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  • FIRST POST
    • ja3h
    • By ja3h 7th Jul 17, 11:58 PM
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    ja3h
    The Bank's valuation is 20% under proposed purchase price
    • #1
    • 7th Jul 17, 11:58 PM
    The Bank's valuation is 20% under proposed purchase price 7th Jul 17 at 11:58 PM
    Ok some context, myself and a sibling are extremely fortunate to be given a lump sum from a relative as an advance on inheritance to get us on the property ladder.

    My relative has a property for sale which my partner and I want to purchase, my relative has said that instead of a lump sum they will reduce the price on the property instead. When the sale has gone through my sibling will get the lump sum gifted to them.

    The problem is that the valuation has come in at 20% lower than I expected the original sale price to be. So in effect the discounted price is actually the valuation price.

    The bank is HSBC and they're using SDL surveyors. I know that valuations are often conservative, but I think that 20% must mean that the original price my relative wanted was more than it's worth.

    It's an awkward situation because I'm extremely grateful for the gesture towards my sibling and I. But I want it to be a fair one, where we both get an equal amount.

    I'm not too sure how to approach this, perhaps inviting some estate agents to value the property. The problem I have with that is, when I was helping my mother sell her home I had 5 different valuations ranging from 375k to 475k. In the end it sold for £395k but it was on the market for months before we decided to lower the price. I suppose this is the best thing to do.
Page 1
    • brit1234
    • By brit1234 8th Jul 17, 12:09 AM
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    brit1234
    • #2
    • 8th Jul 17, 12:09 AM
    • #2
    • 8th Jul 17, 12:09 AM
    but it was on the market for months before we decided to lower the price. I suppose this is the best thing to do.
    Originally posted by ja3h
    House prices are in a downward spiral, the bank has a right and duty tobe conservative in a downturn in house prices.
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    • Tiners
    • By Tiners 8th Jul 17, 6:11 AM
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    Tiners
    • #3
    • 8th Jul 17, 6:11 AM
    • #3
    • 8th Jul 17, 6:11 AM
    I'm not sure what the point of getting agents in to give a valuation is?

    You've already been given a valuation courtesy of your bank and the qualified chartered surveyor that they've used.

    It looks like your relative (who it appears wasn't doing you such a great favour after all) is going to have to reduce their asking price accordingly and then you base the split with your sibling on that revised figure of what your relatives property is actually worth rather than the pie in the sky aspirational figure that your relative obviously thought it was worth.
    • Mickygg
    • By Mickygg 8th Jul 17, 6:36 AM
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    Mickygg
    • #4
    • 8th Jul 17, 6:36 AM
    • #4
    • 8th Jul 17, 6:36 AM
    House prices are in a downward spiral, the bank has a right and duty tobe conservative in a downturn in house prices.
    Originally posted by brit1234
    Downward spiral?? Oh do shut up I can see from your previous posts you are a house crash wisher.
    • ScorpiondeRooftrouser
    • By ScorpiondeRooftrouser 8th Jul 17, 7:52 AM
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    ScorpiondeRooftrouser
    • #5
    • 8th Jul 17, 7:52 AM
    • #5
    • 8th Jul 17, 7:52 AM
    "Seeing as we are related I'll help you out. I'll sell you this £10 note for £10. I could get £12 for it from anyone else."


    This is what has happened. Now, there are two possibilities.


    1 - Your relative was not aware of this. they do genuinely want to help you out, so will drop the price to £8.

    2 - They knew exactly what they were doing and will refuse.

