How should I deal with a down valuation?

by Readers Question

18:54 PM, 27th November 2013
About 7 years ago

How should I deal with a down valuation?

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How should I deal with a down valuation?

I operate in what I think is fairly straightforward way; buy a distressed property, add value, get a valuation, mortgage and then buy the next.

Recently I finished a 3 bed semi that I paid £60,000 for, I spent around £15,000 on the refurbishment and valued the finished product for around £100,000.

I let the property for £500 pcm and was hoping to get roughly £60-70,000 back on the mortgage.

When the valuation came back it was for £65,000 which left me a little shocked. I disputed the valuation and discovered from the tenant that no surveyor had been. When questioned they said a desk top survey had been done and that no visit was required and then backtracked when I pointed that they’d mentioned the decorative condition of the house.

A run down 2 bed terrace on the same street  was sold for £75,000 and coupled with the low purchase price of my own, appears to have provided the surveyor with enough information to give a valuation rather than actually go and conduct a proper inspection. This can’t be right surely?  How should I deal with a down valuation

Anyway the mortgage company isn’t for moving and are offering a loan of £39,000.

I’d be very interested to hear from any mortgage brokers or other landlords who have come across a similar problem and what they did about it.

Many thanks

Andrew


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Comments

Mick Roberts

9:12 AM, 28th November 2013
About 7 years ago

Shows what I know about the valuers knowing the LTV nowadays. 5-7 years ago, they was that busy, they din't have a clue.

I used to make valuers visually sweat with panic attacks with my ammo of comparables. I had one guy, I did 24 with the Woolwich in 2007, his secretary rang me, he was with me several days, she said 'Can u go a bit easier on him' I said What do u mean? She said he has never EVER in his life done as many in one day as he has with u. He came in the office shattered, sweating, had heart problems, it was hot weather as well I think. Trouble with me is, I'm fast in the daytime, most my houses within 100m 2mins of each other, & I'd had him following me between each one for speed & I'd worn him out, wun't let him stop for a drink, I'm terrible aren't I.

Mark Alexander

9:13 AM, 28th November 2013
About 7 years ago

Reply to the comment left by "Joe Bloggs" at "28/11/2013 - 09:08":

That's why it's always better to be helpful and provide the comparable evidence up front. Nobody enjoys admitting a mistake after the event and most will do their level best to justify their initial decision.
.

Neil Patterson

10:01 AM, 28th November 2013
About 7 years ago

Reply to the comment left by "Mick Roberts" at "28/11/2013 - 08:02":

Hi Mick,

I had a friend that was a Valuer and was told that they can vary by a maximum of 5% from the same comparables without further proof.

This was pre-credit crunch though.

Nick Pope

17:06 PM, 28th November 2013
About 7 years ago

I hesitate to raise my head above the parapet on this one but as a surveyor with over 40 years experience I can add a little to the debate. I am self employed and am not a staff valuer so have no axe to grind so far as lenders are concerned.

We are always in the firing line either from brokers who want us to value properties up so they can get their commission, from lenders whose attitude is very similar and from owners who have their own (often inflated) ideas as to value.

I simply value as close to market value as I can using the available comparable evidence. Since the recession this is effectively actual sales, completions for preference but exchanged contract sales are also good. With that backup we can also use agreed sales but only with caution and as a guide to current market conditions particularly when it is falling or rising - completed sales were usually agreed some months ago and they don't appear on Land Registry until a couple of months after completion.

Few people realise the hoops we have to go through to provide and record appropriate evidence or that the lenders audit a random selection of cases and require copies of full fieldsheets, photographs, details of comparables and, if appropriate, records of discussions with agents and other corroborating evidence for any property used.

I obviously cannot comment on any particular case but buy to let mortgages are always a bit of a mine field particularly so far as rental values are concerned because letting agents are wary of supplying full details of rent, length of lease etc. They usually hide behind the Data Protection Act whereas the information can be provided if they don't give any indication of the names of landlords, tenants etc.

