The expensive rise of down valuations

Down valuations are on the rise as estate agents are accused of overvaluing homes to bolster business

Home buyers are being forced to stump up thousands of pounds to stop sales falling through because of a 300% rise in down valuations.

According to online estate agent Emoov, one in five of its sales now resulted in a surveyor valuing a home at less than the price agreed by the buyer and seller, a steep rise from fewer than one in 20 just two years ago. This often leaves buyers with no option but to fund the difference themselves or risk losing a home.

Buyers are counting the cost

One couple revealed on the BBC’s Victoria Derbyshire show how a £10,000 down valuation caused them to lose out on a home when the seller refused to drop the price. It happened again on another property, forcing them to find £5,000 at short notice to save the deal.

Speaking to The Telegraph Ben Elder, global director of valuation at the Royal Institution of Chartered Surveyors (RICS), placed the blame with estate agents for overvaluing homes to win business.

“Agents have no obligation to act objectively. They are often bidding against each other to get work so prices can get pushed up because of that and then do not reflect the hardening of the market,” he said.

“But the valuer is responsible for interpreting the market and faces having to defend the figure they place on a property in a court of law if necessary, in the future.”

He added: “If you don’t reflect the changes in the market in the valuation process, you get an overvaluation, people go into deficit and the house has to be sold.”

Surveyors playing it safe against future claims

However Emoov chief executive Russell Quirk accused surveyors of “covering their backs” because of fears over the housing market. He told the Victoria Derbyshire show: “There’s no need for surveyors to be down valuing properties except on the basis of their over caution.

“They are concerned, if there is a downturn in the property market, that lenders will go back to them and call upon their indemnity policies, which costs that surveyor money in terms of increased premiums. So I think they have a vested interest.”

In response UK Finance, a body representing the finance industry, pointed out a valuation doesn’t just protect lenders, it can also protect buyers from making costly mistakes. "Although the valuation is carried out for the lender, borrowers also benefit from a realistic independent valuation as it could help them avoid paying over the odds for the property they are buying."

So what exactly is a down valuation?

To secure a mortgage the lender will use a surveyor to check the house is worth the agreed price
The surveyor will look at the condition of the property and asses local market conditions before coming up with a valuation. If it’s below the agreed sale price it is a ‘down valuation’ and the difference in cost will have to be covered by the buyer
Down valuations increase in a weak or falling housing market
People who have renovated their home and are attempting to remortgage it at a significantly higher value are most at risk.

Once a property has been given a down valuation, there are several options:

The lender may still offer a mortgage but in a higher loan-to-value band – because the loan is now a higher percentage of the home’s value – which could increase the cost of repayments.
The price of the home could be renegotiated by the buyer and seller.
Buyers can pay the difference, which can add considerably to up-front costs. For example, a 5% down valuation on a £200,000 home would leave a buyer needing to find £10,000 in cash.
Buyers can look for a new lender that might value the property differently. This will take time and potentially come with additional costs. There is also no guarantee it will lead to a higher valuation.