Property valuation has always contained an element of guesswork; today however in a rapidly changing property market it has become even harder to reach an accurate figure. The global credit crunch has led many to assume that a property valuation made a month ago is quickly outdated meaning that the prices of properties on the market are wholly unrealistic.
Ultimately a valuation is a process of risk management and estate agents in this tumultuous time are facing some of the hardest tasks ever when trying to find a figure for a property. First-time house buyers need to work a little harder to get the house of their dreams. It takes extensive research and expert advice to get it right. It may be a good idea to seek help from professionals as well. Property value depends a great deal on the location and several other factors hence it is not the same for all.
[lwptoc numerationSuffix=”dot” title=”Table of Contents” width=”full” titleFontSize=”16px” itemsFontSize=”16px” colorScheme=”light”]
Lack of data on the effective age of the building
Effective age is simply the difference between economic life and the remaining economic life of the structure. The age is noticeable by the condition and utility of the structure. The level of maintenance employed by owners or occupants responsible for maintenance is based upon the pride of ownership and can influence the effective age of a building. If a building is better maintained than other buildings, the effective age of the building will be less than its actual age.
Lack of proper maintenance can also increase the effective age to more than the historical age of the building. In some cases, reasonable maintenance has been done on a structure and the effective age and historical age (or chronological age) may be one and the same.
It is common practice to prepare a budget prior to setting out to buy a property; some may even consider keeping a buffer amount. First-time buyers tend to overshoot their budget very often. The main reason is the mistake of considering buying properties that are beyond their budget and in turn making the wrong decision. Every homebuyer knows the feeling while you’re looking for a home that fits your budget, but that much more expensive property just looks that much more appealing.
However, buying a home that’s out of your price range could well derail your finances in the future. Human nature always wants a little more than we can afford, and there’s always a real estate agent who’ll talk you to the next level. But don’t be tempted – the bank has usually offered you a borrowing limit for good reasons based on your ability to repay the loan. Spending more than you can sensibly afford leaves you exposed to potential financial shocks, including rises in interest rates.
Property market performance
The performance of the real estate market in your local area can also be a challenge to know the worth of your property. If there’s little demand for houses in the neighborhood and the properties listed are selling for well below the asking price, expect values to fall.
Rental vs Resale
Interestingly, the mortgage crisis hasn’t seemed to affect rental prices. This suggests that the real estate market has adjusted from an occupant-ownership market to a rental market. During the valuation, it’s always helpful to start with a title search to expose any clouds on the title. Such matters should be told to the valuation expert so that he would interpret the various possible clouds on the title and analyze the sale vs rent issue to precisely determine the property’s true market value.
A successful valuation challenge must, therefore, include evidence of sales of comparable properties with some evidence as to how the comparables relate to the subject property.
The best comparables are completed sales recorded on the Land Registry where full information regarding the property, including its condition, is available. The next best comparables are completed sales with some verification from the selling agent but where details are yet to appear on the Land Registry. After that, the next option would be properties where agents can confirm that contracts have been exchanged, again with full particulars of the properties.
Borrowers and brokers often submit ‘comparable’ information which falls well below what is needed to change a surveyor’s opinion. Agent’s asking prices are not much use, as are agent’s opinions whether in writing or otherwise. Details of sales where there is no information regarding the condition of the property, its rooms sizes, or other features are not helpful.
The progress of a valuation challenge is unlikely to be helped if the complaint includes a personal attack on the surveyor of the “your surveyor is out of touch and does not know anything about the local property market” variety.
A well-presented valuation challenge needs to be thoroughly researched and well-argued and will hopefully provide the surveyor with new information of which he or she was unaware when the original valuation report was prepared. Thus it may then be possible to change the valuation and facilitate an advance that was otherwise in doubt.
Valuation challenges in relation to rental values are on the increase because with buy-to-let cases lenders need to know that the rental income will cover the mortgage payments by an appropriate margin.
The rental figure provided by the surveyor will normally be assessed assuming a six or 12-month assured shorthold letting, unfurnished, to a single-family. If this is the lender’s requirement then it will not be helpful to mount a valuation challenge supported by evidence from furnished lettings, lettings of houses in multiple occupations, or student lets and expect the surveyor to adopt the somewhat higher rental income which might be expected from these types of letting.
Before attempting a valuation challenge in relation to the rent the borrowers would be advised to check with the lender to confirm what assumptions should be made regarding the type of letting and its duration.
If a borrower or broker prepares a well-presented valuation challenge with solid documentation supporting it and a minimum of hearsay from over-optimistic agents this will often enable the surveyor to revise the valuation. Surveyors are reasonable people who want to arrive at the correct result.
The property valuations have never been easy, currently, they are harder than ever and the margins of error are greater than at any time in the past. The most advisable course of action is to poll as many agents as possible to arrive at a decent figure that will take into account market fluctuations without losing you too much money. Overall you need to keep an open mind when your home is being valued, being narrow-minded may lead to your property sitting on the market for an extended period of time.