Anybody who remembers the last property slump in the early 90s will be familiar with a topic reported on recently by the Times.
This is the practice of surveyors undervaluing property.
Research by the commercial law firm, McGrigors, suggests surveyors are valuing properties up to 20 per cent less than an agreed sales price. It means many buyers need to find a bigger deposit or see their purchase fall through.
Landlord insurance brokers - widest possible choice
Cash rich landlords can use this to their advantage when negotiating a deal. Motivated sellers keen to complete a sale will look at a professional surveyors report and valuating as giving a price reduction credibility in a way that they wouldn't if it was just the view of a buyer.
Surveyors often defend low valuations as them just being cautious and professional. (funny though that they weren't so cautious at the top of the market when real caution was warranted!)
The flip side to caution
Whilst the under valuing of properties is good for cash rich landlords trying to get a bargain it's not so good for the recovery prospects of the market or landlords requiring buy-to-let mortgage finance.
Suzanne Gill, Partner at McGrigors, points out: “Surveyors are making some very defensive valuations which are significantly below prices which have been agreed between seller and buyer. This is making it much more difficult for sales to complete and holding back house price growth.”
The practical implications of undervaluing
If a price of £120,000 has been agreed for a flat, a buyer seeking an 80 per cent mortgage (i.e, requiring a 20 per cent deposit) should be able to borrow £96,000. However, if a surveyor values the property at £100,000, the buyer will only be able to borrow £80,000. The buyer will then need a deposit of £40,000 instead of £24,000.
The practice of low / cautious valuation is likely as it did in the early 90s continue for several years as surveyors on the instructions of their lender paymasters seek to protect their clients from being over exposed on their lending by advancing inadvertently high LTVs.
During this time, cash rich landlords can use a surveyors caution to drive a hard bargain and secure an even better deal.
McGrigors says surveyors are permitted a margin of error in their valuations of up to 20 per cent. Valuations which are deemed to be more than 20 per cent inaccurate could form the basis for legal action by the lender.
Free property management software, Free tenancy agreements
No comments:
Post a Comment