When you start thinking about buying a new house, you’ll likely have a clear idea of budget and focus on viewing properties within a specific price bracket. When you find the ideal property and have an offer accepted, however, you may find that the price stated by the estate agent doesn’t match the lender’s valuation.
Unfortunately, significant variations between the two valuations are not uncommon. But why is this the case, is there a way to reduce the likelihood of this happening, and what should you do if faced with this scenario when trying to buy your dream home?
How an agent puts a valuation together
Firstly, let’s look at the process an estate agent uses to value a property. While the size and condition of the property will undoubtedly have an impact on the valuation, the agent will also take into account the local area, schools, transport links and other amenities. They also look at the value of similar properties in the area and consider the demand for such property types.
When it comes to the actual property, there are a whole range of features that agents will look for that add value. This could be everything from original fireplaces to a brand new kitchen or bathroom, while the age and condition of key items such as windows, boilers, and roof will all be taken into consideration. For leasehold properties, the time left on the lease and any service charges and ground rent will also have an impact.
Once the agent has all the information they need, they’ll prepare a valuation report for the seller to view which will include the suggested asking price.
How does a mortgage valuation work?
Once your offer has been accepted on a property, your potential lender will then commission a mortgage valuation to advise on the property’s value.
To achieve this, your lender will instruct a surveyor of their choosing to visit the property, normally within a couple of weeks of the process starting. This visit will likely take around 20 minutes, during which time the surveyor will look for obvious defects or damage that might affect the price, such as damp or clear structural issues.
They will then combine this with local information such as how much other similar properties have gone for, whether the property is at risk of flooding and the like in order to reach a valuation. The surveyor will then prepare a valuation report, usually within a few days of the visit. This will only be a few pages long due to the basic nature of the site visit and won’t include any information on potential maintenance or repair work needed.
Once your mortgage provider has received the report, they will be able to either confirm that your mortgage has been agreed or highlight any concerns with the original valuation. All being well, you should receive a mortgage confirmation within a couple of weeks of the valuation.
What is a down valuation?
The phrase ‘down valuation’ is often used to describe a situation where the lender’s valuer values the property at less than the agreed purchase price. Unlike the estate agent, the mortgage valuer must follow strict guidelines and methodologies using evidence of comparable property sales nearby to calculate a valuation figure. If they feel that the price is not supported by the evidence, then they will adjust their figure accordingly. This could mean that the property is over valued, or it could mean there is just no evidence of sales to support the price agreed. For this reason, down valuations are not uncommon. Research suggests the problem may have worsened in the past 18 months, with 46% of properties down valued since the start of the Covid-19 pandemic, rising to 59% in London. Economic uncertainty and the stamp duty holiday creating high demand, leading to higher offers, are just two reasons behind this.
What do I do if the lender’s valuation differs from the agent’s valuation?
Fortunately, you do have a few options should this happen. You can query the valuation with your lender, but this is unlikely to be successful. It is also possible to approach another lender, but there’s no guarantee the result will be different – you could even end up with the same surveyor revisiting the property on behalf of another lender.
You may receive a more positive outcome if you are willing to renegotiate with the seller. If the down valuation isn’t significantly lower and if they’ve progressed their own property search in the meantime, a reduced offer may be the quickest way to ensure the process keeps moving.
Your seller could, of course, refuse the lower offer and instead suggest you look to put more cash into the deposit or consider a higher loan-to-value mortgage, although the success of this will very much depend on your financial situation.
If none of those approaches work, you may not have any option but to pull out of the sale.
The Novello Approach
One way to mitigate this would be to get a market valuation before you put in an offer. Our market valuation service is carried out by independent RICS-qualified chartered surveyors. This will give you a fair price and you could even potentially shave money off the asking price by having an independent report to reference.
But whether buying or selling a property, you want the process to be as efficient and straightforward as possible and we’re on hand to give you expert advice and support through the buying process.