HOUSE SURVEY V MARKET VALUE DON’T GET IT 😣

princeofpounds

The OP's original thread is here: https://forums.moneysavingexpert.com/discussion/6168928/ex-partner-buying-me-out#latest

A relevant part they are leaving out is that the three estate agent's valuations were pre-Covid, and the surveyor's valuation was post-Covid.

OP, as I stated previously, all valuations are an opinion. You and your ex had tentatively agreed a figure. His lender disagreed. Given that the lender is coming up with most of the cash, their opinion dictates your ex's ability to transact based on the tentative initial price - their opinion become a rule. Not surprisingly, not only has his ability evaporated, but his willingness to do so has also evaporated given his lender is telling him he may be overpaying. So you don't even have agreement between vendor and buyer any more, let alone the lender. 

The lender's valuation needs to be equal to the purchase price of the property, not just the mortgage amount. If the required mortgage is 270k and the valuation is 270k, there is no equity in the house. The lender has no margin of protection if they have to sell the property to recover their money, and will take losses if the price dips. Mortgages are designed to be very low risk for lenders, that's why they can charge under 2% per year for them. They need that confidence. 

If selling at 300k, the valuation needs to be 300k, and the mortgage amount on offer will probably be maximum 270k (90%), or maybe less in the current climate, assuming your ex has the income to support it.

Or, if selling at 270k ,the valuation needs to be 270k, and the mortgage amount on offer will be 243k. With a valuation at 270k, the bank is basically saying we will lend 243k max.

Once again, you have three ways forward
- Agree to meet his/the lenders valuation
- He finds a different lender with a different opinion of valuation
- Or you sell it on the open market and see what the real market value is.

There is nothing particularly odd about a ~10-15% different in opinions on valuation when the market is so uncertain. The lender's solicitor is, at some level, responsible to his client for his valuation, so they can be a bit cautious at times like this - they will not only be thinking about properties that sold for 300k in February, they will be thinking about what this property might sell for in August, which is a very different world. This is not an exact science, not remotely, even when they surveyor is using a RICS-approved methodology to value the property.

In more normal times, surveyors tend to be a bit less cautious. If they think the market is creeping up as normal, and the buyer hasn't offered a silly price, they just value it at that offer and it's all very straightforward. That's why the situation you are in is not that common. But it does happen from time to time. Normally we tend to see it here where an enthusiastic first time buyer has been suckered into overpaying for a new build, or someone is trying to buy in a recession and prices are coming down (like now).

Moneyravingexpert

eidand said:

Moneyravingexpert said:

eidand said:

in the end it's the bank's valuation that will matter because not many will cover the difference with their cash.

So why wouldn’t we all just go from what the lenders are asking for? The EA’s said these are often different. Thanks for your reply! 

Because we don't know what the lender will value it at. 
First stage is to get an offer. To get an offer you need to have a value in mind that you're happy with. Sometimes sellers ( myself included ) have to readjust their expectations depending on overall situation. This is why, for example, I called 3 EAs, asked them to give me a valuation and I took an average of that.

Once you start looking at the market in your area, look at what's sold, their state, location etc then you are starting to have a good idea of what something is worth.

If the bank, later comes and says, sorry we think your property is worth  X not your X + 25k, then you have a choice to make. Many people, especially now, won't be able to cover the high deposits plus whatever they need to pay over a bank's evaluation, so at that point you, as a seller, have a choice to make. Drop it to match the evaluation or keep trying to sell for more, to someone who can afford it.

It's not simple at all, basically.

Your last bit cracked me up!! It’s not simple at all basically hahaha ok so I think I have a last question. 

My ex had this valuation done as part of an advance with the current lender. Could this valuation be different from a selling perspective or most likely be the same? 

Moneyravingexpert

princeofpounds said:

The OP's original thread is here: https://forums.moneysavingexpert.com/discussion/6168928/ex-partner-buying-me-out#latest

A relevant part they are leaving out is that the three estate agent's valuations were pre-Covid, and the surveyor's valuation was post-Covid.

OP, as I stated previously, all valuations are an opinion. You and your ex had tentatively agreed a figure. His lender disagreed. Given that the lender is coming up with most of the cash, their opinion dictates your ex's ability to transact based on the tentative initial price - their opinion become a rule. Not surprisingly, not only has his ability evaporated, but his willingness to do so has also evaporated given his lender is telling him he may be overpaying. So you don't even have agreement between vendor and buyer any more, let alone the lender. 

