House Price Bust: surveyors feel the heat

Make hay while the sun shines then mop up the mess when it rains on your parade.

Valuations are always guesswork, I have seen lenders and developers bend the ear of the surveyor in order to get a favourable valuation, "you want to keep your contract going don't you" type of blackmail. I have always said that a borrower should obtain in independent valuation but purchasers don't care, they just want to get on the gravy train, the lenders only want their bonuses, the surveyors stick pins in charts, the developers want to get rid of their awful properties.... until it rains on their parade.

I had a client who bought two flats off-plan (nothing to do with us). The building work completed late by which time her mortgage offer from Barclays expired so a new survey was required which downvalued them significantly. Barclays pulled its mortgage offer and her 'personal banker' suddenly stopped taking her calls, whereupon we got involved. We got her a new mortgage but the downvaluation meant that the new purchase ate up most of the equity in the flat she was selling. The client with our help then took the surveyor to arbitration using the RICS scheme. The arbitrator concluded that the valuation was wrong but was 'within acceptable tolerances' and hence no compensation was due! Our client had to pay a fee to go to arbitration. Wouldn't it make sense for the same type of commitment fee to apply to FOS complaints?

Let's hope this leads to some more realistic valuations. Sellers can ask for whatever inflated fantasy valuation they like, but surveyors are hold the purse-strings - and should quite rightly expect to be sued if they get it wrong.

And not before time, surveyors should have been called to account years ago for their role. More often than not they advise the the selling price and yet seem to know little about the product they sell. Ask a detailed question about a property and more often than not you get a blank stare.

Realistic valuations now abound. Way below asking prices. Sellers complain. The market has a long way to fall and we should not kid ourselves otherwise.

Expect a lot less for the house you are selling and expect to pay a lot less for the one you are buying.

We need to be clear here, despite the fact that they fully supported/encouraged the boom no Bank/borrower is able to sue its surveyor just because prices have subsequently fallen.

Indeed they are only being sued where their valuations were materially inaccurate (at the time) or downright fraudulent. I have seen reports where the surveyor has looked at a mansion and not mentioned the fact it is located on a dual carriage way and next to an industrial estate, similar to the estate agent advertising the "cottage" beside the nuclear power plant, all photos were taken looking the other way.

In the past lawsuits were rare as time and increasing property prices limited losses.

It is only right that a surveyor owes a duty of care to the buyer whether he was directly instructed by the buyer or not.

On the other hand, if the buyer has not bothered to do his own due diligence than any compensation should be restricted.

It would help if it was made mandatory to state on the estate agents details that the asking price is not a RICS valuation.

Interesting how a lender could believe valuations could triple in 10 years when incomes had only risen by 30% - they lent the money the responsibility should lie with the banks.

PC

Good points made - exactly what is needed.

A surveyor cannot take the money for the valuations and then abslove themsleves of all responsibility.

If you want to know who to blame for the financial crisis, the kneejerk reaction is to say "the banks". The real answer, even more in the US than here, is everyone who had any part in setting up and financing property transactions on totally unrealistic assumptions, all the way from the homebuyers to the purchasers of dubious mortgage-backed securities. Surveyors are certainly among those implicated, but only on a relatively small scale, I should have thought.

And what were the regulators doing? Looking the wrong way?

Most of the valuations round here are done by the selling agent who is not a surveyor. The last house I sold the agent said we could get 585000 I said we should settle for 550000, the agents will sell for any old price as long as the get the rder. I do,nt htink the buyers valuer is much brighter either, in fact anything out of the norm and they are stuck.

It surely has to be the case that a property is worth what someone is prepared to pay for it. If a valuer 3 years ago started valuing property at say 30% less than the buyers in the marketplace were prepared to pay then very soon they would not get any business from mortgagees as their customers would be going elsewhere!

If as 'Anonymus 1' above states the valuation is inaccurate or there is fraud involved then fair enough but otherwise blaiminhg the valuer is frankly laughable.

normski. With all due respect you should spend a day in a Chartered Surveyor's office before you start saying things that make no sense. The valuations being discussed are not those when the property is marketed but those on behalf of a lender.

Anonymous1 is the nearest. I suspect he may even be a CS. Valuations basically reflect the value on the day using comparable evidence of recent sales of similiar property and experience gained during a working life taking account of market conditions at the time.

Some irresponsible lenders sue anything that moves in the hope some will stick. However if a Surveyor/Valuer has been negligent or worse still fraudulent, they have a case to answer.

