When a property is for sale, it can be tricky to know whether the asking price that’s set is a true reflection of its market value.
From time to time, there is a disconnect between what a seller thinks their property is worth, what a buyer is willing to pay for it and how much their lender is willing to put towards this. When this occurs, it’s known as a down valuation.
Our guide explores everything you need to know about down valuations, including what to do next if this happens to you.
What are down valuations?
A down valuation is when a buyers’ mortgage surveyor values a property for less than what they've offered for it. This can completely upend the property transaction as the buyer may not be able to stretch to their previously agreed offer for the property.
Why can a down valuation happen?
Lenders are being cautious
If your buyers’ mortgage lender believes a property market slump is on the horizon, they may be more likely to down value properties to safeguard their investment.
Value of renovations
If the seller has made some improvements to their property, they may have overestimated the value of these renovations. For instance, the added value of a loft conversion will rely on the type of conversion you have and the specification of the finish.
Issues flagged in the survey
If the building survey picked up on any issues that would be costly to fix - for instance, a damp-proof course - your mortgage lender may down value the property to compensate for this added expense.
Down valuations and their impact on a sale
How do down valuations affect buyers
When a down valuation happens, it can be devastating to a buyer as they’ll already be quite far into their transaction. With exchange and completion imminent, buyers will have to act quickly, but also plan their next move carefully.
In the case of a down valuation, a lender can do one of two things:
Withdraw the mortgage offer completely
If this happens, a buyer may need to find another lender or revisit how much they can afford to borrow. A mortgage broker can step in at this stage to help with mortgage applications.
Reduce the mortgage offer
A down valuation may impact the amount a buyer can borrow. If this occurs, buyers will need to make up the shortfall from savings or borrowing from family or friends, since any new application for credit or loans at this stage will invalidate their mortgage agreement in principle (AIP).
What can be done to avoid down valuation
To reduce the likelihood of a down valuation, there are things that both the buyers and sellers can do.
Advice for sellers
Don’t over value your home. Book an expert valuation with a professional estate agent before setting an asking price.
Be honest about any known issues with your property and make sure your asking price takes these into account.
Advice for buyers
Don’t borrow more than you can reasonably afford. However tempting it is to stretch to the top of your budget, look for homes that are comfortably in your price bracket.
Be careful with bidding wars - it can be tempting to pull out all the stops to secure your new home but never offer over and above what you feel a property is worth.
Down valuations: what can a buyer do if this happens?
Option one: Challenge your down valuation
This is by no means your easiest route, but it is possible to challenge the down valuation. You’ll need strong evidence to present to support your case, including at least three properties that have sold in the area for your original offer price.
If the down valuation occurred because repairs are needed on the property, check that the figures correlate with an up-to-date estimate for the work.
Option two: Try a different lender or mortgage product
Although there’s no guarantee that a different lender will elicit a different outcome - after all they may use the same surveyor - it may be worth looking into alternative mortgages with a professional mortgage broker.
Consider other mortgage products or mortgage terms, which may increase how much you can afford to borrow. Again, a mortgage broker will be able to advise you about this.
Option three: Use savings and help from relatives
Dipping into your savings or asking the Bank of Mum and Dad and other willing relatives or friends may help you to make up the shortfall from the new mortgage offer.
Option four: Renegotiate with the seller
Speak to your seller’s estate agent and share your concerns about the down valuation and the position it’s put you in. They may face similar issues with another buyer - unless they’re a cash buyer - and so they may be open to renegotiation.
If you can afford some, but not all, of the discrepancy, suggest splitting the difference with your seller. Make sure any agreement is sent over in writing via their estate agent or your solicitor.
Option five: Pull out of the sale
Obviously, this is the worst case scenario but if you’ve exhausted the other options, you’ll have no choice but to pull out of the sale. Before you decide to do this, chat it over with your estate agent first.
Down valuations: what can a seller do if this happens?
Option one: reduce your asking price
You may decide to reduce your asking price to something closer to the lender’s valuation.
This is obviously a major decision and it will need careful consideration, however it may allow you to keep your buyer and original moving timeframe. Your agent should be able to advise you on your best course of action.
Option two: Make the repairs to your property
You may decide to fix the issues that came up in the survey ahead of your move. After all, any issues with your property are likely to come up in future surveys. You’ll need to weigh up the pros and cons of this with your agent as it will likely delay your move and add to your costs.
Option three: Find a new buyer
Of course, if you don’t want to incur the expense of making repairs or reduce your asking price, you can always do nothing. If your buyer pulls out of the sale, you can instruct your estate agent to relist your property.
How we can help
Whitegates are here for every stage of your property journey. When you book a free valuation with Whitegates, we’ll base your asking price on our expert local knowledge and understanding of the market.