August 26, 2016
Valuing a property

When you market your property, you will naturally want to achieve the highest price today’s market will pay. But how do you know what this is? Sadly, there is no almanac of “correct” prices relating to an address and a date, and online price “calculators” can be wildly inaccurate, so most people will take the advice of their chosen estate agent to guide them towards the right decision. 

The statistical data to which we as agents have access can be of tremendous assistance in assessing the correct asking price for a property when combined with up-to-the-minute local market awareness and in-house research exercises. This information can also be of great help when weighing up the relative merits of an offer from a prospective purchaser.

Whilst buyers do of course make offers, what an individual purchaser is willing to pay, may or may not reflect the maximum likely selling price in a given market.

This is where the stats come in. For example, if you receive an offer of say 98% of your asking price, you might be more inclined to regard this as a good offer if the recorded local figures suggest that on average, most properties are selling at just 96% of their asking price. Of course, if the offer is just 94% or asking prices are on average being met, then it might be easier to reject the offer as too low. The accuracy of the asking price should also be factored in.

Likewise, if your property has been on the market for say three months, but the collated data across thousands of other sales suggests that most properties sell in two months, then you know your property is possibly in danger of going stale and you should review the marketing strategy.  

Naturally, your buyer’s ability to purchase will also be a prime consideration, and this is where your agent’s skill in assessing their situation, financing options, and linked transactions will be of particular value. 

Being able to access quality comparable evidence is also important. In light of recent events, sellers should consider the “mortgage valuation” and how this could impact on the success of their sale.

A buyer seeking a mortgage may well pay the valuation fee, yet the surveyor is often primarily acting for the bank/lender. If a buyer agrees a purchase price of £700,000, for example, with a 20pc deposit of £140,000, they will source a mortgage for 80pc loan-to-value (LTV) at a set rate of interest. If however the surveyor decides the property to be worth £675,000, the bank will advance only 80pc of the lower amount, or in this example, £540,000. This leaves the buyer with a £20,000 shortfall if they are to proceed at £700,000.

If they borrow more, their LTV will rise along with their interest rate, making the loan more expensive. With tough affordability rules some buyers could find they are denied loans at a higher LTV.

As well as a shortfall, the buyer would have to consider other costs including stamp duty, now even higher if the property is a second home or BTL purchase (to see the difference, you can use our stamp duty calculator entering any purchase price, both as a first time purchase or a second home/BTL purchase )

Surveyors base their decisions largely on “comparable evidence”, often sourced from local estate agents, such as recent sale prices in the same area for similar properties. However, with a low number of recent transactions, “evidence gathering” is more difficult so a surveyor might be nervous about overvaluing. In the event of a financial loss, a lender’s first tendency might be to sue the surveyor for overvaluing, so it’s easy to understand why a surveyor will be cautious if they’re of the opinion prices may fall –put yourself in their position.

This is why in a slowing / uncertain market, a chain free buyer and/or a buyer with a very large deposit might be more appealing as they have better buying power, the bank is less exposed and only the one property is subject to a possible down valuation – yours.

The more properties involved in a chain the more valuations there are to worry about; however, many buyers are also sellers, usually with a need to link their sale to their purchase and they may well be the only buyer willing to pay the price you need. As such, assessing the whole chain is very important, not just the person one up and/or one down from you, allowing you to understand where each linked transaction is currently at, also establishing if the chain is complete both ends.