There is good and bad in all walks of life Surveyers are no differant

Over Valuation prior to the crunch have caused a lot of problems its no differant than it was in 1989 I thought then we had learned the lesson but we havent

how much is a house worth its worth what someone will pay you woukd think that would be a simple answer

one of the main problems is banks lending critera 3 time salary is the key I belive if a couple have an income of 50k then banks should lend no more than 150 simple

that would stop the prices getting out of hand and hopefully averrt another crash

But as I say we banks never learn

Go Back to old fashioned princables good deposit and salary checks

who was the bank lending 125% LTV of yes Northen Rock its the banks who have the problem not the Surveyors in my opinion but the bank have to blame someone or they would not be bankers

Well, it looks like I have become a property developer with acres for houses with sea and mountain views, walking distance to buses, station, beach, pubs, restaurants, shops.... short drive to top 50 golf course, three marinas... ahh the good life after years of struggle.

Anybody want to buy a plot?

I have a very poor opinion of CS's.

Stems from the time someone wrote to him they were sending them a cheque, for their so-called expertise on a bounadry dispute.

On receipt, he promptly took them to the court for not paying on time, and they then had to pay the amount due and Court collection charges/fees, and get a bad credit rating lasting six years on top.

Frankly, I think they are the biggest rubbish around.

Also I think the current legal boundary dispute system, is designed not to resolve disputes but to feed Solicitors and Chartered Surveyors.

Most disputes are about amounts of land less than £5000(five thousand) in vaslue.

Why cannot they be heard in the Small Claims Court?

Anonymous 1 & Chas are quite correct, surely. If the buyer was prepared to pay the price at the time the that was the correct value

As usual the surveyor gets the blame. Deja vu as in the 90's. If any surveyor has followed accepted Red Book procedure and valued rebus sic stantibus then they have nothing to fear. If they haven't then they deserve all they get. Allan G MRICS

The fact remains there is a shortage of housing stock. If surveyors value too low then the buyer can't get a mortgage and will be forced into rental accommodation which is already happening. Properties eligible for rental are going up in price and we see the return of the interest only buy to let mortgage or there are still plenty of cash buyers out there.

Some properties are like art, sufficiently different and rare to be valued at what the seller will accept and the buyer will pay.

Most properties are not so rare and can be compared to recent sales within an area, the question is whether when making a valuation the surveyor should rely on history or take into account the local property inflation rate.

Unfortunately a single purchase can change the rate and set a precedent for subsequent sales, property inflation is not like other inflation: minor events, individual decisions, can have a huge impact.

Perhaps we need legislation dictating property values, maybe taxation on profits above RPI as capital gain. This could replace stamp duty.

1. It was flak they caught, not flack.

2. Of course, what a property is worth is what a buyer's prepared to pay so valuations at less than offer price can surely be challenged. The house I live in was valued at £10,000 less than we had agreed to pay and on the basis of this we negotiated a mere £2000 off what the vendors were prepared to accept. The basis for the surveyor's lower valuation was that he considered the house to be in an exposed position (it's 100 feet above sea level on a south-facing slope) and he did not like the climbing plants on the walls! I believe surveyor's are currently under-valuing for fear of being sued of there's a further drop in the market.

Important to distinguish lender-appointed surveyors and buyer-appointed surveyors, I would have thought. Surely if a buyer-appointed surveyor provides a valuation at less than offer price he is providing a useful service? Why would you want to overpay?

I think the main cause of recent disputes have been over new-build and buy-to-let flats. It does seem very odd that a surveyor would value a leasehold, new-build flat on a busy main road more than a freehold house in a quite road nearby.

More good points from Phil G.

The average man in the street could probably value a three bed Victorian terrace in any given Street in his locality. There will be a good history and quantity of sales data and it is easy to see how the property compares with others in the terrace to fine tune the valuation.

Where it gets more difficult is when there are large volumes of two bed flats being built in an area where non existed before.

Here the Surveyor has to establish a price allowing for how the development itself is actually affecting the price. It is here that Surveyors have failed completely giving ridiculous over valuations.

Hence so called property clubs were able to sell large quantities of these two bed flats to investors with supposedly massive discounts to the surveyors valuation.

We need Surveyors to be able to value the difficult developments as well as the easy Victorian properties - otherwise they are quite useless to anyone buying property. But I guess many on this thread have already realised this.

