It has been quite evident that the practice of ‘down valuation’ or valuing a property below than expected and agreed price is increasing in the UK. Especially, London it is quite visible. As a result, home buyers face shortfall of mortgage that a double-sided effect. Firstly, they get loan approval for quite less amount than expected. Secondly, they have to face a lot of mental stress and tension during the transaction. Experts say that the practice of undervaluing is not only in London or other big cities, but it is spreading in the whole country rapidly. In spite of property prices increasing in the range of 30 percent per year, down-valuation seems to be a common practice.
How does it affect?
Property valuation is the backbone of money lending process. That is the reason lenders heavily depend on the correctness of it. For borrowers, it is the reference point for borrowing money from the lenders. Hence, a low-valued property leaves a borrower in a big shortfall of funds. He or she can’t get sufficient money, and alternate sources have to be explored.
For example, if a buyer agrees to purchase a property at 300 Thousand GBP by taking 80 percent of it as a loan amount that comes out to be 240 Thousand GBP. If the surveyor undervalues it to 250 Thousand GBP, then the loan amount drops to 200 Thousand GBP. It creates a backlog of 40 Thousand GBP in the loan amount that the buyer has to spend on his own. If he wishes to borrow the same, then the Loan-to-Value or LTV rises and subsequently interest rates also.
It is a common practice according to brokers
If you talk to the brokers, they will say that it is a common practice in the country. Since there is always a fierce competition for homes in the UK, and there are more bidders than the availability. If the valuation is correct, then brokers can place it in a better way. However, if a property is undervalued, then they have to go the seller and ask for a negotiated price. In the situation where a seller isn’t ready to negotiate, the brokers have to start from the square one, and there is a loss of fees and other money incurred in the process. There is a heavy legal cost as well. As a result, property prices rises further high. Thus, there is a cascading effect of it.
There are situations when a property prices, keeps on rising in the market as more people visit and admire the quality. However, mortgage surveying company of a buyer undervalues it, and the process stop there. Experts feel that it sometimes happens because surveyors are not able to gather substantial evidence of comparably increased prices and they undervalue it. In a “falling price” scenario, buyers sue them for marginally overvalued prices as well. As a result, they are not ready to take the risk of overvaluing and want to play safe by valuating a property conservatively. They don’t want to put any evidence against them, and a valuation statement is the biggest one.
What if your property is under-valued?
Undoubtedly, it is an irritating and troublesome experience. As a seller, you will not be happy because the money is calculated less. As a buyer, you don’t feel comfortable with the slash in the mortgage amount. What is the way out? Should you leave the idea of buying or selling a property? Here are a few things that may help greatly.
If you don’t digest a figure, then challenge it
You need to inform the lender about the comprehensiveness of the valuation. If you feel that the valuation was not done by looking at each aspect of the house, then the valuator must be called once again. Today, many lenders reject a valuation upfront if they feel the valuation undervalued. Even the cases with undervaluation increasing more than 25 percent can be rejected by them.
You must keep in mind that lenders do not entertain the requests for appeals. Hence, it is important that the valuation is correct for the first time. When buyers have evidences of comparable prices of the similar properties in the adjoining locations, it becomes tough for them to reject the appeal. It is required that clients approach them with sufficient artifact. A thorough homework helps in pleading the case strongly. For example, house price index of comparable properties in the similar area can play an important role in strengthening your case.
When you are totally dissatisfied with it, go for a revaluation
As per experts, subjectivity is involved in surveying a property. It isn’t a mathematical calculation where addition of two and two is always four. Moreover, it depends on the perspective of the calculation as well. An estimate based on the current market value of a property may differ from an absolute minimum value obtained by a forced sale. Therefore, the final figure may always vary when you get the same property surveyed by a different person. When the mortgage rates go up following a valuation, sellers seek opinion from some other expert in order to get another viewpoint. Of course, there is an extra expense associated with it. Sometimes, the other surveyor charges a premium price also. However, the overall benefit achieved in the end compensates it. There have been incidents where a property agreed to be sold for 350 Thousand GBP valued at 320 Thousand GBP. When the sellers took a second opinion, they got it valued at exact 350 Thousand GBP. Since some surveyors want to be a little bit conservative, they value it pretty low.
High availability of properties and fewer customers is as dangerous as low availability and more customers. Both situations are undesirable. If you have a low-valuated property in such situation, then there is a further difficult situation. Look at the valuation part thoroughly and take any of these steps and arrive at an amicable conclusion. It is good for the buyer, the seller, and the broker as well!