One of the things that people complain to me about all the time is the fact that there doesn’t seem to be any consistency when it comes to valuing a property.
So who values a property? How do they value and why do values vary so much?
Who values properties
There are basically three ‘professionals’ who are responsible for valuing a property for sale – or assessing whether the property is worth what you, as a buyer, are willing to pay for it.
The estate agent’s valuation
In the past, agent valuations could only be based on their own experience – no-one knew what other agents had sold properties for before the days of the internet!
Nowadays though, good agents do a pretty good job of researching the value of your property based on:-
1. Similar property ‘comparables’ ie properties similar in size and location to yours.
This data is provided by internet sites and sold property price data
2. Whether the market has risen or fallen since offers were received on comparable properties and apply an increase or decrease
3. The property’s condition , whether it needs work or whether it is in ‘show home’ condition
They also take into account how quickly the seller wants to sell the property.
The more similar properties the agent has sold and the better their research, the more likely they are to give you an idea of what the likely price is the property will be sold for.
The lender’s valuation
If a property is being bought with a mortgage, the lender has to make sure that the price offered for a property is enough for them to get their money back IF you as the owner default on the mortgage payments.
They will go into more detail than an agent, for example, in today’s market they will look at the same comparable evidence the agent does, but they will also look at other properties they have lent money on in the past and see how well/poorly they have performed.
They will also require you to pay for a valuation on the property – the problem with this is it can cost you hundreds of pounds, but it gives you no protection whatsoever, it is just for them to prove to their insurers they did their best to protect themselves.
A mortgage valuation may throw up problems such as damp and as a result the lender may say the property isn’t worth what a buyer offered on it and may say it’s worth less, reducing the valuation of the property accordingly and they may then even ‘withhold’ funds based on the lower valuation until the property is proved to have been fixed.
The RICs surveyor’s valuation
This is probably my favourite valuation and the one that I rely on most when selling a property or buying one. I always make sure I find a surveyor that knows the local market and has worked in it for a long time, especially if there are specific property types to value such as Edwardian, stone houses or brand new flats.
The reason I like this valuation is that it takes into account the ‘detail’ of the individual’s property value and the RICs surveyor has to have professional indemnity insurance should there be an issue with the valuation that means they missed something and you can claim against them.
So they look at the condition of the property eg is the roof leaking, can they see any damp or subsidence as well as looking and considering what other properties have sold for. They spend something like five years learning about property condition, the cost to maintain, repair and replace a property and how to find the right comparables, so they really know their stuff!
Why do they vary so much?
Part of the problem is perception. To you or I, we would see a valuation variation of £150,000 to £165,000 as ‘huge’. But from a lenders or surveyors valuation perspective, most values are taken based on a 10-15% variation because pricing a property down to within a few thousands of pounds when prices can vary so much, so quickly, isn’t easy and, depending on supply and demand at a local level, prices vary from one month to another.
The other reason is that an agent is tasked with selling the property at the highest value it can on behalf of the seller. Sometimes to secure the instruction, they have to agree to put the property on the market for the value the seller wants to, rather than what they actually think it is worth.
Once an offer is made, the lender and the surveyor then look at the property in more detail and assess the valuation based on their evidence and experience – rather than what the seller wants.
How can you find out more about a property’s potential value?
Why not use our free service which gives you the details of properties similar to yours which have recently sold as well as the agents who have sold them.
Enter your details here: http://nethouseprices.com/information/free-house-valuation