Mortgage valuation 40k lower than offer

[theblueflowers]

Wondering what people would do in our situation? Found a lovely house. It's a 5 bed extended cottage. Extension is on the back. House was on the market at 820k but had been on for 6 weeks in an area where property moves pretty fast.

We put in an offer of 775k, counter offer of 780 was agreed- happy days! We have no property to sell and can move out of our current accommodation at any point, so I think this was in our favour.

Went ahead with a mortgage broker and Lloyds is our best bet. We have a 40% deposit, but will still be stretched with repayments. Valuation of the property has come back at 742k and we are now stumped. We have been told that Lloyds have not been to see the property, so the extension may not have been taken into account.

We think we have these options:

1. Pull out as whilst our mortgage offer will hold, our LTV will change and this will affect our repayments which are already quite high for us. 40k is an insane difference to us. Our mortgage advisor said it was highly unusual.

1. Renegotiate price at this point- EA already admitted that she thought it was on too high to start with and we already have got the price down. Don't know how well this will go.

1. Continue with our level 3 survey, wait for this and then renegotiate price with both the mortgage valuation and the survey as 'evidence' that justifies our change in offer.

I have fallen in love with the house, can see us being there at least 10 years, but am trying to be pragmatic. I cannot see the sellers dropping another 40k, but surely they are going to face this problem with any buyer who needs a mortgage?

Could you try a different mortgage lender? If they also think it's worth 40k less then you'll be in a strong negotiating position, and if they value it at the sales price you can proceed as you'd hoped?

Being a first time buyer, I'm not as experienced as others on here, but I note you say you've fallen in love with the place and can see you being there for 10 years.

Is this clouding your judgement a bit and making you think it's worth more than it actually is to the general market? The bank wont care about how you feel or what your intentions are (as long as they're legal and within their terms). What they care about is being able to recover the cost of their load if they have to repossess.

Furthermore, you needs to allow for this -

• Sellers don't always listen to the estate agents, so the owners might have insisted on listing the house for higher than what it's worth on the general market
• Some estate agents will try to bag a customer by telling them they can sell a house for more than it's actually worth on the general market, and will also build in a certain amount into the price to allow for people trying to bargain.
• Some sellers aren't that serious about selling. They list their house on the market just to see what they can get. They're not as emotionally invested and so may not be afraid of whacking on 50k extra on there.
• You don't know what's going to happen in 10 years. If you need to move in 2 years, this experience might give you a clue as to what might happen to future prospective buyers if they want to buy from you, at the price you're willing to give these owners.

You'd be completely insane to take on a property that is so vastly overpriced when it would be a 'stretch' for repayments. Gently, you should go for something more in your budget that is actually priced properly and save yourself the unnecessary stress and expenses. If you press ahead with this property you're going to end up spending an arm and a leg on fees etc and there is no way that the seller is going to come down that much.

You'd be surprised how unreasonable people can be when it comes to selling - there's a property near me that my parents looked at. Came back £50K lower valuation than they had agreed with the seller. The seller still has the house on the market (18 months later) at the original price they wanted to sell it for. Bonkers.

Check whether if they did a drive by valuation and as you suspect whether they are unaware of the extension.

Get another 2 companies to do a mortgage valuation?

A lot of people are going to need a mortgage for a property of that price so the sellers are going to hit this obstacle whoever they sell to.

Thank you for your comments so far, very much appreciated.

I do think my feelings about the house are definitely stopping us from pulling out immediately. Lloyds are offering a very good deal for us with such a big deposit- none of the others came close. I'm just amazed that they could do this valuation without seeing the place. When we queried it with Lloyds, they said that they might not even be aware of the extension?! It was a 2 bed before.

My husband is of the view that we go for the best house possible to avoid paying more stamp duty down the line if we need to move again. Currently our mortgage will be 35% of our income, which is a lot more than our rent which is where my views of being stretched come from.

The sellers really want to move, so I can't see it staying on the market for years. (We coincidentally know someone who works with the seller- they don't know about this connection!)

It’s desk top. They don’t do drive bys.

We're not FTB, but sold our properties quite a few years ago now, so feel like we are!

We had same situation, but as sellers, so I made our estate agents go back to the Surveyor and revise their valuation upwards for the mortgage provider. We'd has 3 offers at the asking price, so how the valuation could decide the house was worth £25k less was puzzling, and I was very confident the desktop valuation was out of line. All happened fairly quickly and the sale went through at the original price. You seem to have less confidence in the sale price to begin with, so I would get another independent valuation done before any negotiation with the sellers.

So can you not afford it anymore? I doubt they would reduce it that much tbh. They could find another buyer with a bigger LTV so wouldn’t require such a big mortgage.

We have just had our place valued. One estate agent who did a desk based study (I don’t even think they did that) said it was £100k less than the person who came to look at it!! The sold house prices reflect the second estimate, so I’m not sure what the first agent my was doing!!

It sounds like the bank are confusing you by saying they may not have viewed it.

There is absolutely no way that extending a house by 3 bedrooms would only add 40k to the property value. I reckon they have valued it from a Rightmove link, and possibly also building applications online showing the size of the extension.

35% of our income wouldn’t be a stretch for us because we don’t have kids. But if you do - hmm - idk. It’s risky.

Ofc you can go with another lender but it sounds like you have already found the one who is prepared to be most lenient around you stretching your finances. So the only options are to walk away or negotiate hard.

The valuations get more unreliable the higher they are. 5% of 120k is only 6k, 5% at 820k is 40k.
It’s not an exact science. You’d be mad not to negotiate down though if it’s valuation came back at 80k/10% under initial asking.

I understand mortgage valuations (rather than estate agent valuations) use one of a small handful of valuers. Another mortgage valuation is likely to come in very similarly - assuming there is no error in your mortgage provider’s valuation.

So, if you’re satisfied they haven’t missed something important you can go back to the vendor to drop your offer. If they want to sell they will have to adjust their expectations.

Actually no, there can be big differences between valuers, it’s very common for one to say one number and another another higher number. It’s even there in your post. Sure they use a small number but they don’t liaise on each property.

What did your surveyor value it at?

@Revelatio we can afford it. We have about 60k in savings that we decided to not put toward the deposit and instead use for house renovations etc. We're also coming from a tiny two bed so have limited furniture so that was the plan for the money, but it could go towards it.

I guess I just wouldn't want to live there and feel like we were a bit stupid and suffer buyer's remorse. I have never heard of a situation like this so not sure if I'm being really naive.

Everyone we talk to in real life about it assumes we're going to pull out straight away. I was thinking more of having the survey and going from there, but people (mostly our parents) are saying that's just a waste of money as no seller would drop down that much.

We have a one year old and are planning on having another in the next few years, so that has been factored into finances.

I would quickly get a rics valuation done. It's not expensive and you will find out a much better idea of its true market value.
If a RICS surveyor also tells you it's overpriced you then have two surveys to renegotiate with. If not happy days because the independent survey will be more accurate.

I think you need to try to think clearly with your heads instead of your heart (you say you have fallen in love with the house).

You are a young couple, with one child, wanting another one therefore a lot of responsibility and bills (unless you are fortunate enough not to have to pay for childcare).

Perhaps you could try option 2 (although you've labelled them all 1!). Email the EA and explain that the valuation from the lender is 742k, therefore considerably below the offer accepted. Say that you therefore will not be able to pay the agreed figure and then see what the response is from the vendor. At least you will then know whether or not they are prepared to negotiate.