A question which I often get asked, particularly by new investors is ‘Peter what should I do if I have a down valuation?’
So, the premise behind this question is that the investor has found a property which they want to buy and maybe they’re buying it with a buy to let mortgage but the valuer has been round and they’ve downvalued the property, they’ve valued it potentially at less than the investor is paying for the property.
Or another scenario could be that they’ve bought the property and they’ve done a refurb and then they’re going to refinance and try and get some of their money back out on the refinance but the valuers gone around and the valuer hasn’t agreed with the estimate that the investor had of what the property would be worth after the refurb and so they’ve downvalued it and they haven’t been able to borrow out as much on refinance as they hope to.
So what can we do about this?
Well, if you’re buying the property then of course one thing which you could do is just walk away from the deal, but that’s very negative and I would say that that would have to be the extreme. You wouldn’t necessarily want to do that if you put your time and effort into finding a deal and the deal stacks, and it must do otherwise you wouldn’t be buying it, then the one thing you don’t want to do is just walk away. So it would have to be a very extreme situation to make you do that.
So, what else could we do?
Well, the first thing which most people think about doing is to appeal to the lender and to ask for either a second opinion or a second valuation, or for the lender to step in and say “Well we’ll go with your valuation, not with the valuer’s valuation”.
Well of course they’re never going to do that. If there’s your valuation or a valuer’s valuation they’re going to go with the valuer’s valuation.
But will they allow an appeal?
This is the key thing, when I first got into property one of the first properties I bought was downvalued, and being a chartered surveyor and having done many mortgage valuations at that time I put together what I thought was a cast-iron case to send to the lenders showing comparables, showing exactly what I thought the property was worth, what it was worth and I sent it off expecting them to capitulate and say “Yeah, of course, you’re a chartered surveyor, you know what you’re talking about. We will get a second opinion or we’ll just use your valuation”.
What happened, they just said “We’re ever so sorry but the valuer is the valuer. You asked the valuer to do the valuation, that’s the valuation we’re using”. My appeal made no difference at all. And that’s what many, many people find.
There’s probably only two times when a lender will think about an appeal.
One is if there’s been a mistake around fact. So, for example, a valuer might go out and they may valuer it as a two-bedroom property when it’s a three-bedroom property. It could be something as simple as that, but there has to be some kind of mistake around fact. It cannot be what you consider to be a mistake around the value unless, and this doesn’t apply to all lenders, all lenders have different criteria, but possibly if your estimate of value, which you would have out down on the application form or, more likely, your mortgage broker would have put down on the application form, varies with the valuer’s estimated value by around about 50% then the bank may take notice, but it’s not guaranteed.
So, what can we do then if we have a down valuation and it’s helped perhaps after you’ve discussed this with your broker that it’s not worth putting in appeal?
Well the last thing you can do is you can ask your broker to make an application to a different lender. Why? Because the chances are that the different lender is going to appoint a different valuer to come out to the property, and that valuer will have their own opinion of the value, and hopefully that particular valuer isn’t going to be pessimistic and as gloomy as the first valuer who went out.
The frustration with that is though, of course, that it is going to delay matters. It might be that you have to then go through another four weeks or six weeks of getting the broker to put in the application, and for the bank to process the application, and for the bank to then appoint a valuer to go out and do the new valuation. But unfortunately, there’s not very much you can do about that. It will cause time delay, it’s not an instant process.
But, of course, the other thing that goes with that is that there’s going to be extra costs, you’re going to have to pay the new valuer a new valuation fee. The mortgage broker may well want a fee, depends what your relationship is, and it depends on how they charge but potentially it could be a broker’s fee. And, of course, the other thing which could happen is it could be fees other than the valuer’s fees which may be duplicated.
So, all in all it’s a timely process and it could cost you a little bit more money. But if the valuer comes up with the right figure and that then allows you to buy the property or to refinance the property then that’s a cost worth paying.
By the way as a total sort of tangential comment on this, you can actually have situations which are worse than a down valuation. I have a property which I still own, it’s up in Newcastle, where I was refinancing it and the valuer came to value the property for the refinance and they wouldn’t even get out of the car. They just sort of wound down the window and said no way and drove off. Now I’ll never know what that was all about, in fact, I’ll put a photo of this property up and you can judge if it’s so terrible that it’s not worth putting a value on.
So I went through the same process, I got in touch with my broker, I said to my broker we need to get a new application in. It took about six or eight weeks or whatever the process took before a valuer turned up. The valuer got out of the car, the new valuer went around the property, the new valuer put a figure on their form and said yes the property does have value, and I was able to get out the money which I’d been trying to refinance out in the first place.
So, there’s not necessarily rhyme or reason to this. At the end of the day, valuation is just purely down to opinion and if the valuer doesn’t like your property, they don’t like it, but the next one might. So, never give up there’s always a way.
I hope you found this video useful and informative, and if you did then please come over to my website www.thepropertyteacher.co.uk where you’ll find loads more great property-related resources including free special reports to download and my best-selling series of e-books which includes The Successful Property Renovators Workshop, 63 Common Defects In Investment Property And How To Spot Them, and if you’re just starting out in property or you want to grow your portfolio you may be particularly interested in The Successful Property Investors Strategy Workshop in which I’ll take you through exactly how I started and built my property portfolio starting literally with none of my own money, and how I built a portfolio of £2 million worth of property in just four years, that was starting from scratch.
I’ll take you through everything that I did right so that you can copy me and do the same, and I’ll also show you everything that I did wrong so that you can avoid the mistakes that I made and so that you can progress in property and be far more successful, far more quickly than I ever was.
And this is based upon my own real-life experience, and it took me about four years to actually work out how to do property investing properly, but in the 200 pages in The Successful Property Investors Strategy Workshop, I’m going to show you all that four years knowledge condensed down so you can use it immediately.
And until next time, here’s to successful property investing.
(ex) Chartered Surveyor, author and property investor
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