Monday, June 17, 2013

Buying a Property – Part 1 – The Limitations of a Mortgage Lender’s Valuation

A Mortgage Lender’s Valuation is for the lender only and should not be relied upon by a purchaser as a means of accurately assessing the condition of a property

Buying and selling of property can be one of the most daunting experiences of our lives.  The complex process of dealing with Solicitors, Surveyors, Estate Agents, Mortgage Providers, Vendors (the person/s selling the property) and the like is something that the vast majority of us do not undertake on a regular basis, and is therefore something that often proves to be very stressful.  First time buyers in particular will often feel overwhelmed by the whole process and will rely heavily on their advisors to guide them through the process.  Once a decision has been made to purchase a property, buyers will work out their finances and decide how much they can afford to borrow and then try to secure a mortgage or at least a mortgage guarantee before beginning the process of house hunting. 

For most of us purchasing a property will be the largest financial investment we will make in our lives.  It is therefore essential that we know exactly what we are buying before we exchange contracts because it is at this point that a property comes into your legal ownership. At exchange of contracts the law assumes that you have made all of your enquiries and that you are fully aware of what you were buying.  If subsequently you find problems with the property, then these problems become your responsibility to deal with (unless you feel that you have been advised inappropriately and that you can prove this). It is therefore advisable to be as thorough as you can be to establish the full extent of any issues with a property before you exchange contracts.  A range of different surveys can be carried out during the conveyance process for which the inexperienced, particularly first time buyers often do not understand the purpose or scope of the range of different surveys available.  For clarity, this article will consider conveyance in respect of a residential dwelling.

Firstly, if you apply for a mortgage, a valuation inspection will be carried out by the lender on the property you are considering purchasing.  Do not be misled by this inspection.  This is for the lender and not the purchaser. The purpose of the inspection is for the lender to be satisfied that in the event that you default in some way on your repayments then in a ‘worse case scenario’ they will be able to sell the property and re-coup the money they have borrowed to you.  This is all about the lender assessing their risk.  These types of inspections are not intrusive and in fact they are extremely brief and in most cases are completed in approximately 20 to 30 minutes.  The ‘Valuation Surveyor’ will make a brief internal inspection looking in the roof space if possible (usually from the top of a ladder). The inspection will also look for visible signs of timber decay or woodworm, and also consider the electrical installation amongst other things.  This will be followed by an equally brief external inspection where the roof, chimneys, external walls etc will be inspected.  As the Surveyor undertakes the inspection, a two or three page proforma, mainly consisting of tick boxes will be completed. The ‘report’ will then be returned to the lender and will identify whether the property is worth the agreed sale price and also detail any urgent remedial works.  It is from this report that the lender will decide whether they will borrow the agreed amount to the buyer or withhold a certain amount (as retention) for any works the surveyor has identified as affecting the value of the property.  I have a personal dislike for these types of surveys because in my opinion surveyors are far too cautious in what they report. They often recommend timber and damp surveys and electrical inspections as standard without any real grounds for doing so, and often inaccurately report other issues. This is hardly surprising given the very brief inspection undertaken, however this cautious approach is more likely to be a result of the litigious World we now live in, where Surveyors provide ‘their own safety net’, and therefore try to reduce the risk of being sued.  To a certain extent this is understandable, but this should never be at the expense of accurate reporting.

I have recently bought and sold a property.  The Valuation Surveyor for the lender of the prospective purchaser of my former house reported damp problems and an issue with the chimney.  A timber and damp survey was recommended (by the surveyor) with a £1000 retention sum for repairs to the chimney.  The prospective purchaser tried to use this to negotiate a reduction on the asking price, however as a Chartered Building Surveyor I knew that this was completely inaccurate and unnecessary.  I tried to challenge this, however as it was not my lender (it was the purchasers of my house), I continually hit a brick wall.  My purchaser became unnecessarily nervous about buying a house which they now thought was riddled with damp and with a chimney that was about to collapse! In the end, and to ensure that we did not lose the sale, through gritted teeth, I agreed to a £500 reduction, even though this was completely unnecessary.  I am sure that many reading this will have similar experiences, which I am also sure is one of the reasons why some property transactions fall through at the last minute, which is extremely frustrating.

This demonstrates that lenders rely on the advice of surveyors who carry out such a brief inspection that it is almost laughable, who then recommend further inspections and remedial works that are often not necessary.  Remember, a mortgage lender’s valuation is for the lender only and should not be relied upon by a purchaser (mainly for the reasons stated above), as a means of accurately assessing the condition of a property.  A much more comprehensive inspection is therefore required and I would recommend that a Building Surveyor is instructed to undertake a full, comprehensive survey of a property prior to contracts being exchanged.  Although this will have a cost attached to it, you will often find that a building survey will prove to be extremely cost effective as it will highlight possible defects/issues which can either be used to negotiate the sale price, or possibly allow the buyer the choice of pulling out of the sale, before contracts are exchanged. This is something I will discuss in next week’s article.

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  1. Great article again, especially where a surveyor will recommend a damp and timber survey. So the surveyor we will assume has attended college/University, studied buildings and defects for 3-5 years with some practical experience thrown in, get awarded a degree or similar qualification. They then advise a damp survey that will be carried out by someone who has attended a 3 day course on chemical injection and pesticides that results in a certificate of completion if they tick the right boxes. In my opinion the surveyor is negligent for recommending someone to carry out a Survey with less qualifications/experience than he/she has !!! Therefore what is the point of being called a Building Surveyor if you have to shift blame. I thought you had to be responsible for your actions and carry PI if a genuine mistake is made !!

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