How to avoid a down valuation

When property markets are buoyant – such as they are now with a stamp duty holiday and the rush to relocate – asking prices are often matched or even exceeded, especially if there’s a bidding war between buyers. News published in autumn 2020, however, sounded a note of caution for purchasers determined to secure a property, at whatever cost.

The saying ‘a property is only worth what someone is willing to pay for it’ is only true up to a point – and that point is when a surveyor carries out a mortgage valuation. During a mortgage valuation, a surveyor will check if the property is worth what a buyer has agreed to pay for it.

The danger of down valuations

Today’s trend shows a worrying number of down valuations – when the surveyor thinks the price the buyer is paying is too much. In fact, Bankrate UK found 46% of purchasers buying in the last six months had the property they wanted to buy down valued by their chosen mortgage lender, with homes valued between £400,000 and £500,000 subject to the most down valuations. The average down value was by roughly £11,666 but the gap was reported to be as much as £240,000 in the greatest discrepancies.

If the price agreed is way over what the surveyor thinks the home is really worth, the mortgage lender could choose to reduce the amount of money it loans or retract the mortgage offer altogether. If this happens, the buyer has to either make up the shortfall, negotiate a lower purchase price with the seller or withdraw from the transaction.

Which valuations are the most reliable?

Both buyers and sellers rely on an accurate valuation to keep their transaction on track. You may use an instant valuation tool on an estate agent’s website at the start of your journey and although this is satisfyingly speedy, it merely gives you a flavour of what a property could be worth. 

Often described as a ‘ballpark figure’, an online instant valuation is an estimate created from broad averages and will not reflect the size, condition and location of an individual property. For the most accurate valuation, you’ll need a local estate agent with a successful track record in the home’s neighbourhood. A valuation that’s conducted within a property so the agent can see everything first hand is the best place to start. The figure noted from the visit will be married with current data – what similar properties are selling for and the strength of buyer demand – to settle on the most accurate value.

How can I avoid a down valuation?

If you’re a seller, it’s always best to choose a personally-recommended estate agent with a strong reputation in your local area. They will value a property using current sales figures, recent sold prices and area-specific knowledge. It’s also wise to obtain valuations from three different estate agents so it’s clear who may be over valuing. 

Buyers can identify if they’re offering over the odds by researching house prices of similar properties. Analysing sold prices is very important, as many house price indexes that make the press reflect asking prices and it’s unusual for the final price paid to mirror what the property was originally advertised for. Start by asking local estate agents for recently sold examples and Land Registry’s house price data is freely available online, showing final selling prices. For a guide on real-time values, purchasers can search for properties for sale on the leading portals and note down the asking prices of ones that are similar to what they want to buy.

Why is my insurance valuation much lower than my mortgage valuation?

Many home movers confuse a mortgage valuation with an insurance valuation. An insurance valuation is almost always lower than the price a buyer paid for a property as it merely reflects how much it would cost to rebuild the dwelling like-for-like. It does not reflect the value of the land a home is built on or any premium that may hike the value, such being near a good school or in a private road, for instance. 

If you would like an accurate appraisal of a property you wish to buy or sell – one that is in line with current values and won’t leave you exposed at the mortgage valuation stage – please get in touch.