The problem surrounds surveyors getting involved in the house buying process, when after a sale price has been agreed with the vendor, a lender requests confirmation of whether the property is really worth it.
If the surveyor believes the buyer is offering too much, they will often ‘down value’ the property, leading to headaches for brokers caught in the middle.
The phenomenon peaked in at the end of 2008, with valuers identifying more than half of cases in England and Wales as being optimistically estimated, but since then the trend has gradually fallen to just over 20 per cent across most of the country.
As surveyors base their decisions largely on so-called “comparable evidence” - such as recent sale prices in the same area for similar properties - if property prices rise quickly the comparisons will struggle to keep pace; resulting in miscalculations.
In May, the latest Office for National Statistics house price index showed borrowing continued to soar, as the price of an average UK property jumped 9 per cent in 12 months.
Richard Sexton, director at e.surv chartered surveyors, said it’s a perennial issue for brokers seeking the best deals for their clients.
“When a valuer reports a figure that doesn’t fit a particular product, it’s understandable that this generates frustration – but the reality is that these are really over estimates,” he stated. “There are two dynamics at play, valuers advising lenders in arm’s length fashion regarding their level of risk, with no vested interest in the transaction, and advisers who are looking to meet certain product criteria.”
He stated the number of occasions this occurs is low – circa 20 per cent of remortgage cases – and in most instances it does not prevent the application proceeding.
“They also never occur on purchase cases where there is clear evidence of an open market transaction versus ‘hope value’. However, the proportion grows when the expectation of value growth outstrips real price growth, something which is perhaps occurring right now,” noted Mr Sexton.
“In all the years I have done this job I have never had a surveyor own up to making a mistake.” Michelle LawsonAndrew Montlake, director at Coreco, agreed that often most of the issues come when an owner thinks their property is worth far more than it actually is, where a remortgage is concerned.
“That said, the problem with down valuations is that some valuers are not prepared to engage in a proper conversation around the decision, which can be a subjective one. There are more than a few occasions when supporting evidence can be found but valuers refuse to engage and that is the frustration.”
Michelle Lawson, director and adviser at Lawson Financial, commented that valuers seem to be “the untouchables” of the industry.
“I have seen a down valuation for £1,000 which, in my mind that kind of figure is in negotiation, but it can make a difference on the product. That’s where we get involved, because we can’t justify this lack of sense when LTV is tight.
“In all the years I have done this job I have never had a surveyor own up to making a mistake. I had it happen on my own buy-to-let purchase recently too; it makes me question their judgement sometimes,” she added.
Fiona Haggett, UK valuation director for the Royal Institute of Chartered Surveyors, said if a surveyor’s valuation disagrees with the estimate provided by a broker or property owner in the event, “then this is not down-value per se, but the surveyor has in fact protected the lender and the buyer from risk by ensuring the loan is advanced on the basis of a professionally derived and correct valuation”.
She admitted that accurate market valuations do sometimes vary from the opinion of brokers or owners, mainly in the remortgage market, but occasionally in a property sale.
“This is to be expected and only demonstrates the ongoing need for a robust valuation process overseen and regulated by RICS, without which the lending industry would be exposed to massive and unknowable risk.”
As one of the areas most affected by rising property prices, London and the south east is seeing particular pressure on purchasers to bid higher and higher, according to Ash-Ridge Private Finance mortgage consultant Jane King.
“As a result I see many clients who have offered over the odds (either by sealed bids or direct offers) only to find that when the valuer does his job the property down values.
“I probably have one down valuation every six months which I appeal, however my experience is that this is a waste of time, as to convince a valuer to change his mind is almost impossible, because it means he/she is admitting the original opinion was incorrect,” added Ms King.
peter.walker@ft.com
