So in the current market, what happens when a mortgage valuation comes way under sold price?

[Februarymama]

Hi everyone,

Looking for a bit of advice if that’s OK! We had an offer accepted on a property back in April, and tomorrow is our mortgage survey and valuation. Our accepted offer was 30k above asking. We sought advice from estate agents at the time (independent estate agents not associated with the sale) who suggested the property was worth about 15-20k over asking, so we’re hopeful that this is what the valuation will suggest.

If this does not happen though and the house is valued at or below asking price, we are in risky territory with our mortgage. We’d need to change our LTV rate and potentially not be able to afford monthly payments.

So what happens in these circumstances? We’ve spoken with family and friends who have all suggested that the norm in this situation is for the vendors to accept a lower price more in line with the valuation, but I don’t see how that can apply in the current market where people know that the price they’re offering is above market value (because there isn’t anything on the market and we’re all fed up of being outbid!).

What would you expect to happen? Does us bidding in best and final really mean that.. so no renegotiation regardless of the survey? If that is the case though we might not be able to afford the mortgage at all with the new LTV rate 😕

They may be willing to negotiate, otherwise you’d be expected to come up with the money, either from savings or extra mortgage. That said, we offered £70k over and had no issues with valuation.

If they won’t renegotiate you’d need to come up with the deficit in cash.

Yes as above, we are coming up with the deficit. If it’s a Sellers market they’re unlikely to budge.

I don’t have any advice but to give you a bit of hope, we offered £40k over the asking price and we just got our valuation back today at the exact price we offered. I was convinced it was going to be undervalued so we’re very relieved!

My valuer told me that RICS surveyors use recent comparables as their strongest valuation evidence (though they use other factors as well). However, Land Registry currently have a huge backlog on making data public due to the pandemic, so there may be limited sakes showing in your local area.

I offered on a place a couple of months ago, buying privately for 10% more than vendors planned to sell for 18 months ago. First valuation came in at £35k below agreed price. Mortgage is 85% LTV and I didn't want to lose the house as there's so little coming to market, so I paid for a second valuation survey, which came in at £20k lower than agreed price.

Vendors agreed to split the difference with me, so they came down £10k, while I went £10k over valuation. They could have walked away entirely, but they'd have to weigh that up against the time for going on the open market, plus having to pay EA fees.

Your vendor will either negotiate with you, or they'll go to the next proceedable offer. I doubt they'd come down fully to meet a large down valuation, as there's so many cash buyers out there who this wouldn't be a problem for.

*limited sales

In May last year my house was listed for offers between £180-190k (Midlands), it was best and final immediately, I offered £192,500. It was accepted. Mortgage Valuation took place in about July, they agreed with my offer and the mortgage was offered on without issue. I moved in October, estimated value of the house on Zoopla is now £220k, so if I defaulted at this point the lender would be fine, all they care about is that they’ll get their money back if you default and that your deposit + equity is enough to cover any potential shortfall at auction. It’s all so crazy at the moment that who really even knows what anything is truly worth.

Depends how much money you’re talking over asking price too, I’d imagine, I doubt the surveyor will put their head above the parapet for the sake of £10k-30k - but that’s relative to the total value of the property. £30k over asking on a £150k house is very different to £30k over asking on a £500k house.

Offer lower if not walk away. I would never pay more than what a house is valued at.

Thanks again, these replies are helpful. It seems like it’s a real gamble on what will happen. Hopefully we’ll know this week if the valuation is tomorrow. The accepted offer was 480k, if it helps with responses.

@Sitdowncupoftea but a house valuation is so subjective. We also accepted an offer for 25k over asking on our own property.

@Februarymama if you got an extra 25k then we'll done. Personally I would not pay anything more than the house is worth. I never have on any house I have bought but that's me.

For is the house was for sale at £135k. We offered £142,500. The surveyor valued it at £137,500. But he also flagged up some major works. So we had subsequent surveys done and revised our offer substantially lower. Vendor has admitted he tried to hide known issues and we’ve agreed on £137k. Bank happy, we are ok to go ahead, vendor still making substantial gains on what he paid.
See what your survey comes back with and then decide what course of action you want to/have to take.

