First published by Financial Reporter
‘A house is worth what someone is willing to pay for it…’ unless of course the surveyor disagrees.
House prices continue to rise
Despite forecasts of a quieter housing market in 2022, we still find ourselves operating in a fast-paced and buoyant market. Recent figures from Nationwide Building Society, showing property prices shot up by 14.3% in the last year, will not have come as a surprise to many property market stakeholders.
However, as bidding wars prevail and buyers might – as a result – become ever more impulsive, it is essential we within the industry maintain a sense of realism when it comes to the true value of a property.
Buyer sentiment is strong, with the latest Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) showing 17% of respondents saw a jump in new buyer enquiries in February; the sixth month in a row and against a backdrop of rising interest rates.
It’s a seller’s market
The number of agreed sales has also improved, with a net balance of 9% saying sales of homes are increasing – the strongest reading since May 2021. Looking further ahead, respondents expected sales to remain on an upward trajectory over the coming year.
Such headlines of increased house prices and buyer demand will not have escaped the attention of those looking to sell and hoping to get as much as they can for their property. Likewise, as the cost of living increases, those who may be struggling financially might be looking to remortgage and make the most of their home’s equity.
A borrower, for example, on the cusp of a 75% LTV product will be hoping to secure the maximum value for their property to obtain a potentially better rate.
Such market conditions can stir up talk of ‘that which shall not be named’ amongst surveyors – down-valuations. Thankfully, this is not a trend we are currently seeing at SDL Surveying. Since the start of 2022, our figures show a downward trajectory for so-called ‘down-valuations’, with the average down-valuation just circa-£9k.
Nevertheless, it stands to reason that with such high demand and the current property shortage, there are going to be occasions where an over-enthusiastic buyer is at risk of paying over the odds.
In such scenarios it might be helpful in the first instance to manage a client’s expectations by showing them what comparable properties in the same area have sold for on Rightmove or other property portals.
The estimated value and the true market value don’t always align
Unfortunately, in a competitive market, sellers may well simply enlist the estate agent who promises the highest price. Whilst it is not an adviser’s job to pre-empt a surveyor’s valuation, it may prove worthwhile explaining the difference between an estate agent’s ‘appraisal’ and a qualified surveyor’s mortgage valuation.
The first is purely a speculative valuation conducted for the seller and has no legal standing, while the latter is a legally binding document. An estate agent’s appraisal is forward-looking and predicts what price could be achieved in the near future and may be inflated to test the market. A mortgage valuation on the other hand is a formal report completed by a RICS-registered valuer, with the principal aim of creating an accurate report for the lender – highlighting any issues or defects which could affect the value of the property.
As mortgage lenders use it to assess their lending risk, it is evidence-based, not speculative, and is reached by comparing the sales of similar properties, in the same or local area in recent months. Given the buyer and seller are both usually emotionally-committed to the sale by the time of a surveyors’ valuation, it can be frustrating for everyone when a down-valuation occurs.
That’s why, especially with the current shortage of properties showing no signs of abating and buyer demand no signs of slowing, it is imperative common sense prevails when it comes to property prices. We all have the opportunity to be those voices of reason, especially when market price chatter can be at its loudest.
Simon Jackson is managing director of SDL Surveying