When a homeowner sells their property, the first thing they do is find out how much it’s worth. Most people invite several estate agents to visit their home and conduct a valuation before fixing an asking price they feel comfortable with.
When you accept an offer on your home, if the buyer requires a mortgage to buy the property, the lender will conduct their own valuation. In this guide, we’ll explore what to do if the house valuation is less than the offer.
What Is a “Down-Valuation”?
If your buyer’s mortgage surveyor values your home for less than the offer you have accepted, the difference between these two figures is the down-valuation.
For example, if you accept an offer of £200,000 but the mortgage surveyor values the property at £180,000, you have received a £20,000 down-valuation.
How Common are Down-Valuations?
In 2018, the BBC reported that down-valuations were at their highest rate since the financial crash of 2008. Digital estate agent Emoov said that one in five of its sales resulted in a down-valuation.
Some property experts are predicting a rise in the number of down-valuations over the coming months as valuers and lenders struggle to predict future prices in an increasingly uncertain economy.
With the end of the transition period for Brexit looming on 31 December alongside COVID-19 and recession, lenders are likely to become more risk-averse. Although the UK housing market is currently booming, most industry insiders are predicting a drop in prices before too long. It is impossible for valuers to know how much a property will be worth in a few month’s time so they may be more inclined to play it safe and give a modest valuation. A surveyor must be able to evidence their valuation on paper because they can be sued for overvaluing a property by the lender. During uncertain times, surveyors are more likely to undervalue a property to reduce the risk of being sued several years down the line if a lender feels they have incurred losses because the property was overvalued.
When Do I Find Out About a Down-Valuation?
Unfortunately, down-valuations only arise when a house sale has already progressed some way, which is why they can be so problematic and often result in delays, lost money and failed sales.
Although a buyer generally has a mortgage in principle in place prior to making an offer, they won’t apply for a mortgage until after a sale price has been agreed. The mortgage in principle gives an indication of how much the buyer might be able to borrow — which gives peace of mind to the buyer and the seller — but it is not a mortgage agreement. Once an offer has been accepted, the buyer will have to start the mortgage application process which can take between 18 and 40 days to complete. During the current spike in house sales, mortgage applications may take even longer as lenders and surveyors struggle to keep up with demand. A down-valuation will only come to light when the mortgage surveyor has valued the property.
You could be almost two months into your house sale when the discrepancy in property valuations comes to light, which is why a down-valuation can be so problematic for both the buyer and the seller.
Why is a Down-Valuation a Problem?
Down-valuations can result in a failed sale.
If your buyer’s mortgage provider values your property at a lower price than the accepted offer, this will affect the amount of money they are willing to lend. This is because the size of the mortgage available to a buyer is a percentage of the purchase price or the lender’s valuation — whichever is lower. When a property is valued at less than the agreed sale price, the loan-to-value (LTV) ratio effectively increases. The higher the LTV, the more reluctant lenders are to approve a mortgage because it is deemed to represent greater risk — LTVs over 75 per cent are considered high risk by most lenders.
If your buyer can no longer secure the mortgage they need to purchase your property, they will be forced to pull out of the sale.
What Can You do if Your Property is Down-Valued?
When a property is down-valued, the buyer will have to find a new mortgage lender or pay the difference between the down value and the selling price. If neither of these is an option — or the new mortgage lender also values the property at less than the agreed price — the buyer will have no choice but to pull out of the sale. Some lenders will also allow a borrower to appeal their valuation.
As the seller of the property that has been down-valued, you have several options to consider:
- Find Another Buyer — if your buyer has to pull out of the sale because they cannot secure the mortgage they need, you could wait for another buyer to come along and hope that their lender does not also down-value the property — or that if this does happen again, the new buyer is in a position to make up the difference. As you will have already gone through a considerable chunk of the sales process with the initial buyer, delaying the sale further may well not appeal.
- Wait for the Buyer to Find a Solution — if the buyer expresses a desire to resolve the problem — by applying to a new mortgage lender, finding additional funds from other sources or appealing the lower valuation — you may decide that it will be easier and cause less of a delay to wait for them to find a solution to the problem.
- Renegotiate the Sale Price — the buyer may try to renegotiate the sale price to cover the difference between their offer and the valuation provided by their lender. If you’re part of a chain and have your heart set on buying another property, it might be worth forfeiting some of the proceeds on your current property to avoid losing your dream home.
- Sell to a Quick House Sale Company — if you can’t afford to delay the sales process or start again from square one, a quick house sale company can help you sell your house in line with your preferred timetable. Whether you need to relocate in a hurry for a new job or don’t want to lose out on buying a new property, House Buyer Bureau can provide a simple, hassle-free and fast service. We can complete the entire sales process remotely. All we need is a little information from you and we’ll take care of the rest. We have the funds to buy any type of property in any location and can offer completion in as little as seven days — once you have accepted our formal offer, the sale is guaranteed!