What would cause a house to be undervalued by mortgage?

natasha22

We viewed a house last week, on for 260, but the seller gave us a warning that they had 3 (!) Buyers fall through, 2 of which was due to the house only being valued at 240 so people were unable to get the full mortgage. 

We arent proceeding on the house because of various other concerns but i would be really interested to know what might cause that?
Obviously other than the seller being a bit enthusiastic with price

The price is a bit steep, but 240 is cheaper than pretty much all nearby properties of a similar size/beds

The sellers reported the initial survey was taken by a man who came to the house, the subsequent persons was simply either based on the first (this is what the seller believes) or a paper valuation. Our understanding was these were all mortgage searches rather than any of the buyers surveys.

davidmcn

natasha22 said:

240 is cheaper than pretty much all nearby properties of a similar size/beds

Are you looking at prices for completed sales, rather than just other asking prices (which might also never be achieved)? Surveyors will mainly be relying on the evidence from prices actually paid for similar properties.

AdrianC

natasha22 said:

We viewed a house last week, on for 260, but the seller gave us a warning that they had 3 (!) Buyers fall through, 2 of which was due to the house only being valued at 240 so people were unable to get the full mortgage.

Those buyers must have been very near the limit of their affordability, then.

If somebody's looking for (say) £220k borrowed on £260k, then they'll think it's 85% LtV, but if the lender thinks the property's only worth £240k, they'll regard it as 92%. If they're only willing to lend up to 90%, then that's where the problem starts.

We arent proceeding on the house because of various other concerns but i would be really interested to know what might cause that?

Simple. Because the lender doesn't think it's worth £260k.

Obviously other than the seller being a bit enthusiastic with price

The vendor wouldn't have been the only one. Three buyers obviously agreed.

The price is a bit steep, but 240 is cheaper than pretty much all nearby properties of a similar size/beds

So offer £240k. The lenders agree that it's £240k-worth...

The sellers reported the initial survey was taken by a man who came to the house, the subsequent persons was simply either based on the first (this is what the seller believes) or a paper valuation. Our understanding was these were all mortgage searches rather than any of the buyers surveys.

Yep. The lender may well commission their own valuation (or they may be happy to accept the same valuer as the buyer uses for their survey). And, at the moment, a desktop survey may well be used for fairly obvious reasons.

eidand

I would offer 240k max and leave it at that. They won't be able to get more if banks agree the house value is 240k tops. Sometimes people need to be realistic and not many will offer over over that, if any.

Mutton_Geoff

As I've mentioned before, just replace the word "undervalued" with "overpriced". Why do people take estate agent and vendors opinions of property values so seriously. The banks know from their professional experience what a property is realistically worth. By all means pay more if you really like a property, but do it with your own money, not the banks.

AdrianC

eidand said:

I would offer 240k max and leave it at that. They won't be able to get more if banks agree the house value is 240k tops.

Of course they might.

All the need is somebody who's a cash buyer, or who isn't up to the limit of their affordability.

If somebody only needs £180k mortgage, then that's the diffference between 65% and 70% LtV - which won't make any difference to interest rates.

eidand

AdrianC said:

eidand said:

I would offer 240k max and leave it at that. They won't be able to get more if banks agree the house value is 240k tops.

Of course they might.

All the need is somebody who's a cash buyer, or who isn't up to the limit of their affordability.

If somebody only needs £180k mortgage, then that's the diffference between 65% and 70% LtV - which won't make any difference to interest rates.

true, but if several buyers already pulled out that's a very good signal on what to expect. Sometimes one has to be realistic

AdrianC

eidand said:

AdrianC said:

eidand said:

I would offer 240k max and leave it at that. They won't be able to get more if banks agree the house value is 240k tops.

Of course they might.

All the need is somebody who's a cash buyer, or who isn't up to the limit of their affordability.

If somebody only needs £180k mortgage, then that's the diffference between 65% and 70% LtV - which won't make any difference to interest rates.

true, but if several buyers already pulled out that's a very good signal on what to expect. Sometimes one has to be realistic

The other way to look at it is that three people have so far been happy to pay £260k, so why wouldn't a fourth?

Scotbot

Mutton_Geoff said:

As I've mentioned before, just replace the word "undervalued" with "overpriced". Why do people take estate agent and vendors opinions of property values so seriously. The banks know from their professional experience what a property is realistically worth. By all means pay more if you really like a property, but do it with your own money, not the banks.

Not right now they don't, the banks are guestimating what will happen to prices like every one else. Unsurprisingly they are being bearish and down valuing based on steep price falls. I  would never pay more than the valuation but as to how accurate current valuations are time will tell.

Vestraun

I would offer the £240 max, you’ll be wasting your time otherwise as the buyer will he adamant they can get the extra but your bank won’t - better to sort now than wait until you’ve wasted valuation fees. 

eddddy

natasha22 said:

We arent proceeding on the house because of various other concerns but i would be really interested to know what might cause that?
Obviously other than the seller being a bit enthusiastic with price

  A mortgage company's concern is "if the borrower doesn't pay their mortgage, and we have to repossess, how much could we sell the property for, relatively quickly?"  That's what their valuer is assessing.

natasha22 said:

The sellers reported the initial survey was taken by a man who came to the house, the subsequent persons was simply either based on the first (this is what the seller believes) or a paper valuation. 

 Almost all mortgage lenders use the same 4 or 5 companies to do their valuations.

So it's very possible that the same valuation company was instructed to do both the first and second valuation. Having valued the house once, they won't send out their valuer again to value the same house again.  They'll just re-state the first valuation.

Some 'savvy' buyers might specifically choose a mortgage lender who uses a different valuation company, if they want to avoid that situation.