low mortgage valuation

[afussyphase]

Hi I could really use some advice here! We're first time buyers. Our valuation is about 7.5% lower than we agreed to pay. The seller is also the agent so he has loads of experience, and we're newbies. We have the option to just pay it anyway since it's not at the top of our price range ... but obviously we don't want to pay more than it's worth, and it's not like it's our dream home, really, it's just pretty good and better for us than many on the market, it seems. (And compared to asking prices on rightmove, it seems reasonable, but then there's the valuation). I read on another thread about this being a buyer's market and all that .. but this is London zone 2 (so 7% is actually quite a bit of money), is that still true? What should we do?

Personally, I'd pull out, rent and wait until this crazy asset bubble finally bursts. The government (of both persuasions) and bank of england have more or less exhausted all possible ways to keep this sucker propped up.

The valuers say it's less than what you've offered. They know what's coming - and in all likelihood have still overestimated.

House prices, even in London will not stay immune indefinitely.

Wait. Look up what the house went for the last time it sold. Probably for 1/2 or 1/3rd of it's cost now.

Argh, we just can't rent: monthly payments would be twice our mortgage payments even at the agreed price, and besides we have to get DD1 into primary school for the following year (she's 3 now). It sold for about 87% of current valuation (approx 80% of our agreed price) in 2007, presumably just before the crash... I just don't get how rental prices in London can be SO high. Surely if it could rent for that much per month it must be worth a price with mortgage payments much lower!? But then like I said we're new to this and our mortgage payments would reflect a relatively high deposit. Still - totally unsure what to do.

Have you tried negotiating with the seller on the price? If they tried to get more money from another buyer they would only find a similar low valuation again - you may find they'd rather keep the sale and take less money with you than get it back on the market only for another buyer to pull out. Good luck!

Interesting, ThunderboltKid, glad you feel good about it in the end, we're considering doing the same. but it's a good point about any other buyer getting the same valuation so maybe we can try negotiating. MarissaMum what would you think, try for the valuation price, and then end up splitting the difference?

You say it sold in 2007 (Peak) for 80% of what they are asking.

How on earth can they justify a 25% increase in price from what they bought it for at peak? Answer: It's bullshit finger in the air stuff.

As for the mortgage payments being half your rent, well, think about how much you can earn on the capital you are going to be plunging into the house elsewhere. Only then can you make a true comparison. I'm not talking about crappy savings accounts - look at inflation linked certificates etc. The interest you make on those may pay a significant portion of your rent.

It might be complete bullshit finger in the air stuff but if you need a place to buy, you need a place to buy. Renting's fine but I am guessing like us you are seeking a bit of stability now your kids are getting toward school age, and don't want to be moving from rented place to rented place in and out of school areas??

If you've been looking for ages, you may well have your antenna pretty finely tuned to local price variations?

How much is 7% of the purchase price in cash terms?

One thing I would ask, however, was how long it was on the market before they got what they considered an acceptable offer? If it was ages (and by ages I reckon about 6 weeks to 2 months counts as that in London), then that usually is a good indication that the property is overpriced.

Of course property is wildly overpriced and completely nuts, but ultimately sometimes you don't have the inclination to wait out the bubble. If you can afford the mortgage easily and rent is twice as much, then it's a no-brainer really.

I would tell the vendor what the valuation survey has said and ask them to meet you half way or some such, if you're feeling brave.

Sorry, that was all a bit contradictory and rambling - hope you understood what I meant.

Yeah you make a good point (re: personal situations). I'm prepared to wait but understand why others don't.

However, the fact they are looking for a sizeable profit from what they bought it for at peak goes to show that the OP as a buyer should have plenty of room to negotiate, especially as an independent valuation has shown it to be overpriced. They are chancing their arm. The sums you are probably talking about are not chicken feed - that's extra money you'll be paying back for years to come. Get them to negotiate. If they don't want to move, and you really, really want the place, then pay it if you want.

Of course it could have been bought in 2007 as a complete wreck, and have had new wiring, heating, flooring, windows, kitchen, bathroom/s and be leasehold which has been increased from 20 to 100 years, with an extension or loft conversion that has almost doubled the size of the property whilst leaving a reasonable garden.

I'm not sure that a higher asking price wouldn't be justified in that case!

It could have been sold at a really low price by somebody desperate to sell last time, and is now being sold closer to market price, especially if the other houses in the area are similarly priced.

Or they could be taking the piss.

Are there sold prices for the local area from 2007 that you cab compare? What work do they say has been done?

At the end of the day a house is worth what someone is prepared to pay for it. If you can afford the difference then only you can decide whether you want to pay it.

Although I remain to be convinced that surveyor valuations are based on much more that what the nearest houses with the same number of bedrooms have been sold for, the valuation does suggest an increase in value, just not the same increase the vendor has asked for.

If the seller is an agent, he will understand the value of negotiation. You might not get the full 7% off (and bear in mind surveyors can be very conservative) but there is no harm in trying and perhaps meeting somewhere in the middle. If he or she is selling when renting could be more profitable, it suggests they want money fast and may be prepared to do a deal.

