House sellers: beware of undervaluation

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Written by Mark Burton
Know Your Money editor


Homeowners looking to sell or remortgage their property have been warned that surveyors may be routinely undervaluing homes by as much as ten per cent.

According to a study carried out by the National Association of Estate Agents (NAEA), surveyors valuing property at the request of a mortgage lender are commonly giving an estimate considerably lower than the agreed sale price, a practice which is causing a growing number of negotiations to collapse.

Explaining the reasons for this apparently habitual undervaluing, the NAEA explained that many surveyors may be trying to protect their own hides, fearful that the banks may sue them for attaching too high a price tag to a property, as has happened in the past.

Remember the 90s?

During the property slump in the early 1990s, the NAEA identified a similar problem to that reported by the group this week, where chartered surveyors were routinely knocking thousands of pounds off a property's assessed value because of a fear that they would be sued by mortgage lenders if they valued the property too high.

The problem arose because if a lender is forced to repossess a property, as is more common in a recession, it has grounds to sue a surveyor for negligence if the property sells for less than the assessed price.

Speaking to the BBC, Peter Bolton King, chief executive of the NAEA, said that surveyors may once more be worried that they will have to defend themselves in court if they are too kind in assessing a property.

"They are perhaps worrying about the market and almost deliberatively knocking off ten per cent almost regardless of what the property sold for," Mr Bolton King commented.

However, he added: "They are perhaps worrying about the market and almost deliberatively knocking off ten per cent almost regardless of what the property sold for."

A consultation with NAEA members has revealed that in several separate cases, mortgage lenders gave surveyors specific instructions on how they should value the property, Mr Bolton King claimed elsewhere.

The £20,000 question

Although homeowners may already be cautious about putting their property up for sale in a depressed market, those who have their valued by a mortgage lender may do well to take the same steps as Theresa Timms, and ask for a re-evaluation.

Speaking to the BBC, Ms Timms said that she felt the surveyor sent by the bank to value her home in Bridgend had been unreasonable in giving it a market price of £80,000.

"The valuer [then] came and said it was worth £100,000, but it was the same person that made the first valuation," she told the news provider.

But while Ms Timms may be congratulating herself on managing to dodge a £20,000 devaluation, figures from the NAEA suggest that across the country, many people may not have been so lucky.

A recent poll carried out by the group showed that 69 per cent of members have experienced difficulty with valuations after an initial sale has been agreed, while 65 per cent said that transactions had fallen through as a direct result of a low valuation.

Meanwhile, a further 86 per cent said they had seen prices renegotiated after the valuation.

An 'imperfect' system

Although it may be of little comfort to homeowners anxious about whether to put their home on the market, the Council of Mortgage Lenders has insisted that surveyors are doing nothing wrong, as they are 'duty bound' to offer only accurate valuations.

Meanwhile, a spokesperson for the Royal Institution of Chartered Surveyors (Rics), told the BBC that while the valuation system is 'imperfect', there has been no deliberate wrongdoing.

"There will be a range of valuations that the valuer will look at before they arrive at their opinion of value. That opinion of value could well be different from another opinion of value and could fluctuate over a period of time as well," said Rics spokesperson Barry Hall.

For those that fear they home has been undervalued by a surveyor working at the request of a mortgage lender, it may be worth investing in a separate valuation, while, as is the case in all home sales, seeking the counsel of a qualified legal professional is also advisable.

 

Read our new article 'What happens when your house is undervalued?' for further advice on this topic.

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