    There's nothing to talk about. The ball is in their court. They drop the price, or you walk away from it. If they don't drop the price, the only thing to feel awkward about is that your relative made a ham-fisted attempt to swindle you.
    • Thrugelmir
    • By Thrugelmir 8th Jul 17, 8:00 AM
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    Thrugelmir
    • #6
    • 8th Jul 17, 8:00 AM
    • #6
    • 8th Jul 17, 8:00 AM

    The problem is that the valuation has come in at 20% lower than I expected the original sale price to be. So in effect the discounted price is actually the valuation price.
    Originally posted by ja3h
    Is that the amount you applying for as a mortgage?
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
    • buglawton
    • By buglawton 8th Jul 17, 8:52 AM
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    buglawton
    • #7
    • 8th Jul 17, 8:52 AM
    • #7
    • 8th Jul 17, 8:52 AM
    If the relative isn't living in the house then capital gains tax will probably have to be paid. Any gift of property will also have to be valued scrupulously by a surveyor as it's seen as a potential death duty if the relative dies within 7 years of gifting. There are guides online to all this, print one out to show the relative that a fair valuation cannot be got around.
    • thecoffeehouse204
    • By thecoffeehouse204 8th Jul 17, 9:15 AM
    • 165 Posts
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    thecoffeehouse204
    • #8
    • 8th Jul 17, 9:15 AM
    • #8
    • 8th Jul 17, 9:15 AM
    As far as I know surveyors will rarely value the property more than the purchase price so if you had been buying it at the full market price the valuation probably would have come back as that value so don't be too concerned about thinking you're getting a bad deal.
    • ja3h
    • By ja3h 8th Jul 17, 9:37 AM
    • 9 Posts
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    ja3h
    • #9
    • 8th Jul 17, 9:37 AM
    • #9
    • 8th Jul 17, 9:37 AM
    Thanks for the responses!

    So I'll just use figures now as the percentages are getting confusing. Initially we were told/thought that the property is worth £600k. We had agreed to buy it for £500k under that assumption and pending valuations etc. The valuation has come back and as it's a leasehold maisonette with under 70 years left on the lease it's been valued at £450k, with the bank telling us it is valued at £500k with an extended lease. My relative is in the process of extending the lease at the moment.

    Is that the amount you applying for as a mortgage?
    Originally posted by Thrugelmir
    Yes, we were told it would be worth £600k so got a mortgage for £500k. As the advanced inheritance was £100k.

    I'm not sure what the point of getting agents in to give a valuation is?

    You've already been given a valuation courtesy of your bank and the qualified chartered surveyor that they've used.
    Originally posted by Tiners
    I've read online that valuations are conservative, and sometimes they can be a bit under market value? So if I get an estate agent in and they value it at £520k or £550k then maybe I try to pursue buying it from them at £430-450k.

    I know that they're not trying to give me a bad deal, I think that the estate agents they got in 4-5 months ago overvalued it in order for them to go with that particular estate agent. When my partner and I let them know we were interested they took it off the market straight away as they'd rather see it go to family. It's been in limbo for a long time because my relative has been dealing with land registry to get the freehold sorted out.

    As far as I know surveyors will rarely value the property more than the purchase price so if you had been buying it at the full market price the valuation probably would have come back as that value so don't be too concerned about thinking you're getting a bad deal.
    Originally posted by thecoffeehouse204
    As I mentioned above, with the short lease they valued it at £450k and only with the lease extended they value it at £500k. Could the bank value it a whole £100k under what the expected market value is?
    • ja3h
    • By ja3h 8th Jul 17, 10:04 AM
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    ja3h
    "Seeing as we are related I'll help you out. I'll sell you this £10 note for £10. I could get £12 for it from anyone else."


    This is what has happened. Now, there are two possibilities.


    1 - Your relative was not aware of this. they do genuinely want to help you out, so will drop the price to £8.

    2 - They knew exactly what they were doing and will refuse.

    There's nothing to talk about. The ball is in their court. They drop the price, or you walk away from it. If they don't drop the price, the only thing to feel awkward about is that your relative made a ham-fisted attempt to swindle you.
    Originally posted by ScorpiondeRooftrouser
    I know they wouldn't intentionally want to do this, but you're right - this is what has happened unless the bank valuation is out.
    • Thrugelmir
    • By Thrugelmir 8th Jul 17, 11:24 AM
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    Thrugelmir
    Could the bank value it a whole £100k under what the expected market value is?
    Originally posted by ja3h
    Market value is subjective. As it is only what someone might pay for a property not actually will. Perhaps try a couple of different EA's now and see what their view is.

