Surveyors who are down-valuing properties could derail the housing market, it has been claimed.
It is happening in London and the south-east where house prices have been steaming ahead, and case studies abound.
Mortgage broker Aaron Strutt, of Trinity Financial, said one property in Lewisham, south London, went to sealed bids and a price of £325,000 was agreed. However, the valuer for the buyer’s mortgage lender valued it at £295,000.
Peter Bolton King, global residential director at the RICS, said the problem arises because valuers use comparables. He said: “If property prices rise quickly, comparable evidence never catches up.”
In addition, lenders and surveyors are nervous: “When prices fall, as they did during the financial crisis, lenders’ first tendency is to sue surveyors for over-valuing. As a result, surveyors have to be very certain they can evidence the value they have put on paper.”
The story ran in the Telegraph at the weekend and drew some interesting comments.
An independent financial adviser said: “The biggest problem I have in arranging a mortgage is the valuation. Surveyors have taken common sense out of the equation. If someone is prepared to pay an agreed price on a property, that is the value – market forces, etc.
“It seems that the most important qualifications for a surveyor now are ignorance and incompetence!”
Another person commented: “Valuers now use such sites as nethouseprices for comparable evidence. The sales information on these sites lags real time by at least three months. Comparable evidence has to be produced in the event of a claim. Therefore valuations will lag real time by at least three months.”
Another said: “Surveyors putting some brakes on the housing market is a good thing.”
But this provoked disagreement, with another saying: “If several buyers are able to proceed at a certain price, the surveyor is wrong. A property is valued by the market, not a jerk in a suit.”
Meanwhile, the Mail ran a “housing hysteria” spread about the new levels of insanity in the housing market. There are – apparently – eight buyers for every seller and prices are rising by as much as £50,000 per month (honestly, do these reporters ever get out of London?).
Oh, and estate agents somehow get the blame for “exploiting the demand”.
The Telegraph link:
The Mail link:
Comments (17)
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Quiet a useful and interesting debate on a topic that is a perennial problem for all involved in a property transaction, as a down valuation effects the buyer, the seller and the agent.
It may also result in a chain of sales collapsing.
To apportion blame for the situation is difficult, as all involved have their own interests to protect.
The seller naturally wants as much as he can get, often in order to allow him to move on, particularly if going up-market or relocating to a more expensive area, which could be for employment.
The buyer may also have to move for a new job or could simply have fallen in love with the house he wants to buy, which may be near family, the right schools, his workplace, transport links, etc..
As the man in the middle the agent has to go along with the situation and to take instructions, perhaps from a greedy or over-ambitious seller, but at the end of day wants to achieve a sale and to give the right advice .
Market forces are all very well, but in all probability relatively unimportant in the long term. A house that is overpriced today may seem to be either cheap or dear within the next few years, but if the latter will eventually rise to that value and conversely prove an even better purchase when sold in years to come.
Down-valuations are frustrating, but not the end of the world although they may seem it at the time. The seller may be able to negotiate an on-going purchase and the buyer find a better property or one even more suited to his needs. However, this may not be possible and the most likely loser could be the agent if the seller looses faith in him and either de-instructs or withdraws his property from the market.
If Peter (Bolton) King knew anything much about the art of valuation, he would know that it depends almost exclusively upon comparisons.
His idea that market value somehow transcends any need to base itself upon comparisons is peculiar, the say the very least.
If he still avers that market prices can somehow run free, transcending all and any comparisons he misses the whole point of the use of the term market ‘value’. I therefore challenge him to debate this with me in public.
He will probably have heard of the saying ‘cash is king’. If so, I would venture to suggest that an interpretation of this phase could mean that if someone wants to pay more than the value based upon current comparables, that person should back his decision with his own cash and not expect to borrow the surplus form others. If he doesn’t currently have the cash, he ought not to consider bidding up the price.
Its a simple enough strategy but it does sort out the issues, and market ‘values’ would be meaningful once again.
I have replied to you already on another forum, Sir – so we might as well have the same argument here. As you have simply cut & pasted, I will follow suit:
You say “If Peter (Bolton) King knew anything much about the art of valuation, he would know that it depends exclusively upon comparisons as far as residential property is concerned.”
I say: “Then it isn’t an ‘art’ – it’s a simple mathematical exercise.
And if he knows “nothing much” about valuation, as you suggest – then why is he in the position that he is in at the RICS?
PBK has far, far better things to do than debate with you – public or otherwise.
Which, by the way, is a jolly lucky thing for you.
He would destroy you. Your atoms would be scattered across the universe.”
By the way – it’s my absolute pleasure to rubbish you twice.
