Added value – the myth of ‘down valuation’

As we mentioned in an earlier blog, ‘Red Book’ valuations are the more official, industry-recognised affiliates of market appraisals. The latter can differ in terms of financial value and accuracy, and are of little use for official purposes. Red Book valuations can be put to a variety of different purposes, including for taxation appraisals, secured lending and mortgage valuations. It is in this instance in property assessment that they can create the myth of ‘down valuation’.

A true worth

Lender valuations are used to establish that the price tag being paid for property or land represents the ‘market value’. Put another way, this means that the property/land is worth the money that is being asked for it, is in the condition the seller claims, and is a worthwhile investment for the lender – as it will be their money that is most at risk. If a foreclosure occurred on the purchase, the lender can use this figure as a guide when re-marketing the property. If a buyer pays over the estimated market value, then this puts the lender at greater risk. So, everyone wants the estimated figure of the asset to be an accurate reflection of its condition, position and worth.

The term ‘market valuation’ often begs the question: “Surely a property under offer at a certain price level reflects what the market will pay for it”. But as we all know, from eBay to Rightmove, something is really only worth what someone is willing to spend on it. If the demand is there – or isn’t – pricing can reflect that and go either up or down. When valuing a property, an estate agent will provide an ‘asking price’. This can be termed as ‘offers in excess of’, a ‘guide price’, ‘offers in the region of’, ‘starting price’ or other terminology. Usually this figure is provided to the seller, along with some reference to comparable properties in the area, in size and condition. A discussion between the seller and the estate agent will then decide on the final asking price.

Market value vs demand

The agent’s role is not necessarily to accurately reflect market value, but to get the best price for the seller. Sometimes, if the seller knows the area well and what kind of properties sell quickly, they may ignore the estate agent’s suggestion and set the price higher. In the current climate, with supply low and demand high, this is often the case with very desirable properties in popular areas.

However, mortgage valuations are used to check that the market value of the property is ‘at or above’ the price being paid for it. They’re not an in-depth assessment of the property’s condition, or any possible issues concerned with the age of the building – though these may be reported to the mortgage lender as a matter of course. All valuers who are registered with the RICS – Royal Institution of Chartered Surveyors – have a duty of care to report independently and accurately their findings, irrespective of the figure needed (or wanted) by the lender, vendor or buyer.

Down valuations?

In times of an ‘uncertain market’, establishing accurate valuations can be challenging. This can happen when house prices are fluctuating up and down more quickly and more frequently than usual, or when transaction levels are not where they might have been. Market values are based on comparable transactions of nearby properties, various other economic indicators and the professional’s knowledge of the area and the local market.

This means that the two figures – the price offered and the market value – may not always be identical. This is termed a ‘down valuation’. But this is a myth, as according to the RICS, which states in reality there is no such thing as a down valuation. What is actually being described is the difference between the property’s worth to the individual buyer/seller – the boxes it ticks on their list of wants and needs – and the actual market value to someone who doesn’t have these specific requirements.

If you need a valuation, then please contact our experts today. They can arrange to visit and survey your property, or a property you’d like to buy, to provide a valuation.