What happens when your house is undervalued?

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Many a bone of contention has been born out of property valuations. Whether it's because you're selling, re-mortgaging, seeking probate, trying to obtain collateral for other lending or anything else, there are lots of reasons why people have to have valuations carried out. The results can have significant effects on your bank balance and some of the biggest plans in your life.

Though there are things that evaluators can use to help them determine what a house is worth – like the size of the property and how much others around it have sold for – it is by no means an exact science. Inevitably, people often come away from the process feeling they've been hard done by. Know Your Money readers have told us of cases where they have been informed that the value of their houses falls tens of thousands of pounds short of what they expected. And in some cases they saw no good reason why this has been the case.

What could it mean?

If you were looking to sell your house and it is undervalued it might mean you are able to ask substantially less for it than you think it is worth. This in turn may mean you have less in the coffers for your new house and could mean you can't afford to move to your desired location at all.On the flip-side of this, if the house you are looking to buy has been undervalued but you are prepared to pay a higher asking price because you believe that the house is worth it, the bank might not give you the mortgage you need based on the valuation.

When re-mortgaging, it might mean that you can't get a deal that's been advertised which you feel you are perfectly eligible for; if you need to have a certain loan-to-value ratio to qualify but the valuation takes you outside of the margins, for instance. Then you'll be forced to go for something else that's more expensive. In addition, house evaluations aren't cheap. Depending on the lender, the company they choose to complete the evaluation and how much of the cost is subsidised, it can work out to hundreds of pounds. If the subsequent application is unsuccessful based on the outcome you could potentially have to pay another fee to get another valuation from a new lender and you might already have paid mortgage application and surveying fees as well.

Clearly, either of these outcomes would be a bitter pill to swallow.

In the difficult times following a loved one passing away, the convoluted probate system that needs to be carried out to settle their estate can be an extremely distressing experience. It can be made worse by an undervaluation which threatens to take away some of the inheritance that your family members have worked hard to provide.

Why does it happen?

According to the National Association of Estate Agents (NAEA), property valuation companies may have undervalued houses through fear of being sued by banks. If a bank has to reclaim a property it has lent against, based on the figures provided to it by an evaluator, and then can't sell it for that value, it can take legal action to try and recoup its losses. With the wounds of the latest ravaging recession likely to take a decade or more to truly heal and talk of a double-dip ensuring the risk of repossession is still very real for a good deal of home-owners, evaluators may still be erring on the side of caution now.

Another way you could lose out would be to trust advice from an untoward estate agent. It's fair to say that this particular profession doesn't exactly enjoy a shining reputation in the hearts and minds of the British public. While this is no doubt a case of a few rotten eggs soiling the name of the majority who practice with decency there's certainly those among them who play a few dirty tricks now and again. One area that they have come in for criticism is supposedly undervaluing properties in order to ensure a quick sale and get their mitts on a big wad of commission.

Sometimes it could be nothing malicious – simply irritating ineptitude on the part of the people that you are paying to do a so-called professional service. Some have claimed that the evaluators employed by lenders have little experience or standing in the parts of the country they live in and therefore make mistakes. And it's not like some of the high street banks don't have form in this department.

In the interests of objectivity, it is worth noting that the Royal Institution of Chartered Surveyors (Rics) stresses that all home valuation companies are 'duty bound' to only provide extremely accurate values.

What can you do?

• If you disagree with the decision from an evaluation company appointed by a lender you can seek to have your own, more thorough private valuation carried out. Provided the company you commission is registered with and approved by Rics, it is sometimes possible to negotiate with the banks and they have been known to relent on their earlier decisions. As alluded to earlier though, this could prove costly.

• There are specialist legal professionals who can pick up the fight for you. See the last sentence in the paragraph above for the potential barrier once again here though.

• You can ask Rics to study the situation if you think the valuator has not provided an adequate service and they will deem whether or not any further examination is necessary. If you think the banks have acted negligently you can complain to the Financial Services Ombudsman.

• Remember, we're in the digital age. This, coupled with our fairly recently introduced Freedom of information Act, means there's an awful lot of information readily available out there. Do your homework and try to develop as informed an idea as possible about what your house or the one you want to buy is worth before you act. You can take other house sales in your area or ones of a similar size to help you do this and don't forget to take any renovations and modifications you've made into account.

• Be wary about who you are listening to. In situations as complex as the housing market you might find you are pretty low down on the list of priorities when it comes to slicing up the pie. Wherever it is in your control to, ensure you deal with the companies that have only the very best consumer reviews, customer satisfaction levels and industry accreditation.

 

Click here to compare the latest remortgaging rates on Know Your Money.

Author: KYM Editor

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