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Down-valuations: Lower lower!! Higher, higher!!

publication date: Oct 20, 2009
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Downvalued propertyWhen a bank insists on a re-mortgage valuation of a property which is worth five times more than they are being asked to lend, you know they are still blowing on their burned fingers.

Even the chap sent to value my house thought they were wasting our time and their money. But valuations have ceased to be a straightforward matter of comparables, as far as some banks are concerned.

Their extreme caution – and resulting pressure on the valuers – is raising the blood pressure of estate agents who see sales slipping needlessly through their hands.


Quentin Jackson-StopsQuentin Jackson-Stops, of the Northampton branch of the eponymous estate agency, quotes a case he had earlier this year where a sale fell through because of a huge down valuation. The property was a smart barn conversion which had been on the market at £925,000. A sale was agreed at £850,000, already a sizeable adjustment in price. When the valuer came to value it for the buyers’ mortgage company, he reported it was worth only £800,000, despite being given comparable evidence to support the agreed price. The sale collapsed. “I tried to recover the situation,” says Jackson-Stops, “but he was not prepared to budge. At that point, lenders were scared of their own shadows.” The story had a happy ending for J-S and the vendor. Within a couple of months, the market began to rise and Jackson-Stops negotiated a £890,000 offer, which has completed. Not such a rosy outcome for the original buyer though.


Unsurprisingly, customer satisfaction with major mortgage lenders is on the grumpy side, according to a recent Which? survey. This year’s bottom five lenders were also voted the worst in 2008 (you know who you are, Barclays, Northern Rock, Abbey, Halifax and RBS), so there has been no apparent improvement in their efforts to impress. Small lenders and building societies came out top of the satisfaction stakes, which could be an indicator of borrowers returning to local firms with a more flexible and friendly customer policy. Valuing, says Quentin Jackson-Stops, is a Lower lower!! higher, higher!! comparison business, with a little crystal ball gazing thrown in. There is a raft of information websites which chart the actual price a comparable property sold for, available to the valuer as easily as to the estate agent. However, it is personal knowledge, claim the agents, which help decide the closest valuation.


Richard Barber, a Partner at London agents WA Ellis, is relieved there have been enough sales over the past six months to provide comparable evidence when putting the case for a valuation. “We are lucky, in London, that people are relatively open about prices and we are in a niche market,” he says. “Valuers in Central London are feeling bullish at the moment because they feel relatively safe. However, in some areas, like Manchester, or London Docklands, I would be uncomfortable because of over supply of property and not many buyers. “We did have one instance a couple of weeks ago when the valuer said he didn’t accept evidence from selling agents. Perhaps he had been given inaccurate evidence in the past from agents who cherry-pick their evidence. We gave it to him anyway and told him to check against the Land Registry.”

Carl DavenportCarl Davenport, of Chesterton Humberts in London, goes even further and checks back over five years of sales in a development, to gauge its success, buyer/seller turnover and then work out its premium. He matches that with what his registered buyers are prepared to pay. But he has still had a valuer wipe thousands off an asking price. “We have recently had a property down-valued by £50,000. Fortunately, a cash buyer is proceeding as he doesn’t need a mortgage.”

Skullduggery by rival agents may also be playing a part. Davenport says some valuers have trusted the word of an agent who has claimed a particular property is being marketed at way over the true value. The valuer adjusts the price, the deal falls through and the rival sweeps up the re-listing from a disillusioned vendor. Do valuers deserve to take the flak for deals which fail because buyers can’t raise more funding to cover the gap between their offer price and the mortgage offer?

Eric Shapiro“Valuation experts, a critical but relatively obscure slice of the property world, have become the centre of sometimes unwanted attention in recent months,” claims Eric Shapiro, Chesterton Humberts’ head of professional services. “Valuers have developed a much higher profile within the industry than we normally have, with professionals regularly coming under intense pressure both to revalue properties in light of the recession and to answer questions about valuations made before the recession hit. “Downvaluing is a problem. Valuers should not be watching their backs, or the lenders’ backs. It is not their duty to knock 10 per cent off the price. They are there to provide a market value on that day. If someone is borrowing 90 per cent of the purchase price, they can’t afford a down valuation.”