The people that come and do the mortgage valuations are fully aware of the market and will take this into consideration as currently that will be what your house is worth. I think unless there are major issues that require building work most of the time the valuation comes in at the price you offered x

I don't think it's true that the valuations mostly come in at asking price right now. Ours was downvalued but luckily only by 7.5k. Sellers wouldn't budge so we had to find the extra money. Luckily the house was under our max budget anyway (not helped by the fact that we had previously offered more on a different property that we didn't get with the same EA, so we they knew we had the cash). But then I have heard of sellers who have at least split the difference.

In the current economic climate you are mad to pay more than a house is valued at!

When my son was buying a house it was advertising as offers over X. He put on offer for £2k over X. His offer was accepted. Building society valuation was that house was worth £8 less than his offer. Venders reduced price by £8k. He bought house.

Why is this conversation coming up every 5 mintues. Its simple. You offered X. It doesnt matter to the seller whether the mortgage company value it at anything less than X. You have to make up the shortfall. No ifs, no buts.

People keep banging on about how dishonest and difficult the English housing market is but if we cant stand by our offers then WTF is the point. House for sale for £200k. I will give you £500k in monopoly money if thats ok. Because thats basically what you are saying.

Do your homework BEFORE offering. If you cant afford it then dont offer. If its overpriced then offer what you think its worth. If its overpriced then stand by your convictions and move on to another.

If i was selling a house and someone even mentioned changing the price it would be back on the market the same day. If you want to view, fine. If you want a survey, fine. If you cant afford it, stop wasting peoples time

The thing is you can’t do your ‘ homework ‘ before offering. You have to put an offer in, have it accepted, before you can get a surveyor in. Then that survey may throw up additional items that require further surveys. At which point the buyer may renegotiate, pull out or go ahead with the sale.
The only alternative is that vendors have a survey done prior to marketing, so buyers are aware before viewing of the what hidden horrors they may need to rectify.

There was no way at the TEN minute viewing we were allowed, that we would have spotted that the mains electricity supply wasn’t earthed, the garage (no key supplied at viewing) has asbestos, that the floor joists in one room are rotting in one corner (covered by furniture) or that the chimneys are not cowled properly. The vendor has admitted he knew of these defects.
Having the surveys in hand, we were able to renegotiate. It’s quite normal to do.

@Alphabet1spaghetti2 so what is the point in offering. As per my example, you may as well triple the asking price and offer it in monopoly money if you are not going to stand by your offer.

Your list of issues with the property means you really didnt know what you were trying to buy. Fair enough.

But for every post like this one, there is another complaining about a CG who has made an offer and is now trying to renogotiate before completion and how dishonest it is blah blah blah.

Completely agree with this The only alternative is that vendors have a survey done prior to marketing, so buyers are aware before viewing of the what hidden horrors they may need to rectify.

These threads are getting very common.

I wonder if sellers need to start telling potential buyers that they will only accept their offers over the asking if they are in a position to make up the defecit should the mortgage valuation come in lower.

@Tessasanderson because that’s they way our housing market works and has done for decades.
my list of issues are nothing to do with what I do or do not know about a property. They were blatantly hidden problems only uncovered by subsequent surveys. Two of which were specialist surveys. Sorry I don’t take a set of roof ladders with me to every viewing, nor am I qualified household electrician. Didn’t help with the vendor not allowing access to the garage on viewing - I’ll remember to take my lock picking kit with me next time!!! Anyway, just how much of these issues do you think you can uncover in 10 minutes? Our first survey was three hours in length.

Had the property been in the condition the vendor wanted us to believe it was in, we would have happily paid what we offered and have done the sale in less than a month. If he had been honest from the start, we would have offered lower to start with.

An independent level 2/homebuyers survey which is acceptable to lenders should be completed as part of having to put a property on the market. I think that's what they do in Scotland. Then everyone would know exactly what they are bidding on beforehand, with no chance to negotiate afterwards.

No, that's not just you 😂Everyone pays what a house is worth because the amount will depend on how much it is worth to the purchaser. The mortgage valuation is different. That is an assessment of how much the bank will lend.

If it comes up lower OP, and the vendors won't renegotiate, you will have to go with a higher LTV, a bigger deposit or pull out.

All other asset classes are plunging right now on the back of increasing interest rate and weak spending due to inflation. Wouldn’t be surprised if sellers are willing to accommodate a small discount before things turn ugly.

Yes. My vendor has delayed and delayed the survey. I put my offer in 6 weeks ago. I wonder if there are major defects but I also think they have shot themselves in the foot because it wouldn't surprise me if house prices started to drop soon.

I don't think you understand how the house buying process works...