Property downvalued - how to renegotiate the offer?

[polka14]

Hi everyone. I made a thread about a month ago to say I'd had an offer accepted on a property that we'd offered almost 10% over in this crazy sellers market. It has now been downvalued a little bit from the asking price. So now the same offer price would have gone from about ~9% to ~11% over. There was a fair bit of interest and it went to best and final. The mortgage broker has advised we renegotiate - any suggestions on how to go about this? How you'd word it and how much to suggest?

We are new to all of this as FTB but on decent stable incomes with a decent deposit/savings but haven't had the geographic stability to buy till now.

Asking price: £465k
Originally offered asking, but at best and final went up to our max of £505k (obviously not knowing what the other offers were)
Lenders valued it at £455k

What is a reasonable renegotiation offer? I of course don't want to offend anyone but equally would like to get the best we can at this stage.
Thanks!

The bank will offer you the valuation less deposit. You need cash to top up the agreed figure.

The risk to the seller, if they pull out is other valuations will come back the same - so they will be back to square one.

Negative equity - Let’s say you pay £500 and the house is valued at £450 - paying £50 over in cash - or loan -

Should you both lose your jobs or need to sell quickly the bank covers their cut first and you could lose £50 or more with fees and removal costs. If the market slumps - you could end up owing the bank a lot of cash with no deposit for another property.
The rise in interest rates could be the difference to you holding on to your property and needing to sell quickly.

No harm in speaking to the the agent, they want a sale, and I understand that a low valuation will kill this sale and any future sale.

I’d be wary of this OP, if it’s true that many properties are being downvalued then that is a sign in increasing conservatism amongst lenders. Be wary. Anything under 20k wouldn’t worry me too much but this is a big gap.

I just typed a lengthy reply which has disappeared.. anyway!

@similarminimer No, I am not trying to pay less than other people offered. I have no idea what other people offered but I do know that we offered the highest. We are also not in a chain. Good deposit.

The seller will make a very nice profit regardless. As it stands it would be 50k. Ideal would be to get this for 485k, the sellers would still make 30k over value. The reality is I would probably also go through with it at 490, 495, 500 or possibly even 505 as 1) we can afford it but it feels like saying - I can afford a ferrari so I'll pay the same for a vauxhall corsa (not bashing the corsa, have one myself) so I dont understand when people say pay the max you can and 2) we want to get off this property hunt mission, be homeowners and move on past all of this.

I dont want to drive the sellers away and still want to be their best offer but ideally not at the expense that we cant afford anything else and be paying way way over value. They had only asked for 465k so I imagine anything above is a bonus for them. I know we offered 505 but the reduced valuation means we need more cash upfront for a larger deposit now rather than paying off a slightly larger mortgage over a lifetime.

Ideal would be to get this for 485k, the sellers would still make 30k over value

Open the discussion there, then.

You’re FTB, the mortgage valuation has come back significantly under asking price, let alone agreed ‘best & final’, it will be in their interests to agree to meet you somewhere. At £485K you’re not offering to split the £50K difference equally, you’re opening with giving them the slightly greater amount. They’re not going to want to remarket if they’re smart.

If you are the OP, you've had a namechange - MN can fix this for you if you prefer.

As for renegotiating - you can try, but the vendor might not be willing to do so. You willingly offered £40K over what you thought the house was worth. As you say you can still afford the property even with the current valuation, I'd be balancing the £10K against your time and effort finding another property if this one falls through if the vendor is unwilling to shift on price. Hope it works out for you, OP, it is such a stressful process!

You say if you have to pay the difference between what the bank will now lend and your offer, it would leave you with very little. Will you have the money for stamp duty?

At 505k you lose the FTB incentive so you'll need around 15k to pay to your solicitor when exchanging for them to pay the stamp duty.

oh yes, how do I go about fixing the namechange issue? @ChicCroissant Or how do I tell which is the original username on this thread so I can change it myself to that one?

Yes we would be able to pay stamp duty and original offer price, it would mean we are essentially left with nothing/next to nothing and will have to wait for earnings as they come through each month.

