Reports of homebuyers being caught out with supposed ‘down valuations’ are “questionable” according to the Royal Institution of Chartered Surveyors (RICS).
Chartered surveyors professional body RICS, has questioned the term down valuation amid the significant rise in properties being valued at less than what buyers have agreed to pay, reported by the BBC, as their members have to reflect market value in their reports.
Data provided by online agent Emoov, and backed up by reports from London & Country’s mortgage brokers, to the BBC suggests that one in five of its sales were down-valued at the valuation stage. This compares with fewer than one in 20 valuations two years ago.
A ‘down valuation’ is when a surveyor hired by the mortgage provider decides that the value of a property is at least £10,000 less than the agreed price. If the buyer can’t persuade the seller to lower their price, this can result in the house sale falling through.
Russell Quirk, Emoov’s chief executive, told the BBC that he thought surveyors were “simply covering their backs” and that the system “is built to protect them”.
However, a RICS spokesperson says that its surveyors are simply doing their job.
She says: “It is questionable whether the term ‘down valuation’ is an accurate reflection. A valuation report - carried out for the lender or bank - should be carried out by a RICS registered valuer who has a duty to report independently and accurately the market value.”
RICS explains that the market value is based on comparable market evidence, usually a minimum of three sales transactions of similar properties in the local area, and also the professional’s knowledge of the local market including “supply and demand dynamics”.
As a result, RICS says it is quite possible that the valuation for the lender - the market value - does not match an asking price for a property that has been set by the seller or agent.
Its spokesperson adds: “When house prices are falling or rising at a faster rate than typical, as they are in some areas of the country, or when transaction levels are perhaps not what they might be, surveyors have to be very certain they can evidence the value on paper and always strictly follow valuation guidelines in the RICS Red Book [its best practice guidance for members].”
David Hollingworth, spokesperson for London and Country, says that while he agrees with RICS’s comment that down valuations are ever present in the market, a change in the pace of growth can see the number increase as the market adjusts.
He says: “When the market flattens off a little and where transaction levels are lower, it can make it harder to pinpoint a likely value. It’s the surveyor’s job to make that call and report that to the lender, so they can be sure the security for the mortgage matches the purchase price. If there’s a shift in sentiment in the market then those valuations may appear to be more cautious than vendor expectation, particularly in a market that has seen strong growth in some regions.
“It’s really important to remember that it’s not just purchases that down valuation can affect - remortgaging is likely to be more prone to a mismatch in the homeowner’s anticipated value and the surveyor’s view.
“In the BBC report, we obviously agreed that we’d seen an increase in the number of down valuations for a variety of reasons, as above. I just want to be clear that we’re not saying that more than half of cases we see are down-valued – it’s very difficult to pinpoint hard data so it is anecdotal evidence of more reports of us seeing a higher incidence of down valuations. However, Emoov put the number at one in five being down valued."
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