This article seems to have sparked a useful and generally well informed debate. In a free market the prevailing price is what people are prepared AND ABLE to pay for an asset or service. In a market where the majority of buyers need finance the demand side of the equation is the willingness to pay and the ability to acquire any necessary credit.

The surveyers providing market valuations do so at a point in time reflecting what buyers and sellers together with their mortgagors are prepared to accept- this establishes the 'current market'. The fact that the fuel for price inflation is (or was) based on poor financial discipline and in some cases fraudulent or non existent evidence of ability to pay is hardly the fault of the surveyers. I do however agree that the integration of the agencies involved in house purchase leaves the process somewhat open to complicity which is often difficult, if not impossible, to prove. As for the current situation I tend to agree with the posting by Astrologer that the market has further to fall. In the main, existing mortgagees have little to complain about (even those in negative equity) as the pain of the crisis has been, and continues to be, mitigated by historically low interest rates which have prevailed for a record amount of time. For those who have retained ther employment and therefore not been forced into selling their property in a falling market these may well come to be regarded as 'the good times' however for those not so fortunate there is the real possibility of repossesion. Assuming they were not complicit in fraudulently gaining credit one can only sympathise greatly with their predicament. It is however one which could have been avoided had the regulators not been asleep on job or up to the job in the first place.

There is real confusion here as to what a surveyor actually does. In the 90's I lost several big banks because (without them actually saying it) I would not value "up". A surveyor is not there to forecast future trends as far as house prices are concerned. His job, in this case, is to provide a valuation "for mortgage purposes". "Rebus sic stantibus" means, quite literally, "as it stands" in other words as the property is right now. Any surveyor worth his salt does just that. I was always taught that you "value as you devalue". In other words, after establishing an OMV using whatever evidence is available, you devalue for dilapidations etc. and arrive at a true OMV. Any major structual faults and you bring in an engineer. I am just saddened that my profession is brought in to disrepute because of the greed of others in the main. Obviously in any profession there are rogues but, in the main, I believe that most surveyors act in the best interests of their clients, whoever that may be. The question of any Tom Dick or Harry being able to set up as an Estate Agent and to be classed as a professional is a joke in many cases, and is the root cause of the problem in my opinion.

Surveyors have to get the valuation right for 2 reasons,

1. to protect the naive buyer.

2. to protect against fraud.

The surveyor is the only sanity check the banks and buyers have.

A mortgage valuation is to give assurance on a secured loan, the money being loaned is mine and yours, we'd like to know it is recoverable.

Where a surveyor has overvalued a property they should, quite rightly, be charged with accessory to fraud, they're the professionals, no excuses.

Valuers are there to provide the underwriter with a figure so he/she can assess the overall risk.

The money the banks use is theirs, you gave it to them of your own free will.

Valuers who can demonstrate that they based the value on an 'honestly held opinion' should have nothing to fear.

Do I detect some sort of hope in this article that BTL investors might be able to get compensation for there purchases of overpriced flats? I think valuations went from one of being what prices achieved were to one of mow much more they were that the equivalent property las year multiplied by an inflation factor.

If you can prove negligence or fraud on the part of any party to the transaction you should be able to claim compensation. You need a claims handler to run his eye over it with the aid of a lawyer to see if you have the basis of a claim, this is what I do.

If you can get compensation for the duff investments you have made tyhen happen I could get compensation for the duff shares I have bought. and the duff cars , unsuitable clothes etc. Just man up and admit that you made aserious financial mistake.

Amazing how many people in our country won't take responsibility for their own actions. If it goes right they think they are brilliant, if it goes belly up then it's ALWAYS a case of "hey ref that was offside".

It also has to be said that any homeowner who bought a two bed flat at the peak for their own occupation has probably also lost money.

I understand that the main BTL problem was where the selling company (investment club) offered to supply solicitor, valuer and lender as part of the package under the guise that this was helpful to the purchaser.

These deals then became the so called "toxic assets" for which we have all had to pay for.

Give it another few years and we will back here again - only we will not be able to fund the bail out next time.

Do not use any lender that uses e serv to value property. I have just had my house valued by them for a re mortgage with Abbey, they have valued my house at 170K!!!! Estate agents x 4 have valued it at between 200k to 225k.. My partner is a RICS surveyor and he has valued at 210k with all the comparables, what an under estimate, I am getting an independant valuation done on it and I shall complain to Abbey, e serve and RICS. Shame on e serve under valuation of house is disgusting. You should not be doing mortgage valuations!!!!!! Why would lenders even use them. Is it just that people don't how to complain against them