An increase in down valuations – Myth or fact?

An increase in down valuations of property by surveyors has been all over the news recently, with some even accusing surveyors of ‘prophesising’ a price crash!

What is a Down Valuation? 

A down valuation is when there is a difference between what a buyer has agreed to pay for a property and the mortgage valuation provided by the surveyor commissionedby the lender.   This ‘down valuation’ can lead to a sale falling through if the buyer is not able to raise the shortfall between the amounta lender is prepared to lend and the price they have agreed to pay (see our separate article regarding survey types for more information on mortgage valuations).

Comparable Evidence

Data provided to the BBC by online estate agent, Emoov and backed up by London and County Mortgage Brokers has reported down valuations have affected 1 in 5 of their sales, up from 1 in 20 just 2 years ago.  They claim that down valuations are at the highest level since the financial crisis in 2008 and this is a symptom of surveyors ‘covering their backs’.  Combine this with a recent rise in interest rates and tighter lending criteria and there is a fear that it could lead to more potential buyers finding it difficult to secure a mortgage.

In response to the report, a spokesperson for the The Royal Institution of Chartered Surveyors said: “The market value is based on comparable market evidence, on a number of sales of similar properties in the same area, combined with professional knowledge of the local market.  For this reason, it is very possible for property to sell for less or more than the valuation.”  We have mentioned in our previous posts – July House Price Stats, about the trend for over-valuations possibly fuelling a rise in price reductions and initial over valuation of property coming on to the market may also be a factor in a perceived increase in down valuing.  This article on the RICS website, explains their position in more detail

Double protection

RICS registered Independent Chartered Surveyors and Valuers have a duty to provide independent, and, importantly, accurate information to their clients (remember, in the case of a mortgage valuation, their client is the lender). The surveyor must make sure they can provide evidence to back up the value they give the property.   Providing an accurate ‘market value’ safeguards the mortgage provider against loss by stopping them from lending too much against the property.  It is important to remember though that it also protects the buyer from borrowing more than the house is worth which can lead to negative equity.

So – what can be done protect against down-valuation?

When a mortgage valuation comes up at less than the agreed sale price, this is not good news for either the buyer, the seller or the agent and it can cause the sale to fall through completely which is a costly and frustrating business to all concerned. As a buyer, property websites like Zoopla and Rightmove have made it much easier to carry out your own ‘comparable evidence’ research into house prices to make sure you are not agreeing to pay too much for a property at the outset.  For us, this also, once again, highlights the importance of realistic and accurate valuations at the outset.  Thankfully, we are not seeing the same degree of down valuations in our area but this does not negate the need for reliable and honest advice from a local agent. For more information on buying and selling or to arrange a (realistic!) valuation of your property – contact us or pop into one of our branches for a chat.