How can lender valuations be 100% accurate? Surely they provide a range?

[Spicegirl1234]

House we are trying to buy is 500K and we have offered that amount. Very similar houses on the same street have recently sold within a range of 475K and 500K. Would the valuation from our mortgage lender provide a range or do they usually come back with a specific figure?

Every one I have seen is either lower than the purchase price (which means you have issues) or the exact purchase price.

@LuckysDadsHat how do people do it then? If you are a FTB you won’t have much extra cash to cover the difference. Is it common to renegotiate price? Does it mean that the bank will definitely not lend you the amount you ask?

The valuer will look at actual property sales in local area of similar properties, there experience and condition of property. If they don't value it at agreed price then yes chance you won't get a mortgage. They will never value at more as all they are doing is saying to bank if lender defaults property good to cover mortgage.

You can try and renegotiate, you can stump up the difference to still get the mortgage with a bigger deposit, you can try and appeal the valuation or you pull out.

The bank will not lend above the surveyors valuation. It just won't happen unless you win an appeal (unlikely). You could try a different lender and hope they use a different surveyor.

How much is your cash deposit?

Because all the lender cares about is that the value of the property exceeds the amount of the mortgage loan (they don't care if you lose your equity).

@RancidOldHag our cash deposit is £50K, potentially can stretch to £55K

@LuckysDadsHat the bank wouldn’t lend above the valuation price though. I need 450K mortgage and have 50K deposit. So if it gets valuated £475K for example, does it mean I could still borrow £450K?

It will depend on your loan to value with the mortgage company. Obviously your loan to value would fall so you may get a higher interest rate from the mortgage. You would be going from a 10% deposit (when it was selling for 500k) to a 5% deposit as you would need that extra 25k to make up the difference in sale price. A 95% mortgage will carry a higher rate in my experience. And some mortgage companies won't want to lend at that loan to value.

@LuckysDadsHat but wouldn’t LTV be still 10% if I covered the difference with a bigger deposit?

@LuckysDadsHat does it mean I’d have to lay that difference to the seller directly?

I recently asked the same question as I was worried mine was going to be down-valued (it wasn't in the end).

My mortgage broker explained if that was the case my options were:

Borrow the same amount but that the LTV/interest rate would be higher.

Stump up the extra (if possible) to bridge the gap.

So my understanding is that you can still borrow the same amount if you don't have the extra money but this will affect your LTV/interest rate.

You don't have a bigger deposit though do you, you said 55k maximum.

You buy for 500k
It's valued at 475k

So for 10% deposit for the mortgage company that would 47.5k needed. You would then still need to find an additional 25k to take it up to the 500k you bought it at.

@Fantalemonfruittwist thank you. But does it mean that the difference in price you’d lay for goes directly to the buyer via a different payment? As otherwise surely the LTV would be lower as you’d essentially pay a higher deposit

I'm not quite sure what you mean @Spicegirl1234
Let's say the lender values at 475 as per @LuckysDadsHat's figures.

Usually, a sensible buyer would negotiate with the seller and agree a reduced price based on the valuation. Sometimes, they might try to obtain a second valuation and an independent RICS valuation.
If, for whatever reason, you choose to over pay for the house you can either taking out a mortgage at a 95% LTV, with a higher rate and therefore high repayments and then put down around 50k deposit (bank lends approx 450k and you put down approx 50k) or you keep the 90% LTV and find an extra 22.5k yourself on top of your 50k proposed deposit (bank lends 427.5k).
Hope that makes sense.
Anyway, no point in worrying about it now, see what the valuation comes back at first.

Loan to value means the proportion of the value of the house that is mortgaged, so if they value at 475k it'll be the proportion of that NOT a percentage of the price you pay if you decide to pay more than they value it at. So a mortgage of 450k on a house valued at 475k is 95% not 90% which will likely change your interest rate

Thanks all, that’s clear. I think I was a bit tired yesterday night so sorry for the silly questions.
I know there is no point to panic now but I have seem the majority of houses in that street sold for less so I think it’s likely it might happen? Why do EAs overvalue properties of this is the risk?

It’s not silly to ask at all. It’s best to be prepared.

EAs overvalue to win business because most people want as much as they can get for their house.

Sometimes they force sellers to sign six month contracts and when they have hardly had any viewings after a fortnight or a month, they blame market conditions and suggest a price drop. They never admit they valued it wrong.

They make so much money getting (legal) backhanders for recommending conveyancers, mortgage brokers, EPCs and other pre sale things that most of them don’t really care about selling houses. They care about how many houses they appear to have on their books when someone browses their listings to buy or sell.

edit: EAs in this country aren’t paid enough to give a shit. Usually 1%. In the states they get 6% and have to be qualified and seem to really know their stuff.

We stumped up the extra. We had seen the previous houses they were comparing ours to and all three of them needed £100k worth of work doing on 30 year old interiors. Ours didn’t. Which was frustrating as they came out £25k under the price we paid…

@DelurkingAJ we don't have much extra to cover a potential 20K difference unfortunately :( I hope it won't happen otherwise I assume the seller will likely look for another (more loaded) buyer?

You do have the option of finding a good mortgage broker and asking them to find you a lender who isn’t doing a lot of downvaluing at the moment. They vary.

Every valuation we’ve seen has been just one amount not a range. Sometimes the Lender hasn’t even shared the valuation with us just authorised the mortgage application.

I guess we have been lucky but we’ve never experienced an undervaluation so while it does happen, it may well not happen to you.

If it happens it’s a problem for the seller as well as the buyer. Normal practice if the valuation was 20k under would be for both parties to try and meet in the middle so maybe they would reduce the price by 10k if you could raise another 10k somehow.

But as I said above, it may not even happen 🤞

I’ve often wondered this. Our house was on the market for £350k. We ended up offering £390k to secure it so I was totally convinced that it would be down valued. The mortgage company’s valuer apparently spent a fair few hours closely inspecting every part of the house and somehow ended up coming back with a valuation of £390k which I was very surprised with but relieved!

To my mind it’s surprising how often the Lenders valuation exactly matches the agreed purchase price.

Not always of course but very often.

Yeah, we bought our house in 2020 for £370k and the bank valued it at £410k. Our mortgage broker was surprised and said he'd only ever seen houses be either downvalued or valued at the agreed purchase price.