Challenge the AVM and upgrade to a physical inspection. One final tip, if a flat has a short lease don’t just give up. We help clients buy lease extensions every working day and can keep the deals alive.
Vendor home report
MY: Would you be up for a central database of how valuations are calculated and recorded so that there is less of a swing of numbers in the future?
JA: I support any initiative that would deliver greater transparency earlier on in the process. In fact, I would like to see the rest of the UK follow Scotland, with the introduction of the Home Report for vendors. That way every property would have a survey and valuation undertaken before it comes to the market.
This has been a huge success in Scotland and I think it should be applied more widely.
Valuations vs surveys
MY: What’s your view on lenders not showing our customers the valuation reports or offering the opportunity to upgrade to a Home Buyer Report or building survey?
JA: A lender valuation is for the lender to assess risk, it is confusing to a customer if they are sent something they cannot rely upon, it shouldn’t be disclosed in my view. It is a shame the survey upgrades are being decoupled, but this creates an opportunity for you to build a great relationship with your local surveyor.
Every home needs a survey and you must ensure you protect your client’s investment.