You’ve accepted an offer on your home and maybe even found your next property. Everything seems to be going well.
Then your buyer gets in touch to tell you their mortgage lender thinks your home isn’t worth the agreed price. And they’re considering pulling out of the purchase.
This is known as a down valuation. It sounds like a nightmare scenario. But don’t panic, there are steps you can take to keep everything on track.
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What is a down valuation?
A down valuation is when the surveyor assessing the property’s value for the mortgage lender thinks it’s worth less than the price agreed.
For example, if you have accepted an offer of £200,000 but the surveyor thinks the property is only worth £180,000, the property has been down valued by £20,000.
As a result, the mortgage lender may reduce the amount they’re willing to lend on the property, or even decline to lend on it altogether.
How are mortgage valuations done?
The way a mortgage valuation is done varies from lender to lender.
Some lenders carry out full valuations conducted by an independent surveyor.
Some do drive-by valuations in which the valuer just views the property from the road.
Others do desk-based valuations and don’t even visit the property.
Valuations take a number of factors into account.
They include the size of the property, its amenities, such as the number of bedrooms, whether it has an office or garage, and its condition.
They also consider the local market. That includes looking at the sale price of similar properties in the past six to 12 months, and the current level of supply and demand in the area.
Why would a property be down valued?
There are a number of different reasons why a property may be down valued.
Down valuations often occur during booming housing markets.
This is because when a high number of buyers are chasing a limited supply of properties, prices get pushed higher.
But surveyors also base their valuation on how much your home might sell for in normal market conditions.
Your home may also be down valued if you’ve been ambitious with your asking price.
Or if you have put a high value on home improvements you’ve carried out, such as putting in a new kitchen or landscaping the garden.
A down valuation may also happen if the surveyor uncovers a structural issue with the property.
Or, if your home is considered to be ‘risky’. For example if it is constructed using a non-standard material.
Finally, a down valuation may happen if there simply isn’t enough data on the sale prices of homes similar to yours in your area.
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How often do down valuations happen?
Down valuations are actually very common.
Research carried out by Bankrate UK found that in recent years nearly half (46%) of all properties have been down valued.
Properties in the £400,000 to £500,000 price band were most likely to be down valued.
The good news is that most down valuations were relatively small.
In 44% of cases the property was down valued by between £5,000 and £10,000.
But one in four buyers faced a down valuation of between £10,000 and £20,000.
In extreme cases properties were down valued by as much as £240,000.
Can you negotiate after a down valuation?
Yes, as long as you haven't exchanged contracts yet. That’s the point at which an agreed sale price becomes legally binding.
In fact, if your buyer receives a down valuation, the first thing they're likely to do is try to renegotiate the sale price with you.
What can you do as a seller if a down valuation happens on your home?
Don’t panic if your home is down valued. You still have options. Here are some of the steps forward you can consider:
1. Ask the buyer to try a different lender
Different lenders use different valuers and different valuation methods.
As a result, your current buyer may get a different result if they apply to a different lender.
A mortgage broker will often be able to tell you what type of valuations different lenders do.
2. Accept a lower asking price
While no-one likes to kiss goodbye to thousands of pounds, it might be worth accepting a lower asking price if it enables the sale to go ahead.
It’s worth considering this option if you are in the process of buying your next home and have already spent money on surveyors’ and solicitors’ fees.
3. Split the difference
If you are not in a position to shoulder the full down valuation on your own, try negotiating with your buyer to see if they will split it with you.
If they have already spent money on trying to buy your home, they’re likely to be as keen as you are for the sale to still go ahead.
3. Fix the problem
If the down valuation has been caused by a structural problem or other issue with the property, you could look into getting it fixed.
This could take some time, though. And as a result, you may lose your current buyer.
4. Consider indemnity insurance
You could consider taking out an indemnity insurance policy on the house.
This is usually paid for by the seller and can sometimes help a sale to go through if problems crop up with past building work during conveyancing.
It can give the mortgage lender extra confidence when it comes to loaning your buyer the mortgage they need.
Indemnity insurance is bought with a one-off payment and lasts for decades.
It can cover things like building works done without planning approval, outbuildings put up in areas where there's a restrictive covenant forbidding them, or liability for chancel repairs, which can be very costly.
However, all indemnity insurance policies contain a clause that the insurance will be invalidated if the existence of the problem is revealed to third parties.
So, if you had indemnity insurance for an extension built without planning permission and then sought to obtain retrospective planning permission from the local authority, that would invalidate the insurance. Even if planning permission was denied.
In reality, it may be better for you to obtain retrospective planning permission for your buyer.
Or to take your home off the market while you do so and then re-list it for sale once you have full planning permission in place.
5. Find a different buyer
Different mortgage lenders use different valuers. So if your new buyer is applying to a different lender, they may get a valuation that is closer to the sales price.
If house prices are rising in your area, a new valuation a few months down the road may also be higher.
While down valuations are a pain, don’t despair. You can often find a way forward with the buyer that enables the sale to go through.