The price of everything, but the value of nothing.
Posted on 4 September 2013 by
A house is only worth what someone will pay for it. Seems fair right? So, if that’s the case, how can a property can vary in value by over £1m in the space of just three weeks? Step forward two different surveyors, with very different outlooks and ways of working.
One of my colleagues has recently been working on a remortgage for a house in leafy Ware, Hertfordshire, where the valuation swung wildly from £1.75m, down to £1m and then finally up to £1.35m. Talk about boom and bust.
But how can this be? Surely all surveyors use the same parameters to value a house, so there is some objectivity in the process and a safety net for buyers and lenders? Well that is the theory. The problem comes when you take a valuer out of their local area, because a surveyor is not just confirming that a property is sound and well built; they are also commenting on the desirability of the house and the demand for that kind of property in the local area. And it is this lack of local knowledge that is causing difficulties, with more and more of these issues coming up in London and the South East over the last three months.
The housing market is really picking up in London and there is a groundswell of positivity around the whole industry at the moment. This has created an issue with capacity and there are simply not enough surveyors to go around, so the large valuation firms have been drafting in reserves from other parts of the country and this is where we are seeing inconsistent valuations.
So, how does a house lose £750,000 in value, and then magically increase by £350,000? Well, initially, my colleague’s client stated that his four bed detached 1930s house was worth £1.75m. This was based on the client buying the property in 2002 for £800,000, and then spending £500,000 on extensive renovations (including adding an indoor heated swimming pool). This added value, plus property inflation brought the figure up to £1.75m. So, imagine everyone’s surprise when the valuation comes back in at £1,000,000? Just £200,000 more than in 2002 and not taking into consideration any of the improvements. My colleague jumped on this immediately and appealed the figure. He thoroughly researched the local area and, using resources like Zoopla and the Halifax Price Index, he contested the valuation. He was not saying that the house was in a better or worse condition than stated, it was all about the local market and how much someone might be willing to pay for the property.
The initial challenge was rebuffed but my colleague undeterred.
He asked to see the comparables – these are the houses in the local area that a valuer uses to make a considered assessment of the house, and when these came back it transpired the surveyor had used houses that had been sold miles away from this property! Worse than useless springs to mind. Armed with this information my colleague challenged the valuation once more, and it was agreed that a new surveyor would look at the house. This time a more locally based valuer was dispatched and they came back with an estimation of £1.35m which was enough for the remortgage to go ahead on. So although it took a bit longer than expected, my colleague’s client got the result that they needed.
The above tale shows what can happen when you have a valuer who is not in tune with the local area, and perhaps does not do the correct research to back up their work. Sadly, this is not the only example we have.
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