It is a fine balance, especially in volatile times. As Eric Shapiro points out, prices today may be rising because of a shortage of supply. If more people put their property on the market, it could lead to another dip.

“He is entitled to give an opinion – only if he has good reason to – but the decision is the lender’s,” says Shapiro.

“He cannot confuse his position with the lender’s position. As is clearly evident in PROPERTYdrum NOVEMBER 2009 37 residentiallettings the wake of the last year’s dramatic fall in property values, each property must be assessed on its current value, to avoid any indication of negligence.”

The valuer may well be getting squeezed from both sides. According to Richard Barber, ‘relationship managers’ in banks are leaning on valuers to bump up the value because they have to fill their quota of lending to keep the banks in business.


Sarah RobsonSarah Robson comes in to bat on behalf of the Council of Mortgage Lenders.

“Lenders have to ensure that the value of the property taken as security on mortgage loans is current and realistic,” she says.

“Borrowers also benefit, as it could help them avoid paying over the odds for the property they are buying. Lenders only use valuers who work to industry standards and who are under a duty to ensure their valuations are as accurate as possible.”

Economic uncertainty, low transactions, falling prices and a lack of similar property transactions to provide a benchmark, has made valuation difficult, she adds.

Howard ElstonHoward Elston of Aylesford International is in heartfelt agreement. “Prices are wildly erratic. There does not seem to be any serious trend in London except that some property is performing better than two years ago, and some is faring much worse. There is little comparable evidence of transactions which have taken place in the last nine months, therefore you have to go on gut feeling – and that is never foolproof! Most agents accept prices should be lower than a year to 18 months ago, but most vendors won’t sell at that price unless they are in trouble.”


Nick ChurtonAh yes, the paying customer. Nick Churton, with 40 years in estate agency under his belt, and now MD of property specialists Mayfair Office who represent a number of nationwide agencies, remembers the advice he was given as an agency nipper.

“I was always taught one of the most difficult tasks was convincing an owner their property may be worth a little less than they think it is... sometimes a great deal less,” he says. “The knack then is learning how to give the owners the truth without upsetting them. Sadly an inexperienced, or unscrupulous agent gives a high valuation. This does the owner no favours.” Location and size may govern the value, adds Churton, but these are subjective. “The property is worth what someone will pay for it, not the value an estate agent puts on it. Property, like all commodities, will find its own value.”

Trevor Abrahamson‘Be prepared’ says Trevor Abrahamson of London agents Glentree. He finds it better to warn client in advance that a valuer acting for a lender is likely to put in a lower figure. “Valuers have even said to me, ‘we phone four agents to compare prices, then we knock off 10 per cent’. We know they are going to do that, so we prepare for it. The valuer is as concerned about being sued if he gets it wrong, as he is about getting the value right.

“However the biggest problem we have at the moment is agents telling the vendor what he wants to hear, rather than what he should actually know. The honest agent will give a realistic price.”

Martin BikhitLondon estate agent Martin Bikhit, MD of Kay & Co could have felt justifiably pleased at securing a £2.9m offer on a property which had been on the market for well over a year at £2.8m. However, the owners, seeing a market upturn, said they wouldn’t accept anything less than £3m. By the time the amateur valuer/owners saw the light a fortnight later, their fish had wriggled off the hook and swum off.

“There is a lack of comparable sales evidence,” says Bikhit.

“We are getting good offers but there are not enough recent sales at similar prices to back up the prices being achieved.”


Barry HallThe last word should go to the people at the sharp end of all the criticism. Barry Hall, Chairman of the RICS Residential Survey and Valuation Group, wishes people would stop using the term ‘down valuation’. “In fact, it is a valuation that doesn’t accord with the aspirations of the vendor or the asking price of the estate agent,” he says. “It is an emotive term. The agent may look into the future when deciding on a price, the valuer is looking at now. The valuer tries to work as close to the front of the market, but must not anticipate the market.”

The agents’ gripe is that valuers are not taking account of recent property price rises, and still taking comparables from a moribund market of nine or 10 months ago. “Down-valuing is the wrong spin on what’s going on,” insists Barry Hall. “How can we tell if we are looking at a pick-up, or is it a double-dip?