What to do if a property is down valued

What is a property down valuation?

In most instances, property buyers require a mortgage to complete a property purchase. The mortgage lender that the buyer is using will need to carry out an independent survey to prove that the property is worth the price being asked by the seller. A down valuation occurs when the survey report indicates that the property is valued at less than the seller's asking price.

For example, if you agree to sell your home for £250,000 but it is down valued at £240,000 you may have to reduce your original selling price to prevent your buyer from abandoning the purchase. In an active housing market with low availability of similar properties it may not be necessary to reduce the selling price if the down valuation is close to the agreed price.

A survey carried out in May 2020 by Bankrate UK showed that 46% of buyers surveyed had their prospective properties down valued by their chosen lender.

What is a mortgage valuation?

When agreeing to purchase a property the buyer will pay for a mortgage valuation at the time of completing the mortgage application with their chosen lender. A mortgage valuation is the most basic valuation available and will only provide the lender with a view on whether the property is worth what the buyer is paying.

When carrying out a mortgage valuation the surveyor will take into consideration the following:

• condition of the property
• sale price of similar properties in the area
• an understanding of the prevailing market

Unfortunately, once a seller has accepted an offer on a property it can take 4-6 weeks before they are made aware of any problems with a down valuation. The reason for this is that the buyer needs to complete their mortgage application and the lender will need to carry out all their background checks before they instruct a survey. If the lender instructed a survey before they had carried out their background checks and the application was declined then the buyer would forfeit their survey fee.

Once a mortgage valuation has been completed the lender will advise the buyer if there has been a down valuation.

Why do properties get down valued?

A property can be down valued if the marketing price of the property is considered to be too high when compared with similar properties in the same location and in the same condition.

If the current property market is in decline with low transaction levels then it may be difficult to value a property accurately. Conversely, if the property market is buoyant with property prices increasing rapidly then selling prices may be pushed to unrealistic levels due to supply and demand. In this instance, a surveyor may decide that a property is not worth what the buyer is paying and estimate a valuation below the asking price.

What can a buyer do if a house is down valued?

Negotiate a price reduction

If you are a buyer and the property you are purchasing is down valued you should, in the first instance, speak to the seller and discuss a reduction in the selling price. Have a read of our article 'How much should I offer on a property?' and pay particular attention to the section headed 'How to negotiate down a property price'.

From the seller's viewpoint, this might be the best option rather than risk you walking away from the sale leaving them searching for a new buyer. If the seller agrees to reduce the sale price, but not as low as the down valuation price, it will mean that you will have to put up a larger deposit to secure the property.

Apply for a higher LTV mortgage

If you are looking to buy a property that has been down valued then you could apply for a higher loan to value mortgage from your lender. Whether you are successful or not will depend on your financial situation.

Apply for a mortgage with a different lender

Applying for a mortgage with a different lender is an option but may result in a similar outcome but with the additional outlay on fees and further checks on your credit report. If you are considering applying with a different lender I would suggest reading our article "How to get the best mortgage deal."

What can a seller do if a house is down valued?

Reduce the asking price

If you are the seller then you have the option to drop the asking price or risk losing your buyer. If you lose your buyer you will have to remarket your property and if you remarket at the same price you run the risk of a similar down valuation with the next buyer. If you do accept a lower offer on your property then this will have an impact on your finances if you are looking to purchase another property. It may mean that you will have to review any offer you've placed on a property you are looking to purchase.

Find a new buyer

It may be that you are not willing, or able, to negotiate on price and in this case you would have to remarket the property and find a new buyer. In an active housing market you may be able to find another buyer easily, however, in a slower market it could be many weeks before a new buyer is found. Once a new buyer has been found you may still have the same problem with down valuation as you had with your first buyer.