    What's the issue with the Freehold?
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
    • AdrianC
    • By AdrianC 8th Jul 17, 11:55 AM
    • 15,468 Posts
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    AdrianC
    So I'll just use figures now as the percentages are getting confusing. Initially we were told/thought that the property is worth £600k. We had agreed to buy it for £500k under that assumption and pending valuations etc. The valuation has come back and as it's a leasehold maisonette with under 70 years left on the lease it's been valued at £450k, with the bank telling us it is valued at £500k with an extended lease. My relative is in the process of extending the lease at the moment.
    ...
    Could the bank value it a whole £100k under what the expected market value is?
    Originally posted by ja3h
    Very easily!

    So - right now, the bank's surveyor says it's worth £450k with a 70yr lease. It must be borderline unmortgageable with a lease that short, anyway, so you're ahead of the game.

    BUT... That's not actually what you'd be buying, is it? Your relative is extending the lease before purchase. So what you'll be buying is the property with a long lease, which the surveyor agrees will be worth £500k.

    What mortgage amount have you actually applied for? What LTV? A £450k mortgage on a £500k property would be 90%, £475k would be 95%. If you've applied for a £500k mortgage, then that would be 100%, and that ain't going to happen...

    Remember, the lender want to know they're not lending money against a total pup. If they have to repossess, they need to know that they've got a reasonable chance of selling the place for enough to clear what you owe them. If it sells for less, you still owe them the difference...

    The £600k figure has clearly been plucked from somebody's chuff.
    • andrewjb3
    • By andrewjb3 8th Jul 17, 12:02 PM
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    andrewjb3
    If you apply for a mortgage, and say you're paying 600k, and they're happy it's worth that, the mortgage valuation will say 600k. If they're worried about the short lease, they might take 50k off for that.

    If you apply for a mortgage and say you're paying 500k, they'll be very happy with that. And the valuation will probably say 500k. But its a short lease, so they take off the same 50k to get 450k.

    So.. if the valuation you're getting is just for mortgage terms, it might not be a 'real' valuation. It's just the mortgage surveyor agreeing that it's worth [at least] what you're paying for. It's common that the valuation just happens to match exactly what you're offered to pay for the property!
    • ja3h
    • By ja3h 8th Jul 17, 12:21 PM
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    ja3h
    Market value is subjective. As it is only what someone might pay for a property not actually will. Perhaps try a couple of different EA's now and see what their view is.

    What's the issue with the Freehold?
    Originally posted by Thrugelmir
    The issue was the share of the freehold was incorrect, the ground floor flat had the previous owner on as the freeholder, not the current owner that bought it 10 years ago. This has been resolved now.

    What mortgage amount have you actually applied for? What LTV? A £450k mortgage on a £500k property would be 90%, £475k would be 95%. If you've applied for a £500k mortgage, then that would be 100%, and that ain't going to happen...

    Remember, the lender want to know they're not lending money against a total pup. If they have to repossess, they need to know that they've got a reasonable chance of selling the place for enough to clear what you owe them. If it sells for less, you still owe them the difference...

    The £600k figure has clearly been plucked from somebody's chuff.
    Originally posted by AdrianC
    Applied for a mortgage of £500k. We've been saving for a while now and we're intending on buying a place this year anyway so we have a good amount of deposit, the LTV is 79%.

    If you apply for a mortgage, and say you're paying 600k, and they're happy it's worth that, the mortgage valuation will say 600k. If they're worried about the short lease, they might take 50k off for that.

    If you apply for a mortgage and say you're paying 500k, they'll be very happy with that. And the valuation will probably say 500k. But its a short lease, so they take off the same 50k to get 450k.

