27th July 2018
Over the past weekend the press was focusing on banks and building societies down-valuing properties for mortgage purposes, causing chains to collapse or deals to be renegotiated. In particular, the BBC highlighted the plight of a young couple who had lost one house because it had been down-valued by £10,000, and the owner refused to reduce the price to accommodate them. A second property they applied for was then down-valued by £10,000 again (same valuer?) but this time they had renegotiated the sale price with the second seller by splitting the difference. They now have to find £5,000 they didn’t budget for in order to complete the purchase. They said they were going to ‘borrow it from families and friends’; good luck with that when their solicitor has to declare to the lender that they’ve taken out repayable loans to fund the shortfall of the deposit – lenders usually recalculate the applicant’s affordability taking into account the additional debt the applicant is committing to.
I was somewhat puzzled about why the selling agent of the first property hadn’t supplied the bank or building society valuer with supporting evidence for the sale price? If they didn’t have supporting evidence why hadn’t they renegotiated the deal (especially if there’s a chain in danger of collapse) as it’s very rare a seller wants to put their property back on the market without some sort of compromise if it means not moving and having to start all over again? Or why the agent hadn’t redirected the buyers to another lender? We had to do this recently with a sale where the initial lender’s valuer had substantially down-valued the property due to the lender’s particular lending criteria. Another lender was sourced and the second valuer signed the mortgage offer without an issue – after we’d provided some further supporting evidence of the value.
The second selling agent had clearly renegotiated the deal but how can a sale be renegotiated and agreed without the buyer knowing how they are going to fund the £5,000 shortfall? I have given buyers the benefit of the doubt at the initial mortgage application stage, where I’ve thought they may be a little ‘light’ on the qualifying criteria or deposit, as we can’t do a full financial fact-find with a buyer. But the lender can, and where the lender has processed the application, progressed it to valuation stage, and then the buyer says they don’t have the money to be able to proceed even with a renegotiation, perhaps that’s the time to start looking for another buyer. I don’t think many of my clients would be impressed if we went through the renegotiation process only for me to say at the end “I’ve agreed a new deal with your buyers but they don’t how they’re going to raise the £5,000 shortfall. They say they may borrow it from family and friends. Let’s wait and see.” Surely, the shortfall of the finance should have been resolved before a new deal was agreed?
This is all very basic for experienced negotiators. It highlights the issue of all estate agents being considered equal by the majority of the public, mainly thanks to TV advertising of the online agents. All estate agents are not the same. Many of my former clients will recall me saying upon the initial market appraisal of their property that 50% of selling a property is finding a buyer, and 50% is getting the sale ‘over the finishing line’. Most estate agents are good at the former – especially in a seller’s market such as we’re in today in Leeds; few are proficient in the latter. If you’re lucky when selling, everything may run smoothly and you may not require the skills of the traditional estate agent with years of training and experience. But the same applies to cosmetic surgery – we’ve all seen the TV programmes when things go wrong after a trip overseas where the cost of a nose-job is a fraction of what it is in the UK! It’s the training and experience you’re paying for when things don’t go according to plan.
Traditional High Street estate agents are under pressure from online rivals who charge ‘peanuts’. Traditional agents, especially some of the larger chains, are resorting to putting inexperienced staff on the front-line of negotiations, and it’s beginning to tell. We are having to sort out problems in chains that should be sorted out by other agents, either because the other agent doesn’t know how to resolve the problem or their client or solicitors can’t get hold of them, tucked away in a call-centre somewhere miles away! How can an agent in a call-centre in Birmingham or Newcastle know whether the lender’s valuer has all the comparable sales evidence to support the sale price agreed? The Land Registry figures and Rightmove can’t tell a valuer whether a property had 2 offers on it or 20 offers; whether it went to ‘Best and Final Offers’ or it didn’t; whether the house in the next street sold cheaply as it had a structural fault or a defective title; whether the flat recently sold across the road had a long lease or a short lease (and it does make a difference!); or whether the cheap flat sold in the same block was sold ‘at arm’s length’ between family members? These are some of the details a local, experienced, agent is likely to know and which a bank and building society valuer needs to know when assessing comparable sales evidence to support their assessment of value. Otherwise they are likely to down-value the property. It is, after all, their job to protect the lender’s interest, not the buyers.
I feel sorry for the young couple who were interviewed. They now find themselves in a very worrying position. They are going to be pushed into debt they never budgeted for (assuming the lender agrees to fund the balance that is) and which undoubtedly will place a great strain on their finances and per se their relationship. This should be a really happy time for them, buying their first home together, and they are having nothing but anxiety and worry. Equally, the seller has taken a £5,000 ‘hit’ on the sale price – which may not have been necessary. If we could have resolved the problem without the seller having to drop the price £5,000, perhaps we’d have justified our professional fees and the savings we made covered all our cost.