Undervalue House Sale

dansworth

Hi,

I've only just discovered that this may be an issue, so hoping someone can advise.

Essentially, a family friend is willing to sell me their house for £110k (I'm a first time buyer). However, the market value for it is probably higher. Recently, houses on the same street sold for £125k-135k, although these required no work whatsoever, and the house i'm planning on buying requires a new bathroom and kitchen. A house in 2014 sold for 95k.

I guess my question is, IF the surveyor values the house for £120k, but the seller has agreed to sell it for £110k, what are my options? Is it an issue? What do I do to resolve it - if I can?

For an easy life, could the surveyor just agree that £110k is the value?!

Appreciate any clarity around this!

Thanks

glosoli

It's not really an issue.

Banks work out the loan to value based on the lower of the purchase price or the valuation, in this case the £110,000.

It would however be an issue if you were buying it for £120,000 and it was valued at £110,000, as you would have to fork out an extra £10,000 on top of your deposit.

GDB2222

Is the family friend aware that his house might be worth more than £110k?

Tiners

glosoli wrote: »

It's not really an issue.

Banks work out the loan to value based on the lower of the purchase price or the valuation, in this case the £110,000.

It would however be an issue if you were buying it for £120,000 and it was valued at £110,000, as you would have to fork out an extra £10,000 on top of your deposit.

OR the vendor would have to reduce the price by £10,000.

OR vendor and buyer would have to meet in the middle

Strange how you don't even consider them as options

glosoli

Of course, just highlighting the differences either way.

AnotherJoe

dansworth wrote: »

Hi,

I've only just discovered that this may be an issue

It isn't

I guess my question is, IF the surveyor values the house for £120k, but the seller has agreed to sell it for £110k, what are my options? Is it an issue? What do I do to resolve it - if I can?

It's not an issue unless your friend is aware of / discovers the higher valuation and wants more money as a result

Other than that, and from your words it sounds as if the friend is knowingly selling it a bit lower to avoid hassle and fees, there is nothing to resolve.

dansworth

Ha, well this is reassuring!

Although 'buying at undervalue' does raise some alarm bells in Google though. I've got an appointment with my mortgage broker later, so hopefully he'll clarify.

Looks like there could be issues around some banks being cautious to lend as apparently, if a house is being sold and undervalued, if the seller is made bankrupt within 2-5 years of the sale, then the property may be seized and be held by the Trustee’s in bankruptcy.

I may be looking into things way TOO much, and we're talking smalls amounts (relatively).

Oh, and the seller knows he could get more for it. He's just doing a good deed.

Keezing

Chances are the surveyor will value the property at 110k.

My only other advice to you would be to make sure this truly is a "good deed". In my world, people don't just gift 5 figures to other people.

- Is it possible that the seller is aware of some problems with the house which make the true valuation closer to 110k?

- Could they not sell to someone else for 120k and gift you 10k cash so you have a bigger deposit and the flexibility to buy other properties?

- Is there any chance he could try to call in the favour in the future, e.g. turn up at your house and ask if he could stay indefinitely?

Just make sure you really want this property, and are not being pressured into buying it because you think you're getting a good deal.

eddddy

dansworth wrote: »

Looks like there could be issues around some banks being cautious to lend as apparently, if a house is being sold and undervalued, if the seller is made bankrupt within 2-5 years of the sale, then the property may be seized and be held by the Trustee’s in bankruptcy.

If your lender is worried about this, you can get Insolvency Act legal indemnity insurance.

dansworth wrote: »

I've got an appointment with my mortgage broker later, so hopefully he'll clarify.

In your position, I'm not sure that I would mention it. It's likely to open cans of worms unnecessarily.

I'd wait until the bank's valuer values it. I suspect they will just value it at £110k - because that's what you're paying.

davidmcn

dansworth wrote: »

if the seller is made bankrupt within 2-5 years of the sale, then the property may be seized and be held by the Trustee’s in bankruptcy.

Only to the extent that it was transferred at undervalue though. Hardly a concern if you're just talking about something within 10% of its open market value, would be different if you were being gifted the house.

borkid

Keezing wrote: »

Chances are the surveyor will value the property at 110k.

My only other advice to you would be to make sure this truly is a "good deed". In my world, people don't just gift 5 figures to other people.

- Is it possible that the seller is aware of some problems with the house which make the true valuation closer to 110k?

- Could they not sell to someone else for 120k and gift you 10k cash so you have a bigger deposit and the flexibility to buy other properties?

- Is there any chance he could try to call in the favour in the future, e.g. turn up at your house and ask if he could stay indefinitely?

Just make sure you really want this property, and are not being pressured into buying it because you think you're getting a good deal.

When we sold our last place we were selling to a couple. They thought they had a chain free buyer for their house. Sadly their buyer wasn't quite as honest as she should have been. Because we thought we had a short chain ie 4 we agreed a lower price at the offer stage , they knew why we did this. A couple of months down the line their buyer pulled out. We maybe should have returned the price to the original but we didn't. We liked the couple and didn't raise the price. Some people aren't out for all they can get they take other things into consideration.