Downward revision of property value

[Anewname20]

Hi

Has anyone had the experience of the bank revising the value of the property downwards? If so what did you do as the buyer or seller?

If it happens, which we think there is a possibility because of the insane increase in house prices, we may have to walk away if the seller does not revise the price.

What often happens is that the buyer covers the shortfall themselves via the deposit. For example if the bank says they value the property at 100K (mortgage 90K) while the asking price is £120K, then the buyer agrees that they supply a deposit to cover the gap (£30K).

Whether a seller will revise the asking price depends on how quickly it took to sell, the interest in the property etc. They could just walk away.

Also it begs the question why you offered a price that you don't think makes sense. Were you involved in a bidding war?

No bidding war per se. All interested offered below asking price but asking price was very inflated. Even the EA said so. The EA advised a price mucho below the asking price. The EA’s original valuation was lower than what we and others offered. That is why a thinking the bank may have the same view as everyone else and go even lower possibly inline with the EA’s original valuation. If the bank values it at our offer that would be fine but we cannot afford negative equity and I don’t think another bank would come up with a vastly different valuation because there are few valuers that banks deal with.

We may need to get ready to walk away. Equally I might be worrying about nothing.

We had this with our sale but were not prepared to move on price as every estate agent had valued the property above what the bank had, and the bank had just carried out a table top valuation (by looking at zoopla, which was 6 months out of date, and the agent’s listing) not even by someone qualified. The buyer made up the difference as they had a decent loan to value, they knew it was worth what they had offered and we knew we could sell it to someone else if they walked away. If your bank has done similar (tabletop valuation) then I wouldn’t expect the seller to move on price and you might need to find a different lender if you want the house.

They are visiting the property and apart from the seller everyone seems to be of the same view that the value is significantly lower than offer price. Hence why I think bank is likely to have the same view as everyone else. Which then means it is best to walk away. It would be a shame of course but it makes no financial sense to proceed unless the price is revised.

Heronwatcher - I'd suggest you have been extremely lucky with your buyer there - don't do anything to upset them!

If a mortgage down valued a house I was purchasing & it wasn't an incorrect valuation in any way that could be easily debated (missing out key facts, not considering recent refurb work or whatever), I'd 100% reduce my offer the same amount, in the knowledge that any other buyer will have exactly the same issue.

At the end of the day, the mortgage co's valuation is the one that matters. Estate agent says whatever is needed to stroke ego/get the listing, Buyers are not experts in valuing property & often lead by emotion, & even an independent valuer doesn't have any skin in the game really & can easily be talked in to varying a few % due to uncertainty.

We had this with a new build house we bought a decade ago. Offered 405k, but the mortgage people valued it at 380k.
We did a bit of negotiating and both sides were happy with 385k.
I think we got a pretty good deal, even if 5k over the banks valuation.

We had this. House was valued at 20k less than we'd offered, and 40k less than the one next door had sold for two years previously (needed a lot of work).

The vendors agreed to sell at the mortgage valuation price. We would have walked away if they hadn't.

Having been in it for a year and a bit, and spent about 30k on it (windows, roof, boiler, bathroom), all of which was apparent from the pictures on Rightmove, we think we paid the right price.

I think it depends on the area @FurierTransform

Where I live, there is a significant proportion of cash buyers or buyers
with significant equity. I had 3 estate agents quote the exact same price (plus or minus £50K). We went for the lower quote FWIW.

If there had been many interested parties, I'd go back on the market rather than negotiate with a buyer who wants to drop the price. Not all will use the same mortgage company and some will have a lower LTV ratio so can absorb the difference.

Actually I wouldn't absorb the difference for a new build. I think the premium on those is a little unsubstantiated at the best of times.

Phew! I was wondering whether we were missing something. We all work hard for our wages. £5k seems okay but to expect a buyer to pay significantly more than a bank values the property is pretty unreasonable. I don’t think there are many buyers who would be prepared to effectively handover hard earn wages for nothing. No one just give away large sums of money to someone else just because they ask.

Glad to know that there were renegotiations. Another buyer who must take out a mortgage would be in the same position.

Newhouse, what’s the incentive to absorbed the difference? I just can’t see it. Regardless of LTV - whether low or not.

