True Value Is In The Eye Of The Beholder – Property Valuation Tips

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There are few issues more emotional than the estimated value of your property.

Anyone who has been or intends to re-mortgage in the foreseeable future will know that in most cases it will be necessary to complete an independent valuation. In today’s real estate market, this can be a heartbreaking and eye-opening experience. It has become increasingly apparent that property values ​​have taken a very tight view of the UK property market and this has significant implications for sellers, buyers, remortgage holders and most importantly mortgage brokers and the IFAs.

According to London-based data services company Hometrack, which provides a good indication of a property’s value, house prices fell for 18 consecutive months until December last year, when the median UK house price Kingdom increased only 0.1%.

For most areas, last year provided the lowest, if any, home price growth in more than a decade. There’s no question that 18 months of falling median values, or at least the drastic drop in growth velocity, has lowered homeowners’ equity levels and dented consumer confidence. Hometrack’s national median house price for December was measured at £160,900, down 1.6 per cent from £163,474 in December 2004.


From a seller’s perspective, the messages are simple: supply exceeds demand and it’s a buyer’s market. In the first quarter of last year, the number of available properties skyrocketed by more than 30 percent.

Over the past year, the time it takes to sell a home has grown more than 20 percent to eight weeks. In 2004, it took an average of 6.5 weeks from listing to confirmed sale. Importantly, sales price as a percentage of sales price dropped to 93.5 percent last year, supporting the point that buyers exercised significant bargaining influence over sellers and negotiated deep discounts.

In real terms, a seller listing his property at last year’s national average of £160,900, on average, will achieve an agreed sale price or £150,441 and have to wait two agonizing months to close the deal.

Even at this price, it’s a bridge too far for most first-time buyers looking to break into the real estate market. But there is some light at the end of the tunnel. First-time homebuyers accounted for 11 percent of total homebuyers in the third quarter of last year, according to the National Association of Realtors. This was an increase from 7.7 percent in August. Brokers need to factor the important market sector into their marketing plans, and a further interest rate cut in the first quarter of 2006 could really boost the real estate market.


From a remortgage perspective, the implications are significant, and a conservative valuation can conspire to make the professional mortgage broker or IFA look a bit foolish.

Brokers and lenders witnessed an unprecedented level of low valuations last year, where the property’s valuation is significantly lower than the client’s initial estimate. Most lenders require an appraisal to be completed on remortgage applications, particularly when the loan-to-value ratio is greater than 70 percent. The main problem mortgage brokers face is taking a client’s estimate of the perceived value of their property at face value, as it will invariably be high. This is where the fun begins.

Let’s visit the sales process of a typical mortgage broker. You spend a good few hours completing a fact search, issuing an independent disclosure document, and building your client’s confidence in your ability as a professionally qualified, FSA-registered certified Mortgage Counseling and Practice Advisor.

You tell your client that you have more than 4,000 mortgage products to choose from and you will find one that exactly fits their need. A key cornerstone of the selection is the LTV ratio and this is based on the client’s estimate of the value of their property.

This estimate will be based on a few things: knowledge of other properties that have recently sold on your street or neighborhood, the press, and a large dose of intuition.

Clearly, many clients will have an overly inflated view of what their property is really worth; it’s an emotional subject and one that can really bite the adviser. Imagine then that he has taken all the details required in fact-finding, has obtained a deal, it is settled in equity, but based on what he knows and has been told, the deal fits.

The valuation rains down on its parade, as it is much lower than expected, lower than the client’s rosy estimate, lower than the flowery estimate given by the local real estate agent.

Now meet the independent appraiser. Independent stocks are a cautious bunch and the subject of much curses and profanity.

However, from a mortgage broker’s perspective, remember one thing. As far as a client is concerned, you feel your property is worth valuing, you are the focal point of your mortgage transaction; in fact, you are the expert. So when the valuation comes back well below expectations, it is you, the broker, who will have to deal with the problem.

This can create several problems. First, the offer you diligently sourced from your 4,000 options may no longer fit the lender’s profile. Second, you must explain to the client that his net asset position is not as good as he thought. Third, it will have to resurrect a new deal without much credibility.

Some may think that it is possible to get a value to change your mind. This happens as often as the moon is blue. In fact, it happens just as often that an appraiser gives a higher valuation than a client’s estimate.

Remember that an appraiser will need to cross-check your figure with recent, comparable local sales, which is often hard to argue with.

Even arranging for new construction financing can be fraught with danger. One such case recently saw a mortgage arranged for new construction. The client had negotiated a discount from the builder’s original sales price and, by definition, had set a market price for the new property.

Imagine explaining to the client that the deal they had gotten on their property wasn’t as good as they thought because an authorized appraisal knocked the new purchase off by £15,000. This resulted in the deal not meeting the lender’s criteria and a distraught client at odds with the builder. The builder was happy to back out of the deal and sell the property to another client, happy to know that the chances of the same appraiser showing up were remote. The consequence was a very unhappy customer and a very traumatic process for everyone involved, including the mortgage broker.

So what do we do in these downtrend times? Hometrack estimates that property prices this year will rise just 1 percent, citing affordability as the top barrier to entry for buyers. Halifax is a bit more optimistic, predicting a 3 percent rise. Either way, the double-digit growth days of the past few years are long gone. It really is challenging as a professional mortgage broker to walk a tightrope between realistic property valuations and disappointment.


However, there are positive signs on the horizon for the real estate market. First-time buyer activity has increased, usually a precursor to renewed vigor in the real estate market.

Real estate agents reported their first drops in the available home stock in almost six months, another sign that activity is starting to move in the right direction.

Interest rates are stable, and the much-vaunted interest rate cut to stimulate a slowing economy has yet to happen. Inflation and unemployment levels will need to be kept in check to facilitate a rate cut. All of these things can happen or continue to happen; they can not

Meanwhile, mortgage brokers must deal with the reality of a bear housing market. At the point of sale, be armed with the facts and be ready to readjust your client’s estimate of your property’s value. Check property websites before your sales call and get an idea of ​​local area conditions and trends.

Not only will you be armed with the facts, but you can save yourself and your client a lot of heartache. Also, it’s not a bad idea to know the local values; he will find the same names keep coming up.

When the moment of truth arrives and you need to explain the highlights of a review, or worse, a low rating to a customer, you better know what you’re talking about. Saving the deal could depend on it.

Finally, at the point of sale, take cover. Explain to the client that you are basing your product recommendation on their estimate of the property’s value and that it is subject to qualification by a licensed appraiser.

Remember that property values ​​are an emotional subject, so know your area, do your homework, and you’ll reap those rewards with a lot less hassle.

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