When you accept an offer on your home, your buyer will probably have to apply for a mortgage and part of this application will require a mortgage valuation of your home which is carried out by your buyer’s chosen lender.
What is a Mortgage Valuation?
A mortgage valuation is an assessment by a mortgage lender, that aims to investigate what your property is actually worth. A lender will use this to see if, in their opinion, it's worth the money you are asking from the buyer. The lender can then decide if they should give the buyer a mortgage on it.
A Down Valuation is when the valuation comes back showing the value of the property is less than the amount you and the buyer agreed to pay and accept for it.
For example: If you have asked them to purchase the house for £200,000, but the mortgage valuation comes back stating that the house is worth £180,000, that’s a down valuation of £20,000.
How likely is a down valuation?
The likelihood of a down valuation is dependent on the current housing market. When the market is predicting a fall in house prices, then down valuations tend to be more prevalent, and likewise when the market is rising, they become less common.
For example, according to a Bankrate report, during the Covid-19 pandemic when falls of 5-15% were being forecast, down valuations happened much more frequently.
It’s also worth noting that Down Valuations most commonly affect those remortgaging their home rather than those buying or selling.
What happens when I get a down valuation?
When your property gets a down valuation, your buyer’s mortgage lender will likely make one of two decisions. They may decide that the risk is too high and decide to withdraw the mortgage offer, meaning the sale of your property will fall through if the buyer can’t find another lender to support the purchase and sale.
Alternatively, they may decide to give them the mortgage, but at a higher loan to value, meaning they will pay less towards the house and your buyer will have to pay a higher deposit. If they accept this offer, your sale will go forward as planned. However, if the buyer cannot afford a higher deposit, it may be worth negotiating to see what you can do to help the buyer – and your own sale – and prevent the sale falling through, particularly if you have found a property yourself and are in a chain, it may be that everyone can afford to take a little less.
What can I do next?
Because the valuation is carried out by your buyer’s mortgage lender, for the buyer’s benefit, your next steps after a down valuation depend entirely on what the buyer decides to do next. There are many options for a buyers next steps after a down valuation.
A buyer may decide to challenge the valuation, perhaps asking the lender to carry it out a second time to double check the result. It is, however, rare that the valuation changes, and challenging can take some time. Your options here are to wait for the challenge to bear results, or back out and find another buyer.
Your buyer may also try to negotiate a different mortgage deal with their lender, with a higher loan to value, if they haven’t been offered one already. If this is successful, you will be able to go on with your sale.
They may also decide to look for a new lender, to carry out their own valuation, and perhaps offer a better mortgage deal. Once again this could take some time, and you are not obligated to wait around for them. You can back out and find a new buyer if you wish, but bear in mind the next buyer/lender may end up in the same position.
Commonly, a buyer will use the down valuation to try and negotiate a lower price for the property, as they have evidence that suggests your property is not worth what you both originally agreed. Remember in this scenario, that it is still you as the seller that has all the power. If you are in a hurry to sell, or are in a chain, you may feel inclined to take the hit and accept their lower offer. You could even see if you could negotiate a discount off the property you are buying to lesson the financial pain. However, if you want to stick to your guns you can refuse their offer and remain at the same asking price. However, you do run the risk of this happening again with a new buyer unless they are paying with cash.
If you are surprised by the lender’s valuation, you can always choose to get a property valuation yourself from an independent local surveyor, to confirm that the value is valid. Not all lenders use local surveyors, some may travel some distance and not appreciate the local market as well as someone that knows it well. This may be good for your peace of mind going forward, but is unlikely to sway your buyer’s lender.
As a seller, the decision does sit with you, and it will depend on your circumstances, the amount of interest you had in the property and if you can afford to take a lower offer.