It just feels a bit uncomfortable, as though I'm not making the best financial decision. To those with opinions like 'offer as much as you can', I don't understand it and I am just using this to explain my point - I wouldn't pay 500k as thats more or less as much as I can for let's say a studio flat valued at 100k. Obviously this is not to the same extent, but feel uneasy offering so much over for a value of 455k. I think if the value had come back as 500 I'd have no issue at all and to be honest would have proceeded happily with valuation of 480+ (if valuation came back at 465 which is what it was on for I'd have known I am paying overvalue but it was what was required in this current climate).

I'm aware my thoughts are all over the place at the moment - does another 10k make that much of a difference? Are others having to do this in today's market? 50k just feels like so much more than 40k especially as the difference is being had to be made up by myself right now rather than a mortgage.

You only need open discussions with the vendor.

I would state your position to the estate agent that the house has been valued at £455, and you are prepared to offer the asking price of £465. Ask them to speak to the vendor and see what they say.

Go from there. Do not put in a bigger offer until you’ve made an opening gambit.

As I said before, they may have the same issue with their own onward purchase.

Op, don't worry that you are inexperienced - no one has experienced this sort of issue while buying houses in England.

The offers over/sealed bids approach is a response to a housing shortage, stamp duty holiday which inflated the market and lots of people able to move due to lockdown wfh.

The only right answer is to go with what the house is worth to you, as long as the figures stack up.

If it is a long term investment then at some point, an over payment with correct its self.

In your position I'd want to bring it under 500k and still leave myself money to meet other costs.

What about £485k? You've split the costs with the sellers and they have still made a very good profit on their sale.

Going over 500k is a really good point about paying higher stamp duty charge and losing the FTB discount. I would also go back to original offer price and see what they say. It can be a discussion. They may accept or come back with a figure they are happier with or yes, they may refuse all together. I really wouldn't offer the amount which means you have absolutely nothing left over as there's no contingency or safety net. Undervaluing is happening a lot right now so they may have been expecting it.

I wouldn’t buy a house that would cost more than it is worth.. seems foolish to me and there’s a reason the banks are nervous. Unless you have a lot of deposit and just want that house regardless, even if you cannot sell it on at the price for which you paid. The sellers sound charming.. they’ll have the same issue with all their other potential buyers I would think. I’d be inclined to be a bit no-nonsense and make it clear the house has been valued at much less than their asking price and therefore with this new information in mind you would like to renegotiate your offer to XXX. Explain you would still very much like to proceed but with such a damming valuation and in a market that has a negative forecast, £505k is an over valuation at this time. If they choose another fool prepared to pay over the odds that’s their choice but I suspect they’ll have the same issue again. Include plenty of info about the valuation- show them it’s serious! X

I wouldnt pay over valuation.

If you wat to proceed you need to work out based on your deposit and what bank will lend you totals

If I were the owner I would be feeling less than happy you are going to reduce the offer. Can you not approach a different bank - valuations are never that reliable to be honest. If you have valuers from out of an area, they rarely understand the subtle nuances of different streets and work mainly from average GBP per square metre.

Theres a lot of confused muddle on this thread

Firstly, someone commented on negative equity, its not 'straight into negative equity' the OP clearly has a big deposit and the cost of the house is more than the amount borrowed

Secondly OP you talk of the seller making 50k or 30k 'profit' on the house dependent on what it sells for compared to the banks valuation, this isnt the profit. They may have paid 120k for the house over the total time they've lived there for all you know and thats the profit, your payment price minus what they have paid for it

Thirdly, people saying they wouldnt pay more than its 'worth'. Well its worth what its paid for. The banks valuation is simply the valuers opinion and as others have said, at the moment they are simply acting in a financially conservative way, it doesnt mean its 'worth' that and it doesnt mean it isnt 'worth' that

What you have to decide OP is whether you like the house enough to use a bigger deposit, thats all. Its all your money at the end of the day whether you use a bigger deposit or you borrow more from the bank. Its all coming out of your pocket over the next 25 years or so. What the bank say its worth in numbers is irrelevant for you because you can still afford it based on your deposit. Obviously if you only had a smaller deposit and the valuation meant you couldnt afford the agreed price thats a different thing.