Mortgage lenders are right to have independent valuations of the asset they are planning to use as security for their loans.
The valuers employed, and the valuation methods they use, are correct to use comparison sales as indicators to deduce current market value.
I would suggest that if market prices are accelerating at such a rate, in certain areas, that the historical evidence is itself out of date by the time valuers are using it, then the balance ought to be financed from cash owned by the applicant. If they don’t have that amount of cash or are unwilling to place it on risk, they shouldn’t be bidding in such a frenetic marketplace.
The main reason why the prices being negotiated are not true market prices is that the buyers involved are being deprived of sufficient and accurate financial information about the actual state of the market local to where the property concerned is located. Estate agents play an active party in setting this scenario up!
If ‘buyers’ had good and sufficient knowledge about exactly what prices are being paid for what properties in the vicinity, they would be in less of a hurry and instead be more ‘measured’ about the price they ought to be paying. Without this information, the fear of the risk of loosing tends to kick in and over-pricing is the final result; buoyed on by the selling agents’ main aim of driving prices ever upwards.
It is time certain things were done to change this. I would like to refer you, in particular, to my reasoned changes for the way houses ought to be marketed in the UK, especially leading up the the next General Election.
Unless this happens another house-price bubble, and the aftermath of chaos, will clearly be the end result.
So far this year we’ve had 25% of properties down valued but as yet not one sale has fallen through! Buyers are finding the shortfall.
Unfortunately web sites such as nethouseprices which we use regularly
rely on land registry data which in turn is dependent on solicitors
providing that very information.Until there is some form of pressure
on solicitors to register a completed transaction immediately there will
always be a time lag Over to you law society
I think part of the problem is that RICs surveyors provide a ‘valuation’ of a property. Non-RICs-qualified estate agents don’t. We provide a market appraisal, using previous sale prices as comparables but also taking much more into account the current buyers registered, the price they are willing to pay and the level of demand there will be for a property.
We used to groan when one mortgage valuer in particular was assigned by a mortgage company on mortgage valuation and had to work really hard to get it through. Others used a bit more common sense in an increasing market and based upon comparables that had exchanged contract, would approve a mortgage within 10% of that comparable.
The key really is the difference between a valuation and a market appraisal.
JM
This is not really about comparables and whether they are current, or not.
Whose heard of Loss aversion? People are basically loss-averse.
Inferring that estate agents should not get the blame for “exploiting the demand” as this article puts it is factually wrong. The thinking is demonstrably incorrect.
There are psychological activators at play here that are creating the misconception of increasing prices, which are being latched onto, primarily as a result of estate agents and the marshalling of asking prices by them working in league with sellers.
In simple language, the price levels which estate agents are negotiating are themselves false. They are not true market price levels.
They are ‘suggested’, or suggestive price levels which the buyer (who urgently needs new or different housing) is being persuaded to believe they would need to accept, in order to acquire the property.
In the most fundamental terms, all currently quoted prices are dependent upon the buyer having to borrow substantial proportions of the required funding. Therefore, this so-called ‘market price’ is essentially false, because it depends in its entirety upon the availability of the borrowed funding at very substantial levels or at a high proportion of the total sums involved.
After the 2008 financial crash, detailed research was completed by a psychologist called Professor Daniel Kahneman and his associates in America, into the way the human mind functions to make important decisions like house purchase. It has been discovered that we are all both vulnerable and fallible, where matters involving making life-long decisions like house purchases are concerned.
Something is actually going wrong with the way houses are currently being marketed by estate agents. It has needed a total re-think for a considerable length of time now, but agents have managed to continue pulling more and more wool over everybody’s eyes!
Someone needs to bring this problem into the public domain and to fully expose the anomalies. I therefore consider that doing this is making an important contribution and one which is urgently needed. Estate agents, or those who govern their methods ought to take serious cognisance of this right now.
Whilst a house price bubble would clearly be politically expedient, the main question is, is it advisable?
For more on this and an explanation of how to resolve it please refer to the Property Match (UK) blog
I do hope you copy and pasted that because other wise you have wasted your time typing pure and utter tripe yet again.
Not one point in reference to the article, a lot of complaining but no solutions to a problem that only exists in your head.
If brains were taxed, you’d be in for a rebate.
So you are rubbishing what Professor Daniel Kahneman and his associates in America are saying about the economics of human decision making then!
On what basis prithee?
LOL – go on, wardy! ;o)
Don’t kick Valuers too hard. Remember that most ‘scheme one’ reports for secured lending insist on the Valuer using and providing comparables. The problem here starts with the lenders preferred criteria for mortgage valuations and that needs to become significantly more sophisticated in order to overcome a problem which applies in both rising and falling markets