You’ve accepted an offer on your home and already found the home of your dreams. Things seem to be going great. But then your buyer contacts you to inform you that their mortgage lender thinks your home isn’t worth the agreed-upon price.
They’re even considering backing out of the purchase. This is called a down valuation, and it can be a scary situation. Don’t panic though, there are steps you can take to keep the process moving.
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What is a down valuation?
A down valuation occurs when the surveyor employed by the mortgage lender to assess the property’s value believes it is worth less than the agreed price.
For example, if an offer of £200,000 was accepted but the surveyor only values the property at £180,000, then the property has been down-valued by £20,000.
As a result, the lender may reduce the amount they are willing to lend or decline to lend altogether.
How are mortgage valuations done?
The way a mortgage valuation is performed varies from lender to lender. A few lenders undertake full valuations conducted by an independent surveyor.
Others conduct drive-by valuations, where the valuer just views the property from the road. Some do desk-based valuations and do not even visit the property.
Valuations take into account several factors, including the size of the property, its amenities (e.g. number of bedrooms, office or garage), and its condition.
Additionally, they look at the local market, including the sale price of similar properties in the past 6-12 months, and the current supply and demand in the area.
Why would a property be down valued?
There are various reasons why a property may be downvalued. During periods of high property demand, downvaluations commonly occur.
This is due to a high number of buyers, causing the market prices to rise. Surveyors also base their valuations on the price your home could potentially sell for in more relaxed market conditions.
If you have set an overly high asking price, or have overvalued home improvements such as newly fitted kitchens or garden renovations, a downvaluation may occur.
If the surveyor finds any structural issues or your property is deemed to be ‘risky’ (for example, constructed using non-standard materials), then this could also lead to a downvaluation. Lastly, if there is a lack of data on the sale prices of similar homes in your area, this could also result in a downvaluation.
How often do down valuations happen?
Down valuations are common. According to research by Bankrate UK, almost half of all properties (46%) have been downvalued in recent years.
Those in the £400,000 to £500,000 price range were particularly likely to experience a down valuation. In most cases, the reduction was relatively minor, between £5,000 and £10,000. But one in four buyers faced a down valuation of between £10,000 and £20,000.
In extreme circumstances, the property was down-valued by as much as £240,000.
Can you negotiate after a down valuation?
Yes, you can still make changes to the sale price as long as you haven’t exchanged contracts yet. Once contracts have been exchanged, the agreed sale price is legally binding.
If your buyer receives a down valuation, they may try to renegotiate the price with you. It’s the first thing they’re likely to do.
What can you do as a seller if a down valuation happens on your home?
If your home’s value has decreased, don’t panic. There are still some things you can do. Here are a few steps to consider:
- Ask the buyer to try a different lender. Different lenders use different valuers and various valuation methods, so the current buyer could get a different result if they apply to a different lender. A mortgage broker can often tell you what type of valuations different lenders do.
- Accept a lower asking price. Although you won’t be happy to lose out on thousands of pounds, it might be worth accepting a lower asking price if it would enable the sale to go through. This is especially true if you are in the process of buying your next home and have already spent money on surveyors’ and solicitors’ fees.
- Split the difference. If you can’t shoulder the full down valuation alone, try negotiating with your buyer to see if they would be willing to split it with you. As they have already invested a lot of time and money into buying your home, they are likely to be just as eager as you for the sale to be successful.
- Fix the problem. If the down valuation has been caused by a structural issue or something similar, you could look into getting it fixed. This may take some time, though, and could result in you losing your current buyer.
- Consider indemnity insurance. Indemnity insurance is a one-off payment and lasts for decades. It can cover things like building work done without planning approval, outbuildings in areas with a restrictive covenant forbidding them, or liability for chancel repairs.
- Find a different buyer. Different mortgage lenders use different values, so if your new buyer applies to a different lender, they may get a valuation that is closer to the sales price. Additionally, if house prices are rising in your area, a new valuation a few months down the line may also be higher.
Down valuations can be a pain, but it’s possible to find a way forward with the buyer that allows the sale to go ahead.
What should I do after down valuation?
As a seller, there are a few options available if you've received a down valuation.
- You can seek out a cash buyer who won’t need to get a valuation done after you accept their offer.
- You can also find a different buyer and lender who may be willing to value the home according to what you think it’s worth.
- It may be beneficial to address the reasons behind the down valuation and invest in improving those areas, which could result in another more favourable valuation.
- Lastly, be open to negotiating on the price to get the deal done.
Similarly, as a buyer there are a few strategies you can use to work around a down valuation.
- You can get a new valuation from another surveyor or renegotiate the price to match the valuation.
- You can also look into taking out a loan for the down valuation amount or increasing your deposit so you can get a smaller mortgage.
- Understandably, this isn’t always an option for everyone and may require dipping into savings.
Can you challenge a surveyor’s valuation?
Some mortgage lenders do give you the chance to appeal the valuation. However, to be successful you will need to provide evidence to support why you disagree with the valuation, rather than simply because it is lower than you would have liked.
An example of evidence you could use to back up an appeal is records of prices for similar properties in the local area that have been sold in the last 6 months.
Mortgage valuation higher than offer
At times, a mortgage valuation can be higher than the offer that has been accepted. However, these are uncommon occurrences, typically seen in investment deals where the property is being sold at a price that is lower than the market value.
A great benefit of having your mortgage valuation exceed the offer is that it is kept private and you don’t have to inform the seller about it. If the seller were to be aware of the higher valuation, they would likely increase the price to match the valuation.
Another advantage of having a mortgage valuation that is higher than the offer is that your mortgage lender will not have any issues with granting you a mortgage for the property, which will make the process of acquiring a mortgage much smoother.
Mortgage valuation lower than offer
When you receive a mortgage valuation that is lower than your offer, it is called a down valuation. This can cause a lot of complications, as a mortgage lender will not want to approve a loan amount that is higher than the actual worth of a property.
This is because it involves taking on a huge risk, without any assurance of recovering the money.
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