The lender's valuation needs to be equal to the purchase price of the property, not just the mortgage amount. If the required mortgage is 270k and the valuation is 270k, there is no equity in the house. The lender has no margin of protection if they have to sell the property to recover their money, and will take losses if the price dips. Mortgages are designed to be very low risk for lenders, that's why they can charge under 2% per year for them. They need that confidence. 

If selling at 300k, the valuation needs to be 300k, and the mortgage amount on offer will probably be maximum 270k (90%), or maybe less in the current climate, assuming your ex has the income to support it.

Or, if selling at 270k ,the valuation needs to be 270k, and the mortgage amount on offer will be 243k. With a valuation at 270k, the bank is basically saying we will lend 243k max.

Once again, you have three ways forward
- Agree to meet his/the lenders valuation
- He finds a different lender with a different opinion of valuation
- Or you sell it on the open market and see what the real market value is.

There is nothing particularly odd about a ~10-15% different in opinions on valuation when the market is so uncertain. The lender's solicitor is, at some level, responsible to his client for his valuation, so they can be a bit cautious at times like this - they will not only be thinking about properties that sold for 300k in February, they will be thinking about what this property might sell for in August, which is a very different world. This is not an exact science, not remotely, even when they surveyor is using a RICS-approved methodology to value the property.

In more normal times, surveyors tend to be a bit less cautious. If they think the market is creeping up as normal, and the buyer hasn't offered a silly price, they just value it at that offer and it's all very straightforward. That's why the situation you are in is not that common. But it does happen from time to time. Normally we tend to see it here where an enthusiastic first time buyer has been suckered into overpaying for a new build, or someone is trying to buy in a recession and prices are coming down (like now).

Hello there! Firstly thanks for linking my post as I’m useless with this stuff!  I’ve had x1 valuation done today 310k im getting a couple more lined up which we may need to revisit. 

What my brain isn’t quite clicking with- is let’s say it does go to open market and I don’t know someone offers 305k when they get the valuation done on this property as part of their mortgage application won’t it just come back in as 275k and then basically it’ll be back to square one? Or does the valuation change based on a further advance versus someone buying? Thank you for your articulate explanation. 

davidmcn

There shouldn't really be any difference in methodology in how the valuations are being carried out.

But do the estate agents doing these valuations know the purpose to which they are being put? As others have already said, agents have a habit of making ambitious estimates of values in the hope of getting people to sign up with them to sell. Even if they're told it's a valuation for a split, they might not want to lose face and admit their other estimates are inflated.

Moneyravingexpert

davidmcn said:

There shouldn't really be any difference in methodology in how the valuations are being carried out.

But do the estate agents doing these valuations know the purpose to which they are being put? As others have already said, agents have a habit of making ambitious estimates of values in the hope of getting people to sign up with them to sell. Even if they're told it's a valuation for a split, they might not want to lose face and admit their other estimates are inflated.

Alright David! Why don’t lenders care about me! Me! Me! 🤪 you know what this is a mine field. I’m asking for all your advice here and my ex doesn’t even know if it was a mortgage valuation they came and did or a house valuation and I haven’t even seen the copy of it either! I absolutely know EA have a habit of over marking so I’ve knocked 10k off the one I had recently - but if they all know what houses are selling for that must count for something. I’m confident we could sell for 300k BUT if their lender comes back and says the same as 275 then it’s a problem. I’ve said based on selling with the EA as that’s what I’d like to know if we were to go to market. It’s a classic case of wanting a straight answer yet it all seems to be so subjective! Thanks for your words! 

steampowered

Moneyravingexpert said:

I’m not sure what my brain isn’t getting you know. I thought let’s say I was a buyer and loved this house at 300k I know I’d need a 10% deposit as a minimum which mean I need 270k. I then thought as long as the valuation was over this and says it’s worth that all good and well. I’m being too simple here. 

This is not correct. The bank doesn't care whether the buyer paid £200k or £300k or £300 million for the property.The bank looks at the transaction from the perspective of whether the value of the property is sufficient to enable the bank to get repaid in full, if the borrower was to default.

If the bank's valuer reckons the property is worth £270k, the bank will NOT lend £270k. The bank will probably only lend a maximum of £243k (being 90% of the value of the property). 

Everything you have been saying about deposits and the like is totally irrelevant. At the end of the day, you have two different opinions as to the value of your house - the EAs think it is worth £300k, the bank thinks it is worth £275k. That's quite a large difference - but EAs tend to be optimistic whereas banks tend to be conservative, so you can understand why they have slightly different opinions.

You could split the middle and agree a value of £287.5k, or you could get another opinion from a different RICS valuer.

Moneyravingexpert

Thanks so much for your explanation! I might propose that figure and see why he thinks. I do know he feels the 275 is low so that may be a good compromise! Take care.