Walk away unless they reduce the price as per the valuation. The bubble will burst and prices will drop and you will end up in negative equity. I work in conveyancing and it is happening all the time at the moment as demand is massively outstripping supply. Only pay what it is worth or you could end up stuck there until the prices rise sufficiently to repay any borrowing. In 25 years in the job I have not seen so many lenders undervaluing properties. Too many greedy sellers egged on by estate agents.

I'm potentially in the same position, and to be honest I would reduce my offer to what the bank said, though I'd be prepared to lose the house, as I have absolutely nothing spare.

My bank valuation came in £30k lower than the price agreed. It's 4% of the property price agreed, I've gone and paid almost £200 for a second opinion from the bank (which I have to use as porting old mortgage). The valuer is independent of the bank, so they are providing the realistic estimate of what the market price is for that kind of property.

I have a few questions:

1. how accurate are valuations? and how much do vary from one bank to another ?
2. how often do make an offer at best and final then have to revise it down the line?

I feel very awkward about revising my offer. Is this what people do? Do sellers expect this?

For those saying only offer the valuation - why do people so frequently make offers over? Especially in the current market. For every property I’ve viewed people were offering over. Do they then go back on themselves?

I made this offer because I do have the money and really want to stop rent and own my own place. I suppose for this reason I wasn’t looking at properties on the market for 480+ because at best and final I wouldn’t have much more to offer.

how could I justify now making a lower revised offer? How do I essentially say what was your next offer down? They’re not allowed to tell me are they, but I think transparency would really help.

Why don't you offer just below to qualify for the ftb benefit?
Marginal drop for sellers and a saving for yourselves.

Honestly I’d be opening the discussion at either the valuation price or the asking price. The asking price indicates that they would have been happy to get that value (or slightly below) for the property when they marketed it. At the moment they’re standing to make an additional £40k on top of whatever profit they have already made during the time they owned the property. It really doesn’t matter how much money you have or what you can afford, paying considerably over the value of a house is a bad idea. It’s likely that for at least a while you will only be able to get close to the bank valuation if you needed to sell. It’s possible that prices will slip further. Definitely do not offer until they’ve had time to suggest the valuation. Ideally they should counter offer and take it from there.

If you really like it, want to stay a long time and are struggling to get what you need I would only go 10k less. You knew you were going 40k over what it was presumably worth at asking. Now it is 10 grand more 50k over and you are hoping to knock 20-30k off which doesnt stack up. Your seller may go for it but I wouldn't blame them for going to the next buyer. I totally get you getting cold feet and pulling out and that is fine, just think the valuation feels like an excuse.

It’s really not an excuse, I may still go with it if they decide not to budge. As I say, I offered this amount off my own accord but that’s the issue it all felt very rushed (it was, EA telling us people are offering on the spot etc for nice properties). We had 48hrs to make an offer. We did so at asking. Then we heard back a few days later and had a few hours for everyone to email best and final through. DH and I had a quick phone conversation (both at work), decided on what we thought was our very best and final and if someone offers over we’d accept it as wouldnt be willing to pay more. Of course then we got chosen and have had time to digest this, speak to friends and family (some who are selling) and have been warned this might not be the best idea in the current climate to be paying so much over. I understand we have already made this offer and really like the house so have proceeded and now have a done valuation and been encouraged by everyone to definitely negotiate especially now.

Be very careful with best and final. A friend of mine ended up at £25k above asking which he later found out was way above what everyone else offered. He bought the house, but struggled to get what he paid for it when a change in circumstances meant that he needed to sell. He had to hold on to it for a few more years. Do not assume that the nearest offer was close to yours, it could have been significantly lower.

For those saying you would not pay more than the valuation - certainly no one wants to pay more than they have to, but the unfortunate reality for buyers is (in many areas) if you don't offer over the asking price (which is likely in the ballpark of what the house is worth), you won't get on the property ladder any time soon.

OP, I feel your pain. Best of luck - hope you can get it reduced.