Valuations

caitchbee

In the process of doing the whole selling/buying thing.

Please could someone clarify the valuation process after an offer has been accepted. I assumed that someone would visit a property in order to determine what the property is worth. However we were told by our mortgage lender that actually they visit the property with the value of the offer in mind in order to determine if the house is worth what has been offered. I know technically the end result is kind of the same however with the margin of error it doesn't necessarily mean that an overpriced house will be picked up on the valuation.

Not sure I explained that very well. For example. Offer made for £250k even though house probably worth more like £230k (assume this is forever home and buyer is willing to pay more, although would obviously like to get house for less). Valuer goes in and says that, because £230k is within the margin of error, the house is worth £250k.

Is this how it works?

sten_super

I'm not an expert, but just been through this hoop myself.

The valuer does indeed value the house taking into account the agreed price; however only really in order to use this as an upper limit. In your example it's likely that the valuer would return to the lender with a valuation of £230k, and the lender would then only offer a loan of the agreed LTV on £230k, rather than £250k.

I'm sure that there's some 'rounding' of figures (so for example a valuer may think a house is worth £245k but give it a value of £250k if that's the agreed price) but I don't think it'd be as much as £20k difference.

Incidentally, don't assume that the valuer acting for the lender will actually visit the property; I'm 90% sure that ours was done without a site visit, as the report came back saying that the 1970s detached brick house that we're purchasing was Grade II listed!

spadoosh

A valuer isnt there to make sure your getting a good deal, thire there to make sure the bank can make its money back should you default on payments.

My parents recently purchased an office and theyre valuation was less than the selling price and therefore had to pay up a bigger deposit to offset what the bank might lose. eg. property bought for £150k only worth £100k they had to fork out the extra £50k.

Essentially they will only lend what they think theyll get back. In your situation the valuer would comeback and say its only worth £230k so would only lend that amoun minus LTV% so at best you'd be looking at a mortgage of £207k with a 10% deposit of £23k + the remaining balance of £20k so essentially a deposit of £43k would be need if your buying a house for £250k thats only actually worth £230k

housebuyer2

You only need a valuation if you are taking out a mortgage - and the valuation is for the benefit of the mortgage provider (not the buyer or seller). The purpose of the valuation is to assure the mortgage company that the loan is secured on something that is of sufficient value, such that in the event of default, they will not incur losses.

Valuers will often value the house at the same amount you offered, not because you got your offer spot on - but because they are saying to the lender, that on this offer, your loan will be secured appropriatly. They can value it less, but that is often because there is some damp that needs repairing or similar, in which case they recommend the mortgage co withold a certain amount of money until the remidial work is done.

I would be surprised if in the scenario you mentioned (assuming no structural issues) that they wouldnt value it at whatever you offer (as if someone is willing to pay it then surely that is its value!?)

Good luck

caitchbee

Thank you so much. I was wondering what the margin of error is because, even though £10k or £20k might not be a large percentage of the house value, given the large deposits necessary now, it can make a massive difference to the mortgage.

RenovationMan

Every house that I have bought have been valued at the purchase price. If you want to get a better idea of the real house value, you can pay a professional to do it or get a couple of estate agents in and pretend you are thinking of selling.

A house is only worth what someone is willing to pay. You are willing to pay £250k so that is what it is worth to you. Whether it's worth that to someone else is immaterial.

spadoosh

RenovationMan wrote: »

Every house that I have bought have been valued at the purchase price. If you want to get a better idea of the real house value, you can pay a professional to do it or get a couple of estate agents in and pretend you are thinking of selling.

A house is only worth what someone is willing to pay. You are willing to pay £250k so that is what it is worth to you. Whether it's worth that to someone else is immaterial.

Excluding their bank manager.

RenovationMan

spadoosh wrote: »

Excluding their bank manager.

Do people have bank managers anymore, especially ones that take an interest in individual customers?

ScotlandM

Hi all,
I'm asking this question as I've not fully understood your answers.

Say I offer 100K for a shed on a tiny plot of land. (Clearly not worth 100k)
Valuer comes around and goes back to the bank saying it is worth 10k
So now my bank would only offer a mortgage for 9k (90%LTV) and i would need 1k deposit for the mortgage and 90k to meet the offer?

If that's right... How much of a difference before the valuer says anything to a bank. I'm sure he won't care 5k either way for a house but do they have limits? Do they take into account house prices are(maybe) falling?

If there is a bidding war which increases the offer, does that effect the valuation? So the valuer comes and says a house is worth 125k but three people offer 125k, 2 offer 135k and the winner gets it for 140k. Would the valuer change from 125k to 135k?

I hope I've explained myself enough, thanks

spadoosh

No essentially they wouldnt. And they dont really have limits.

Bear in mind the valuer works for the bank so the bank is their only interest. They will value the property on what they feel they would get should the need arise, if they value a property at £100,000 and the offer is £100,001 you would have to find the extra £1. Most valuers are aware of the bid in place and value accordingly, its only really on 'problem' properties that you will get discrepencies between valuation and offer price.

Essentially if they value it at less than what you have proposed your walking on eggshells. you need to be overly careful with everything regarding that property.

Also the valuer only goes in after sale has been agreed so they dont necessarilly know about a bidding war.

RenovationMan

According to a financial advisor friend of mine, the mortgage companies are tending towards conservative valuations, under estimating property values to cover themselves. This was one of the reasons I set myself a 50% LTV target when all mortgage lenders require a maximum of 60% LTV for their best deals - better to over shoot than to undershoot.