Well if it comes to that, they are welcome to put in on the market and hope for a cash buyer. I’m fairly certain that it’s about 4 firms that do over 90% of the valuation for the banks. So the chance of a vastly different valuation is slim and the bank the next buyer ends up taking a loan with might just be the same as mine.

Strangely, Newhouse your responses have made me even more determined to walk away. The idea that a seller thinks a buyer should simply handover money because they say do, without the fundamentals supporting it, does not sit well with me.

The bank is not interested in whether you are are paying what you or anyone considers to be the correct price. They care that the value of the the house covers the mortgage amount should they repossess. Most valuations for this purpose will just be a check of sale prices of similar properties, as others have said, a table top valuation.

NewHouse but cash buyers dont like to offer more than mortgage buyers, they tend to offer a bit less as their position is better.
Possiby an exception is an upmarket retirement area where if someone loves the house/location, they wouldn't worry about future investment that much (as far as value stays roughly the same).

We like the property but not enough to bankrupt ourselves or be foolish about this. I expect reasonable behaviour and if it does s not forthcoming someone else is welcome to overpay though I believe any other buyer will be faced with exactly the same problem. The seller comes across as a very nice and level headed lady so far so I hope she will be reasonable if it turns out that this mad market prices are not being supported by the banks.

I am anxiously waiting for the valuation but have decided to continue keeping an eye on what’s coming on the market (not viewing) just in case.

I'm just giving a perspective here that is quite prevalent in active markets. If the house took months to sell in the first place, you're in a good position to renegotiate the price.

But if there are many interested parties, a seller might take a view that they'd be better starting again.
A friend's mortgage provider down valued her flat because the valuer worked mostly in the North of England. They weren't used to London flat prices which in fairness is another world. A different mortgage provider gave it to her no problem and it sold a few years later at a premium.

We revised down (but only half way) and made up the difference.
We didn’t want to move anywhere else tho!

*we asked them to revise down (20k)

But it’s not the mortgage provider that’s valuing the property. They are using a limited set of valuers. So it is a huge risk to expect a vastly different outcome by trying a different mortgage provider in the hope that they use a different valuer. I also do not want my credit score to be affected by applying to several different mortgage companies.

I am not convinced it is prevalent for buyers to ignore the valuation. From what I am reading through my research, it is rare for there not to be a renegotiation or for buyers to jot walk away. You were lucky.

In our case, there is no way we are going to ignore the valuation. There is always another house that is good enough. I just can’t see the sense of paying more for a property than it’s worth.

Banks don’t much want to lend just now - uncertainty, liquidity, etc. They will guesstimate house value aiming low just now due to the economic uncertainty and huge risks in current property market (not only houses, commercial too - banks are looking at a “basket” of properties” in assessing their exposure).

A property is worth what someone will pay for it. If you’ve changed your mind about what you want to pay for it, that is legally your prerogative, and you might be right. The vendor might accept a lower offer, of might not...

This happened to us last week, the bank had valued the property at £30k less than what we had offered on it. The market around here is crazy so we knew we'd offered over the odds (though not over asking price) but decided we'd suck it up as it was a long term purchase. However, the vendors weren't willing to budge and we decided we weren't prepared to cover that kind of difference, even though we could afford it. So we pulled out and had an offer accepted on a new property within 24 hours (praying the same thing doesn't happen again!).

Renegotiate the price. It isn't unusual for the valuation to differ.

happened to us too.
sold, 12 offers within days.
5 offers over asking price.
asking price 375, highest offer 450, bank valued it 375.
buyer paid the difference , minus 5k because they run out of cash not because what the bank valued it.
you got carried away with bidding I guess.

Sounds like you have already decided you offered too much.
What happens if the valuer agrees with the purchase price? Do you continue even though you think you have over offered

as an anecdotal
Friends of ours house is on the market at 430k, had loads of interest and accepted an offer of 420k, baring in mind the last 5 sales of identical properties have been between 350 and 380k over the past 2 years I thought they would struggle, and it has just fallen through as it was valued at 380k! Buyer walked away and have now accepted an offer again for 420k from another buyer, I can see the same thing happening.
Makes you wonder if some buyers look at previous sold prices though