Down valuations are a huge frustration to all parties in the home buying process.
With this in mind, we asked this week’s Marketwatch panel for their views on down valuations in the current market and how the industry can better work together to prevent deals collapsing.
We have reached an interesting point where brokers using the biggest lenders do not know if a human or a computer will value a property.
While the prospect of a free valuation on a purchase or remortgage is appealing, it’s not great if there is a down valuation.
Over the last few weeks we have had some massive down valuations, mainly in London and the South East, but increasingly across the country.
With more of the lenders relying on Automated Valuation Models (AVM) s and limited appeals processes, brokers are regularly re-placing cases [with another lender], rather than appealing, and they are often flying through.
If the property is down valued the broker is in a difficult situation, especially if the vendor is not willing to reduce the asking price.
They must explain to the client they will need to put more money into the deal or take a higher LTV product often at a more expensive rate.
Ultimately valuers are cautious in a challenging property market, and AVMs are relying on data that can be limited.
But different property valuation firms can be more cautious than others.
With so much going on in the market it is difficult to put a value on properties and comparable evidence can be difficult to obtain. It takes a lot of time for lenders to investigate down valuations so they often set strict rules to qualify for the appeals process.
While brokers appreciate the lenders are speeding up the mortgage process and reducing costs, we need some structured appeals process.
It is difficult to understand how a property can be down valued without a valuer visiting the property. Most clients would be happy to pay an inspection fee especially if the property was recently being renovated or extended.
BDMs are telling us we have reached the point where some brokers are calling them to ask which valuers they use before they submit a deal.
A down valuation can be very frustrating, particularly if it prevents a deal from proceeding, but it is worth remembering that a valuation surveyor has no bias.
Their job is to establish an accurate understanding of the value of the property that your client is buying and ultimately protect the lender, and in turn your client’s investment.
So, while it is frustrating, your client should be thankful for the surveyor’s advice if it
prevents them from paying over the odds, as this is actually the better customer outcome.
Any frustrations would perhaps be better directed at the unrealistic expectations that were set in the first place.
Vendor-driven prices are often the main reason for a property being over-valued.
A vendor may have a price they need to achieve in order to be able to afford their next dream home and often estate agents, who might be competing for the listing, proceed at inflated expectations.
There are a few agents that will over-value a property to win the listing and lock the vendors into a contract.
We have also seen examples of estate agents requiring potential buyers to be pre-qualified by their in-house mortgage advisers and then set the price of a property that fits their brief in line with their maximum budget.
For mortgage brokers, my immediate tip would be to stay in touch with the current market and be realistic.
You can’t change the value of the property, but you can help to set expectations early on in the process so that, when you do submit an application on behalf of your client, it is based on a realistic property value.
In the longer term, 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.
Down valuations are a problem that have frustrated advisers and clients alike for as long as I have been in the industry.
Although I am talking from a broker’s perspective, I have to play devil’s advocate and say that a down valuation is not in itself something that I feel is a problem.
A surveyor’s job is to protect the lender.
If they are an expert in the area and the property type and they feel, with strong rationale, that a lower valuation figure would be the accurate valuation on the property then this is completely fair.
Frustrations come in with the lack of consistency on valuations.
There seems to be an increase in an initial down valuation from one surveying firm, then, after a new application with another lender, a different surveyor visits the property for the new lender and values the property at a different figure. The difference here can be significant.
We had an example last week of more than a £100,000 difference between two surveyors on the same property.
This is what can really frustrate advisers and certainly the client purchasing the property.
It suggests that sometimes a valuation figure is down to an individual’s opinion rather than hard data.
One way the market could work better to help resolve this issue would be for a valuer to have the functionality to explain with more clarity and transparency the rationale for any down valuation.
Increased communication and interaction in this field would be well received by advisers, clients and, I feel, surveyors themselves would also benefit from this.
Strides have already been taken towards this in recent years, which has been great to see, but I feel we have a few more steps to go.
Technology will also help in this area of the market in the coming years. Technology can be brought in not to disrupt, but to assist all parties, and I expect this to happen in the next couple of years.