Personally, I don't understand the obsession with what people paid for a property. As Barbeasty points out, they could have done a ton of work or they could just have got a bargain in the first place. It's how it compares to other places that are on the market which is more important.

Can you see what other houses in the area that are for sale now sold for previously? Might give you an idea if prices have gone up or down. Can you get a second valuation? Have you asked the valuation people why they're valuing it so low if the price seems comparable to other houses in the area?

I'm with Cheryl, I wouldn't pay more than the mortgage valuation in this market.

And asking prices are way higher than sold prices at the moment; the Rightmove HPI yesterday said something about vendors romping away from reality. So you don't get much idea of how good value it is by looking at Rightmove asking prices; have you checked out sold prices in the area on a site like Nethouseprices.com?

We had to have our house valued recently as we were changing some key aspects of our mortgage (without moving) and frustratingly we had to reapply for our mortgage. I won?t bore you with the details except to say that the bank insisted on carrying out an independent valuation.

We were really disappointed with the low value that resulted from the valuation, luckily it didn?t affect our application but was much lower that we anticipated. When we queried it were told that this type of valuation is often much lower than the realistic selling price for a number of reasons e.g. it is calculated on the basis of what the bank could rely on getting if the house was repossessed, and can be unreliable due to the use of ?similar? properties? selling prices in the area which can be misleading.

I remain confused by the whole thing but thought I would let you know about my experience.

Thanks everyone, I guess we should try to renegotiate. I think it's particularly hard with the valuation because there aren't many similar properties nearby that have sold recently, and I guess the valuation is based on that. I know the owners did put in a new kitchen and some other fittings; not sure if they did rewiring but the survey said based on the number of outlets it hasn't had a full, recent rewire (but it wasn't listed as urgent). Hasn't had the loft done but the chance to do that is appealing for us if it's possible... Other nearby places are either ex-council, are flats rather than terraced houses, or if they are houses they're period conversion flats in big Victorian homes, rather than freehold houses like this one. Meanwhile I guess we'll start looking at other places but who's to say this won't happen again with a low valuation? grrrr....

How hard was it for you to get approval for a mortgage? It may be worth changing mortgage companies? When we were selling a flat in London zone 2 we refused offers from anyone who had a mortgage offer from one particular company as we knew their valuers were hopelessly out of touch with local prices and we would be strung along and then asked to negotiate. Other companies were valuing sensibly. A good estate agent may be able to advise who is best for your area?

JaninLondon spill..... who was it??

As in who allegedly was it, in your opinion? Just in case anyone gets stressed about naming names......

This is the problem with insane house prices. Before prices were inflated by cheap credit, 7% of the price of a reasonable family home was about 5k. A negotiable amount which doesn´t seem to buyer or seller to be a stupid amount to be discussing. Now you´re probably talking 3 or 4 times that I bet. And now half the population seems to think houses SHOULD be these ridiculous prices. Its incredible!

It´s a poisonous environment, and I feel sorry for anyone who needs or wants to move. I love the way people suggest the problem can be solved by getting a mortgage company who´s less ´stingy´with their valuation. Wayhay ... let´s all pay more for shelter!

I'd love to know who it was, too, janinlondon. We're actually getting an independent valuation from the home buyers survey so hopefully that will help. It's complicated about the estate agent since he's also the seller, and estate agents have to convince people to buy! Anyway we may want to switch mortgages as the one we had was based on a % deposit that we may not be able to manage if the valuation is lower.

Cheryl I think you're totally right that these prices are NUTS and I worry about what it'll be like for our kids - compare prices now to when we were kids!! But ... even though this is London ... it's not totally out of range of what you'd pay in Toronto, Vancouver, San Francisco, Boston although of course you get less space for your money in London (but not actually that much less!) - this seems to be kind of worldwide. Those comparisons would look different if the £ was higher but still. I know in Vancouver they've been waiting for property to drop since 1997 or earlier and it has just kept rising, with smaller "adjustments" now and then! Crazy. But ... as narmada pointed out we'd love some stability finally, after moving cities and countries and continents so often over the past 8 years. And given that it seems to be the same all over I'm not holding my breath for prices to go down any day soon tbh. And if people bought at high prices they will just wait rather than lose so much, if they possibly can, so it's not like other markets where prices fluctuate more readily.

House prices are not rising everywhere though.Look at Ireland where we have had 50% drops from peak in 2007, And still dropping 1% a month! I know London is different though (that's why I moved!), but personally there is no way I would pay over valuation. I'm very cautious though, but thtas why I'm not in massive negative equity now.

I would want £70k on top of what I paid in 2007 if we sold ours because it was literally a shell, you can't always look at net house prices and make assumptions.

The market in this area is still falling so there's no way I'd pay 7.5% over valuation in a falling market.

Can you even afford to overpay if you're relying on a mortgage?

We can afford it in the sense that we can get a less advantageous mortgage because we'd have a smaller % deposit ... But I'm thinking from this thread that it might be a really bad idea. Guess we'll start looking at alternatives and now we know to keep a close eye on what similar properties have sold for - and/or choose areas that have lots of similar properties. So frustrating.