    So.. if the valuation you're getting is just for mortgage terms, it might not be a 'real' valuation. It's just the mortgage surveyor agreeing that it's worth [at least] what you're paying for. It's common that the valuation just happens to match exactly what you're offered to pay for the property!
    Originally posted by andrewjb3
    Ok, I get what you mean but, if let's say the property is worth £600k, and it has a short lease - why wouldn't the bank think, it's got a short lease but it's worth £600k so let's give them their £500k mortgage? Why did they decide to go £50k under what we wanted to borrow instead?
    Last edited by ja3h; 08-07-2017 at 12:26 PM.
    • AdrianC
    • By AdrianC 8th Jul 17, 12:25 PM
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    AdrianC
    Applied for a mortgage of £500k. We've been saving for a while now and we're intending on buying a place this year anyway so we have a good amount of deposit, the LTV is 79%.
    Originally posted by ja3h
    Not at a £500k valuation, it isn't... That's a 100% LTV mortgage.

    £500k borrowed with a 79% LTV would mean a purchase price of over £630k. If you've got that £130k deposit, then you only need a £370k mortgage for a £500k purchase price - or 74% LTV.

    Ok, I get what you mean but, if let's say the property is worth £600k, and it has a short lease - why wouldn't the bank think, it's got a short lease but it's worth £600k so let's give them there £500k mortgage? Why did they decide to go £50k under what we wanted to borrow?
    Simple. The lender don't think it's worth £600k...
    • ja3h
    • By ja3h 8th Jul 17, 12:35 PM
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    ja3h
    Not at a £500k valuation, it isn't... That's a 100% LTV mortgage.

    £500k borrowed with a 79% LTV would mean a purchase price of over £630k. If you've got that £130k deposit, then you only need a £370k mortgage for a £500k purchase price - or 74% LTV.

    Simple. The lender don't think it's worth £600k...
    Originally posted by AdrianC
    Whoops, we're borrowing £395k - £105k is our own deposit towards it.

    Yeah, the lender must not think it's worth £600k.
    • AdrianC
    • By AdrianC 8th Jul 17, 12:47 PM
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    AdrianC
    Whoops, we're borrowing £395k - £105k is our own deposit towards it.
    Originally posted by ja3h
    OK, so the only question is over the LTV - and that's well within normal bounds. Just under 80%.
    Even if you can't persuade the vendor that £500k is a realistic figure, you've got some scope for movement. If you were to pay £580k, borrowing £475k, the bank would view that as 95% LTV against their £500k value.

    Yeah, the lender must not think it's worth £600k.
    Well, yes. You know that - you told us that they think it's worth £450k with a short lease, £500k extended. That's precisely what their valuation is for.
    • sheff6107
    • By sheff6107 8th Jul 17, 2:56 PM
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    sheff6107
    Remember your relatives will never be able to sell it to anyone other than a cash buyer if that's the valuation.
    • ja3h
    • By ja3h 8th Jul 17, 3:32 PM
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    ja3h
    Thanks for the responses, I've reached out to Purple Bricks who will be over tomorrow. I'll sit down with my relative tomorrow to talk everything through.

    I've found these properties in the same area and a similar size (995² ft). Our property needs attention to the sash windows (flagged on homebuyers report), no garden and it needs a new kitchen:
    (I can't post links)
    - £585k - rightmove/house-prices/detailMatching.html?prop=54580228&sale=54769025&co untry=englan
    - £540k - rightmove/house-prices/detailMatching.html?prop=57111814&sale=89675325&co untry=england
    - £575k - rightmove/house-prices/detailMatching.html?prop=58267165&sale=89915106&co untry=england

    Then there is this on the market for £615k - zoopla/for-sale/details/44061198
    • Tiners
    • By Tiners 8th Jul 17, 4:09 PM
    • 223 Posts
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    Tiners
    ''reached out''... Someones been watching too much of The Sopranos.
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