Whenever I see mention of the term ‘down-valuation’ I can’t help thinking how this has been an ever-present bone of contention in my 35 years in the intermediary mortgage market, and yet it continues to be a misunderstood aspect of the housebuying process.
So it was with a wry smile that I recently read a report from the independent lettings and estate agency firm in London, Benham & Reeves, saying an estimated 390,285 UK homes had been down-valued by surveyors from those sold in the 12 months to April 2021. This is some 43% of all UK house sales found in the data reviewed, so not an insignificant number.
As an estate agent I learned the term ‘Caveat emptor’
My take-out from this contentious issue is that it reflects the poor articulation and promotion of the housebuying process, often by some professional participants who should know better.
Maybe the point when the official valuation takes place has been rather overlooked in the scramble to process healthy volumes of business, induced by a combination of chancellor Rishi Sunak’s tax relief bandwagon and the generosity of the Bank of England’s quantitative easing programme.
Professional appraisal
When the official valuation is carried out during a house sale transaction, it is the professional appraisal of the open-market value, usually held for a 90-day period and often carried out for the buyer’s mortgage lender, or indeed for the buyer independently if a cash transaction. Any reference to a value of the property before this point is largely conjecture, but often given by the vendor’s estate agent or from ‘research’ by the vendor themselves.
The problem for the two parties that then come together in the actual sale, and their agents or mortgage advisers, is that the term ‘value’ has already been used several times to both buyer and seller, either to establish an asking price for the property or in negotiating its actual sale, to the point that leads them to believe the agreed sale price is the official valuation. As a result, a lower official valuation is referred to, erroneously in my view, as a ‘down-valuation’, rather than a professional open-market valuation.
Maybe the point when the official valuation takes place has been rather overlooked in the scramble to process healthy volumes of business
Are we as an industry — be it mortgage lenders, conveyancers, estate agents or mortgage advisers — doing a disservice to our clients — be they buyers or sellers — in not fully referencing to them this key part of the transaction? Should we be more understanding of the prevailing market environment from which official valuations have to be derived?
Throughout the first two decades of this century the housing market has become far more dysfunctional in its operation, from the boom years of the early noughties to the credit crash of 2008, the five years of lower transactions and weaker prices that followed, and a few years of regained momentum until the Brexit withdrawal and Covid-19 pandemic both arrived in 2020.
In terms of actual housing transactions, in England these have never recovered from the pre-2008 period of between 1.2 million and 1.43 million. Only in five of the past 13 years since 2008 have housing transactions reached one million, according to HM Revenue & Customs. If we add the fact that, in each of the past four years, ‘net additional dwellings’, including a huge quantity of new-build, have exceeded 200,000, then this further underlines the relative fall in overall housing transactions in England. That the year to March 2021 just trickled over one million transactions owes much to government incentives, creating the artificial conditions in both the new-homes and second-hand markets.
Room for movement
Professional valuers have had a difficult path to tread and their room for movement in concurring with a valuation at the agreed sale price has sometimes been limited, in some regions owing to few contemporary comparables. Outside a small tolerance they must come to a professionally researched value, one they can support in any future claim from a mortgage lender, should it be necessary.
This has been an ever-present bone of contention in my 35 years in the intermediary mortgage market
If the official valuation is returned lower than the agreed sales price, it allows the purchaser a moment of reflection, often when under pressure from all to progress the transaction to completion.
I never studied Latin but I quickly learned the term ‘Caveat emptor’ when practising as an estate agent. So this key part of the housebuying process is one all buyers should take as their benchmark in deciding whether to pay over that mark for the property, or not.
James Chidgey is a housing commentator and former mortgage professional
