Is a Mortgage Valuation the same as a Survey?

A mortgage valuation is not a survey. It is not intended to inform a buyer of the condition of the property.

Is a mortgage valuation the same as a survey?

Many buyers who have had a valuation carried out for their mortgage are under the impression they have had a survey.  Many buyers ask the question “is a mortgage valuation the same as a survey?”  A mortgage valuation is not a survey.  It is not intended to inform a buyer of the condition of the property and some lenders do not release a copy to the purchaser.  The valuation is arranged by the mortgage company and may be carried out either by an in-house valuer, or a valuer on their panel.  The purpose of the valuation is to confirm to the mortgage lender the value of the property in the event that you default on the mortgage payments the lender needs to know that the property offers sufficient security for the loan.

For an average 3 bedroomed house the mortgage valuer is likely to spend no more than 20 to 30 minutes carrying out the inspection.  The valuer will not normally get into the roof space (head and shoulders inspection only) and will not usually lift back edges of carpets, open windows, run water down the drains, etc.   Part of this time will be spent measuring the property in order to calculate the rebuilding cost therefore the inspection itself will not be detailed.

In comparison, a surveyor carrying out a survey on the same property is likely to spend around 3 hours carrying out the inspection, although the actual time will obviously vary from one property to another.  The surveyor will normally carry out a detailed inspection of the roof space (if safe access is available), lift edges of carpets (where possible) to check the construction of the floors, open windows, run water down the drains (where possible) in addition to inspecting other parts of the property.

 

What Types of Property Require a Survey?

All properties require a survey, whether new, old or newly refurbished.

A survey is not only necessary to check whether a property has any defects, other items may be identified in the course of a survey which require further investigation or specific enquiries to be made by your solicitor.  Questions may include:

  • If there have been any recent alterations to the property have these been carried out with Local Authority approvals?
  • Are there any issues with trespass such as overhanging gutters or trees?
  • Are there any asbestos containing materials (ACMs) within the property? These are not always obvious and may be in the form of textured coatings to ceilings and/or walls, floor tiles, etc.
  • Has adequate fire protection been provided between the house and any attached/integral garage?
  • Are there any flying and/or submerged freeholds? These may affect your buildings insurance.
  • If you are purchasing a flat do you know whether there is adequate fire protection and means of escape?
  • Are there any trees which may be within the zone of influence of the building?
  • Are there any known issues in the area, such as subsidence, pitch fibre drains, etc?

The survey can either be carried out by the valuer at the same time as the mortgage valuation or you can instruct a surveyor of your choice to carry this out separately.  You are able to instruct a surveyor who you think is most suited to carry out the task, this may be someone who is recommended by a friend, family, solicitor or anyone else.     You are NOT under any obligation to have the survey carried out by the valuer who carries out the mortgage valuation.  See also how much does a survey cost? 

To find a Chartered Surveyor in your area visit:

http://www.ricsfirms.com/


 

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What affects the value of a property? 

There are several factors which may affect the value of a property.    Firstly, a mortgage valuation must not be confused with an estate agent’s valuation.  An estate agent’s “valuation” is a suggested figure to market a property to try to get the best price for the vendor, while at the same time being realistically pitched to obtain interest from potential buyers.  This figure can be adjusted during the marketing process, depending upon the level of interest.  This article deals with mortgage valuations rather than estate agent’s valuations.

A valuation for a mortgage is prepared to advise a lender whether a particular property is suitable security for an advance. It is typically carried out by a Chartered Surveyor who has experience in valuing that type of property in that particular area.  A valuer will look at details of comparable properties, check their sale prices, consider how long they were on the market, and make allowances for any differences and any changes in the market.  The valuation figure is arrived at after careful consideration and the valuer carries a high level of responsibility.

Factors which affect the value of a property include:

1. Location – A house in a sought after suburb will have a higher value than an identical house in a less desirable part of town due to a higher level of demand.

2. Size – In many cases a house with more bedrooms and other accommodation will have a higher value than a smaller property.  However, most house buyers are aware that some areas of their town offer “better value for money” than others and therefore size is not the only factor to affect the value of a property.  Size needs to be considered alongside a number of other factors.

3. Neighbouring properties/adverse land use – If a house is situated next to or close to something which a typical purchaser would find undesirable, this is likely to have an effect value.  This may include a property which has not been maintained and is unsightly, a business which generates noise, smell, a large amount of traffic, etc.

