Renegotiating price due to down-valuation

themilkman

Hello,

We are 3 months into a house purchase and the bank has valued the house at 16% lower than the agreed price.

Since we agreed the price the market has changed somewhat, houses have not been selling, have had prices reduced and many withdrawn from the market. There is a house literally across the road also, which is twice the size of the one we're trying to buy, but is only 30% more expensive than our agreed sale.

Having spoken to 2 mortgage advisors and another estate agent (not involved in sale) they think we'd be absolutely crackers to proceed at the agreed price, and that the vendor would not receive any offers even close to that level if they put it back on the market.

The vendor himself had only bought the house last November, at the peak of the market, at the same price that we have agreed, but it appears he overpaid at the peak of a competitive market.

Now we don't feel comfortable paying such a high price in the current market state of which interest rates continue to rise, and property prices continue to drop.

Do you have any advice? Do you think the vendor would understand a negotiation at this point? (for reference, the vendor has now said they cannot move for a further 3 months, so this is not a gazunder).

Many thanks!

caprikid1

Why is he now selling ? Is this a forever house ? How much have you invested into the purchase ?

He may not be in a position to drop.

MultiFuelBurner

I suggest you pass back the valuation through your solicitor.

What would you be happy with 16% reduction or less?

Best to be upfront through your solicitors and put everyone in the picture.

Can you afford the house over the road at 30% more?

CSI_Yorkshire

themilkman said:

Now we don't feel comfortable paying such a high price in the current market state of which interest rates continue to rise, and property prices continue to drop.

That's the only bit of the post that's really important.

You are not comfortable with the price.  Ask for whatever reduction is required to make you comfortable, and if they say no, walk away.

themilkman

caprikid1 said:

Why is he now selling ? Is this a forever house ? How much have you invested into the purchase ?

He may not be in a position to drop.

He's selling because he's already completed on another house - bought both with cash - he is wealthy.

Invested around £3K so far probably, survey, solicitors, searches etc. I'm more worried about paying over the odds than the £3K!

themilkman

MultiFuelBurner said:

I suggest you pass back the valuation through your solicitor.

What would you be happy with 16% reduction or less?

Best to be upfront through your solicitors and put everyone in the picture.

Can you afford the house over the road at 30% more?

I'd probably be happy at paying 5% over-valuation, but not more.

The one across the road is a bit of a stretch though not completely impossible.

AlexMac

The very reasonable tone of your enquiry reveals an honourable qualm but unfortunately (for the vendor) a house is only worth what someone will pay for it.  So probably best to be honest with them, determine what your optimum new ceiling is, then put it to them with the evidence of your valuation and other local expert views.  They won't reasonably expect you to be able to afford the original price if your loan is now a lot smaller?

It's then up to them (and your negotiation skills); you can't start trying to guess their circumstances.

We once bought a very run-down seaside flat at the peak of the market, in mid 2007, before the housing price crash of 2008 brought reductions of 20-25% in vulnerable, low-income areas like the one that was in.  We were lucky to sell at just under £20k more, four years later.  And that was really a loss, given that we'd invested about £25k (and a helluvva lot of DIY) in a total renovation; re-wire, re-plumb, new boiler, new bathrooms and kitchen....  In fact, we got out ahead, as although we'd bought it as a holiday home, when we realised the writing was on the wall, we let it out to a really nice Bulgarian Family for a couple of years. 

But even if you do pay a little over the odds, you'll be OK if you love the house.  After all, it's a home, not an investment.  Although in practice, every other property I've bought has appreciated in line with or aheard of the market in the long term;  from
- the ten grand wreck in a then-slummy South London in 1975 (which Zoopla tells me has just sold at an eye-watering £1miilion+ in what is now a bijou street!)
- to the very average BTL we bought with the proceeds of the holiday flat.  That has almost doubled in value since 2011.

So good luck with the decison and subsequent negotiation.  

TheJP

You were comfortable to pay the price you offered until the bank said we think its value is lower. You valued the house at what you offered so can you make up the difference against what the bank can lend?

You mention a bigger house across the road is 30% bigger, the bank value the house 16% lower than your offer which leaves a 14% difference but if I'm honest how comparable is that with the house you want to buy? Have you looked at similar sized houses in the area and there sold price?

Sarah1Mitty2

themilkman said:

caprikid1 said:

Why is he now selling ? Is this a forever house ? How much have you invested into the purchase ?

He may not be in a position to drop.

He's selling because he's already completed on another house - bought both with cash - he is wealthy.

Invested around £3K so far probably, survey, solicitors, searches etc. I'm more worried about paying over the odds than the £3K!

Are you sure he isn`t just "wealthy" on paper, i.e highly leveraged and depending on property prices from 2 years ago? Buying in November and trying to sell now doesn`t sound like smart wealthy money to me (that money exited during the stamp duty holiday window IMO) more like a flipper who has just misread the market and interest rates completely.

Sarah1Mitty2

TheJP said:

You were comfortable to pay the price you offered until the bank said we think its value is lower. You valued the house at what you offered so can you make up the difference against what the bank can lend?

You mention a bigger house across the road is 30% bigger, the bank value the house 16% lower than your offer which leaves a 14% difference but if I'm honest how comparable is that with the house you want to buy? Have you looked at similar sized houses in the area and there sold price?

The bank is the expert, better to drop the offer if they say so, not throw more money down the drain.

themilkman

TheJP said:

You were comfortable to pay the price you offered until the bank said we think its value is lower. You valued the house at what you offered so can you make up the difference against what the bank can lend?

You mention a bigger house across the road is 30% bigger, the bank value the house 16% lower than your offer which leaves a 14% difference but if I'm honest how comparable is that with the house you want to buy? Have you looked at similar sized houses in the area and there sold price?

I felt it was a little overpriced but offered it because this is what he had paid last year. However, he bought at peak of market, and in the 3 months since the market has dipped hugely. Therefore yes I was happy to offer it, but I'm not anymore.

The other house is much bigger, much grander. Each house on the street is different, so it's hard to have a definitely hold on value.