Question regarding cash buyers- survey?

[GreenEggsAndNichts]

We are cash buyers. We've attempted to purchase a house before, but the survey returned a valuation lower than what we'd bid, so we adjusted our bid, and they decided to go with someone else. (Have checked the sold price on that property- they took an offer 5k over ours. fair enough, not all surveys will return the same valuation)

Now we are trying to buy again. We've had a survey done and the price is way below what we've bid, 30k. Now I know for a fact that I wouldn't be able to purchase a house this size in this area for the price they're valuing it at. Maybe in a few years time, of course. :( But certainly not right now.

I digress. We've never had a mortgage before, so could someone explain how the banks handle this? I mean, if we were getting a mortgage, the bank would not lend us more money than what the survey valued the house at, right? Or am I wrong? So someone else coming along behind us (assuming we come back with a lower bid and it's rejected) would also run into this problem, but with the bank?

Also, am I right to assume this valuation is taking into consideration the 20k they say will be needed to fix the place up?

I don't mind paying more than what they've valued it at. It's a decent size and it's in the area we'd like to be in. We can't just hover around for the next several years while the market settles, unfortunately. We have a small child, would like to have a second one, and would like to leave the hassle of having to move on a landlord's whim.

I hate this market. :(

if you're a cash buyer, it's irrelevant. If you were getting a mortgage, the amount the bank would lend would be based on the amount of equity you're putting in and what their valuer says it's worth. Their valuer works for them, not you, & may well say somethign different to a surveyor seperately engaged by you to provide a fuller survey

Okay. So banks don't offer a mortgage based on the valuation of the property? It's just about how much of a loan the buyer can afford to take out? I think I was under the impression it was at least partially based on the valuation, that they wouldn't offer more if the house weren't worth more than that.

Hi Greeneggs. The valuation that banks do will inform their "loan to value ratio" or LTV ratio. So if you wanted to buy a £200k house, and you had a £20k deposit so 90% LTV ratio, the bank would have to value the property at £190k or above for you to get the mortgage (unless they would let you take a 95% or 100% mortgage).

So at the moment people are finding things tricky if they have deposits of around 10/15%. People with a larger deposit are often taking the chance (and the banks are reportedly less likely to be given low valuations when the LTV ratio is lower anyway).

I would say, if you know you want the house, and you know the valuation is very low compared to similar sold properties, and you know you'll be there a while, don't worry about the valuation. By the time you come to sell the market may be very different - the value will surely have gone up anyway. (Think carefully though if you're not in an area that you think will go up over next few years). It might just mean you favour buyers with larger deposits but that happens anyway currently.

One last thing though - are you sure you're getting the house for a good price? Could you negotiate down based on the valuation or are you worried the vendors would take offence?

DOH I mean 180k or above crap at maths face

If you are cash buyers you don't have a mortgage surely? So whatever you buy the house for is your decision no one elses. You don't have to re negotiate if you don't want to.

Have you gone back to the sellers with the survey ? Got their comments ?

It would be worth doing that and depending on their response (they may have evidence as to why the valuation is less than reasonable for example), reduce your offer. Stress you are cash buyers. They ought to be aware that anyone else who has a survey is likely to get a similar value and the resulting impacts on potential mortgage offers.

Meant to say - you could offer say 20K less than pre seurvey - which is still 10K more than the value - they may well be happy(ish) with that. Or they may be unrealistic sellers (given the current market), and refuse.

Bottom line as cash buyers though - is what is it worth to you.

OP if you need a mortgage you are not a cash buyer.

What I think you mean is that you do not have to sell a house first before you can buy another house.

The bank only care about how much you want to borrow, how much interest you can afford to pay and how much security they will have if you default.

If you are prepared to buy a house for £200k and only borrowing say £100k the bank would not really care if they valued it at £150k. However, if you are borrowing 90% of the purchase price then the bank cares a lot about what the valuation is - because thay are lending you nearly the full value of teh house.

I'm asking on behalf of the hypothetical next buyer for the house. I'd like to know how likely it would be that they would pay 30k over the surveyor's estimate, if they were having to get a mortgage.

Obviously we can just pay this figure; we had to prove that we could do so in order to have the bid accepted.

I'm essentially trying to figure out the situation when I go back to the EA with this. I'm trying to see it from the seller's POV- if we show them the valuation, and say we'd like to take x amount off of our bid, will they be likely to listen because subsequent attempted buyers will also run into the same problem (the low valuation?) Or do people just not look at the valuation of the property when figuring how much they want to pay?

It's an honest question. I've never purchased a house before.

Since it's been asked: yes, there's a chance the seller will change his mind with us, as it was brand new to the market when we made our bid. He's not really at that point where he'd want to take lower bids.

I like the house, and it's big enough that we'd be there for a while. It does need a lot of work. The amount we've bid is fine, on the high end of the sold prices for the houses on the road, but nothing outrageously high and certainly not low.

Just to repeat, we do not need a mortgage, I'm asking on behalf of potential other bidders on the property.

monnie thanks for the explanation. :) The part of town is a decent one. The property market is going down slightly, but that's happening everywhere outside of London I guess. Houses are still selling here, just not for the same prices as in 2008 etc.

It's a decent house, a good size, garden is big. We like it. I can't imagine us getting a similarly-sized property for any less than this, certainly not in this part of town. But the low valuation is throwing me for a loop, I guess.

If it doesn't explain the £30k difference between the purchase price and the valuation in the surveyor's report - you need to telephone/email the surveyor and ask them what is the reason for the difference.
Ask the surveyor if they are valuing the property as it stands and if they believe it will be worth more when the work is done or whether the valuation is for the property if it was in A1 condition.
You need to ask the surveyor these questions.
Regardless, of what he says, as a cash buyer it's up to you what you pay.
It doesn't follow that someone with a mortgage won't get a 'different' valuation from a 'different' surveyor and, if they have a big deposit, they may be able to borrow more anyway. If you had a different surveyor round you might get a different valuation - (I wouldn't recommend this expensive experiment).
Hope it works out.

DH is a valuer, and tells me RICS allows 10% leeway in values. So the house might be 'worth' 10% more or 10% less than what the surveyor has told you.

I appreciate the responses. Thank you ted for that as well, that was very helpful.

It seems as if they valued it based on sale prices of 3/4 bedroom properties, because they felt that the lack of a large single master bedroom meant it wasn't worth the same as a normal 4 bed property. It has 4 double bedrooms, but indeed, none of them are a particularly large size.

It's very difficult to make up my mind on this, but I've got to let them know by tomorrow if we want to proceed. :(