Drive by and desk top valuations are a bit of a problem as we have no way of knowing the internal condition and can only assume average or similar to other houses in the area. I always prefer to inspect internally but brokers using packaging companies want to do the job for as little as possible as they normally pay the fees even if the deal does not go through.

As a landlord myself I agree that it is useful to meet the surveyor at the house to give him/her all the appropriate information (including a copy of the current lease if appropriate). I also know not to try to mislead any surveyor as any attempt to bulls**t will be recognised immediately - in 40 years I have heard everything and know exactly what to ignore.

I can say that I am always happy to review any valuation if the owner/applicant can supply solid evidence which I have not found and I have changed valuations many times in the past. This is now more difficult as the niche lenders in particular are difficult to persuade once a report has been submitted. Most of the main stream lenders have some type of formal grievance procedure.

Finally I am sure very few on this forum will have any idea of the cost of Professional Indemnity insurance which is required both by lenders and by our own professional body. If we make mistakes the costs can escalate to a point which is unaffordable so all surveyors are very careful to get it as right as possible in every case.

Mick Roberts

17:28 PM, 28th November 2013
About 7 years ago

Reply to the comment left by "Nick Pope" at "28/11/2013 - 17:06":

Ha ha, glad I din't meet u doing one of mine, you'd have spotted my bull straightaway.
I used to see the look in their eyes when I'd want top whack, but they had to be careful should repossession ever get to court & surveyor bought to book to prove why he gave that value, as some of us have heard in publicised court cases.

Joe Bloggs

17:29 PM, 28th November 2013
About 7 years ago

Reply to the comment left by "Nick Pope" at "28/11/2013 - 17:06":

its a shame valuers comparables arent disclosed to the borrower! if they were then maybe valuers wouldnt be making protection of their PII their no. 1 priority. their job is to establish the open market value, not undervalue.

Mick Roberts

17:43 PM, 28th November 2013
About 7 years ago

Reply to the comment left by "Neil Patterson" at "28/11/2013 - 10:01":

5% increase would be good if we're already at Max. We're selfish us Landlords aren't we when it comes to valuations, got to look after ourselves though, 'cause no one else does when it gets rough.
Ooh u posh lot, if I'd have took u out this week, you'd have NEVER entered my market even if u was thinking about it-Photo's & vid to be sent to mark next few weeks when I get time & stop commenting on this forum aaaahhhhh...................... give me more time someone please.

Nick Pope

17:54 PM, 28th November 2013
About 7 years ago

As to disclosing comparables I would have no problem with that and indeed many of the secondary lenders use brokers to package the deal. These lenders normally want the comparables listed on the form so they will see the comps anyway. There is however a drawback which is the owner who contends that theirs is a much better house and it's difficult to tell someone nicely that they live in a tip!

In any event most of the evidence is easing found.Actual sale prices are on the Land Registry site and can be cross referenced with the agents particulars on Rightmove or Zoopla. You can even see photos to get a feel of condition etc. Perhaps if more borrowers did some basic research before making an application there would be much time and money saved.

All too often a borrower "needs" £X so the estimated value is calculated in accordance with the lenders criteria with no regard to the market. This is when valuers get most wary as the risks are obvious in this scenario.

To confirm the information above the amount of lee-way on valuations is approx. 5% which is what courts will normally accept as a reasonable margin of error. For one-off properties this can be as high as 10%.

Joe Bloggs

19:35 PM, 28th November 2013
About 7 years ago

ive never been privy to valuers comparables. in fact the trend now seems to be that the valuation report is not disclosed even when the applicant pays a valuation fee; this is certainly my recent experience with virgin money. not sure how that is justified as i thought it had to be disclosed if it is paid for by the applicant.

Colin Childs

17:36 PM, 29th November 2013
About 7 years ago

Rental yield may be a contributory factor to a low valuation fas a BTL property as opposed to residential purchase. At a £100k valuation that's only a 6% gross yield. A 6% interest rate could well be equal to or less than the rate used by the lender in their calculations. Lenders may well also be erring on the side of caution given that you are obviously seeking to release notional equity.

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