Down valuations: what they are and how to navigate them – House Buyer Bureau

Whether you’re selling your beloved family home or parting ways with an investment property, the process can be both exciting and nerve-wracking.

But what happens when the valuation of your property throws a curveball? Enter the mysterious “down valuation.”

Panic not! Chris Hodgkinson, Managing Director of property buying company House Buyer Bureau has a great perspective on why they happen and what you can do about them.

So What Is A Down Valuation?

A down valuation occurs when the surveyor, who is tasked with assessing your property’s market value, decides it’s worth less than the price you’ve agreed with your buyer.

For example, imagine you’ve agreed a sale price with your buyer of £250,000. But the surveyor swoops in and declares that in his opinion your property is only worth £225,000. Cue the dramatic music!

Why Do Down Valuations Happen?

Chris says, “The two biggest drivers of a down valuation are either a mortgage lender having a cautious view of the property market, or sellers and estate agents being overly optimistic about the value of a property – perhaps because it’s been extended or renovated. Valuing a property is a tricky business, and many surveyors will argue that they aren’t down valuing, just giving a property it’s accurate valuation!”

Cautious Lenders and Market Jitters. In 2023 we saw a noticeable slowdown in property price growth and this, combined with rising costs of living made lenders more cautious about how property prices will change in the future.  This feeds through to the surveyors they get to assess properties for mortgage lending purposes.  Chris adds “In 2024 we expect the market to stabilise and new mortgage lending rates to reduce which could lead to lenders being more optimistic in values”.

Property Overestimation: Sometimes, sellers just get a tad over-optimistic. They believe their renovations have transformed their humble dwelling into a desirable des-res. Alas, the surveyor doesn’t share their enthusiasm.

So, When Do I Find Out About A Down Valuation?

Unfortunately, you don’t tend to find out until fairly late into the process as the dreaded news arrives during the mortgage valuation process. Your lender (the bank or building society) insists on this valuation to ensure the property aligns with the agreed sale price. Brace yourself—it’s like waiting for exam results.

What Happens When I Get a Down Valuation?

A down valuation usually isn’t great news for either the buyer or seller. 

Buyers’ Dilemma: If you’re the buyer, a down valuation can throw a spanner in the works. Suddenly, the lender says, “Hey, we’ll lend you less than you thought.”

Sellers’ Woes: As a seller, your heart sinks. Your eager buyers may have to rethink their offer or worse, they may pull out altogether. Your sale teeters on the edge.

How Much Are Homes Usually Down Valued By?

Chris says, “Reported figures aren’t always easy to find, but previous analysis suggests down valuations typically hover around the 5% mark, but we’ve seen them as high as 10%. So, for a £250,000 house that is £12k-£25k less than you hoped for.”

Down Valuation Advice for Buyers and Sellers

Chris’ advice is to stay calm and follow one of the following routes:   

1. Try and renegotiate

It isn’t in anyone’s interests to see a sale fall through, so talk to your buyer or seller and try and find a figure that works for everyone.  Remember:

Stay Calm: Breathe. It’s not personal; it’s business.

Revisit the Price: Chat with your buyer or seller. Can you meet halfway?

Present Evidence: If you believe the valuation is off, gather evidence. Recent comparable sales and property improvements can sway opinions.

2. Challenge the valuation

Make sure you read the detail of the report, and if something looks wrong then challenge it.  Often the surveyor will estimate at repair costs, so you could get your own estimates.  Challenge the surveyor if assertions are being made without any evidence provided.

3. Consider a different mortgage, or a different lender

We’re seeing lots more competition amongst mortgage lenders, so a down valuation could be an opportunity to switch to a different mortgage or new lender.  Be aware that this could slow down the process whilst you complete new paperwork BUT a bit of a delay is a better outcome than seeing the sale collapse.

4. If you’re the buyer – can you make up the shortfall?

If there is no budging on the price the seller wants, then can your finances stretch to make up the shortfall?  Can friends and family help?  The bank or Mum and Dad continues to be a major help to first time buyers, but you need to be aware of rules around gifted deposits.

5. If your buyer pulls out – then consider alternative ways to sell

Unless you have other interested buyers lined up, then losing your buyer can really send you back to square one and leave you out of pocket. Worse – if you have an onward purchase planned it can cause the entire chain to collapse!

Chris says. “You could approach a professional property buying firm like House Buyer Bureau.  We buy properties at a discount to their market value, but the main advantages are that we’re buying with our own cash so there is no delay, the sale is guaranteed to go through, and the seller gets to dictate timescales.”

Remember, a down valuations doesn’t have to spell the end of your property sale.  There are several things you can do, and worst case if your buyer does pull out, there are alternative ways to quickly sell your property and keep you moving.

To find out more about House Buyer Bureau click here