4. Condition – A valuer will take into account the condition of the property and the approximate cost of improving.  However, remember that the inspection for a mortgage valuation is not a survey.

5. Tenure – Tenure can also affect the value of a property.  Freehold flats often have a lower value than equivalent leasehold flats.  Some mortgage lenders do not lend on freehold flats and this affects saleability, and in turn, value. Also, a property with a short lease or any other onerous restrictions is likely to be less saleable, and therefore have a lower value, than a property with a longer lease and no onerous restrictions.

6. Parking – Most households have a car, and many have more than one.  A property with ample parking will be more desirable than a comparable property with no parking, particularly if street parking is restricted (possibly with the exception of some prime city centre locations).

7. Alterations without consent – If a property has been significantly altered or extended without the required Planning or Building Regulation approval then in some circumstances this may affect value, particularly if works have been carried out recently and enforcement may be required.  Also, alterations carried out without the required consents may be substandard, and possibly dangerous, eg, where electrical wiring has not been carried out by a competent electrician, and this may affect the value of a property.

See also: What can I do if my house is down valued?

 

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What can I do if my house is down valued?

Down valuation is when a property is valued by a mortgage valuer at a lower figure than the agreed purchase price. It does not mean that the valuation is too low.

 

When a house is down valued, this can cause frustration to a buyer and problems in a chain.  This article will explain what down valuation is, the reasons why a property may be down valued and suggests paths a buyer may consider if the house they plan to buy has been down valued.

 

What is down valuation?

Down valuation is when a property is valued by a mortgage valuer at a lower figure than the agreed purchase price.  If a house is down valued it does not mean that the valuation is too low.

 

Reasons why a house is down valued

A property isn’t strictly “down valued”, it is more accurate to say that it has been “valued” by the mortgage valuer, but the valuation figure just happens to be lower than the agreed purchase price.

The valuer will arrive at the valuation figure “Market Value” after considering the actual sale prices of several similar properties in the area.  Sometimes there may be recent sales of a number of similar properties, for instance for a house on a large housing estate.  Other properties may be more difficult to value, particularly if there is nothing similar in the area.  However, the valuer will still look at the actual sale prices of other properties in the area and make adjustments for size, condition, saleability and desirability of a property, the date previous sales took place and any other relevant factors.  The mortgage valuation would generally be prepared by a valuer with experience of valuing properties in the area. The valuer’s decision will not be made lightly as there may be consequences if a house is valued negligently.

 

Problems which can occur when a house is down valued

One of the most common problems a buyer might experience during the house buying process is down valuation.  Often a buyer is unable to proceed without the required funding from the mortgage lender.  Also, a lower valuation by the mortgage valuer may alert the buyer to the possibility that they may have agreed a purchase price that is too high.  Either of these factors may result in a buyer not proceeding with the purchase, which may in turn lead to a chain falling through.

 

Steps to take if a house is down valued

If a buyer is unable to proceed without the anticipated funding from the mortgage valuer, a buyer could pull out from the sale and look for another property, or they could try to negotiate a lower purchase price.  However, the seller is under no obligation to agree to a reduced selling price, and it is possible that the seller may not be in a position to reduce the price particularly if they have a high mortgage or need the funds to purchase another property.  If a buyer tries to negotiate a lower price and if there are other potential purchasers who are in a position to proceed, eg, a purchaser who does not require a mortgage, or a smaller mortgage, the seller may decide to sell the property to one of the other buyers.  This is a risk the buyer must consider.

If a buyer discovers the agreed purchase price is too high, they may choose to withdraw from the sale.  Many buyers consider this to be a nuisance but in many cases the abortive cost of the valuation will outweigh the benefit of paying too much for a property.

In a situation where a buyer wishes to purchase a property for a particular reason, for instance the property is close to family, a preferred school, or the property may be in an area where houses rarely come onto the market, then the buyer can still purchase the property, they simply need to find the shortfall in funding, eg, from savings or money put to one side for improvements.  The buyer may decide to still buy the house even if it means making sacrifices such as making do with the old kitchen or bathroom fittings instead of replacing them straight away.

While down valuation is viewed as a problem by many people during the house buying and selling process, it is sometimes an issue which can be resolved.

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