Only one in five property buyers commission a survey before purchasing a new home. But most buyers will get a valuation on a place because the lender insists upon it before agreeing to a mortgage.
While those valuations will be made by a chartered surveyor, the actual inspection done by the surveyor cannot be compared to a RICS Level 3 Survey or a HomeBuyers’ report, both of which are more in-depth examinations of a structure. Carried out by chartered surveyors who are members of the Royal Institution of Chartered Surveyors (RICS), you can find out more about both of them here.
Instead the valuation is usually in place to ensure the lender will not lose out if the buyer defaults on a mortgage.
So how does a surveyor decide how much an individual property is worth? Here we take an in-depth look at mortgage valuations and the factors that decide a property’s value and demystify the process for buyers.
Element of risk involved
Mortgage valuations are required both for new purchases and for remortgages. In the latter case, the householder is likely to want the valuation to reach a certain level so they can access more funds from their lender. The lender, however, needs to ensure that the property will fetch at least the mortgage level when sold on the open market.
The lender will apply the same criteria to a new purchase. They need to know the house or flat will sell for at least the outstanding mortgage amount so they don’t lose out. That occasionally conflicts with what the buyer might need, which is the valuation to reach a particular level so they can achieve the best mortgage offer.
The element of risk involved for the lender tells you how important it is from the off to understand that the need to protect the lender’s investment means the valuer will err on the side of caution when it comes to putting a figure on a property, a valuation that will be eminently realistic to the surveyor but might seem quite pessimistic to the buyer or re-mortgagee.
Each valuation is individual
Now you know the starting point from which a valuation will be carried out, what other factors are considered before the final figure is reached?
All lenders have different criteria to mortgage valuations and individual cases are treated on their own merit. That means the surveyor will receive a specific brief tailored to the property he or she has been asked to value.
In general, they will examine the exterior and interior condition of the property, assessing any renovations or extensions and looking for any potential issues, such as damp, electrical problems, missing roof tiles or leaking guttering. Their job is also to ensure the particulars of the property are accurate – i.e. that it is a first-storey flat or a three-bedroomed detached villa – so there are no nasty surprises, such as an extension without planning permission or a large room illegally sub-divided.
Where the surveyor does spot potential problems, these will be outlined in the final report, often with a recommendation that a more detailed RICS Level 3 Survey take place.
Comparisons are important
Away from the property itself, the surveyor will examine the local area and assess for the likes of flood risk and other environmental factors – for example, planned developments or those underway, road projects and the like.
They will also look at what similar properties locally have achieved on the open market in recent months to make a reasonable comparison with the one they are valuing. That’s not always an easy task for various reasons – your chosen property might be a one-off, there may not have been many sales of that type in the last six months.
Ideally the surveyor will look at the sale price of at least three similar houses or flats locally for comparison, but they may have to cast their net wider geographically to achieve this. This process plays its part in the eventual valuation reached.
The aim of the surveyor is to be as accurate as possible in their valuation. A lower valuation that doesn’t quite match the expectations of the buyer might actually be a blessing in disguise because it opens the door to re-negotiating the sale price with the seller.
Expert advice on the right survey
A mortgage valuation may be enough for some buyers, but the security and peace of mind that comes with having a more detailed investigation of your potential new home carried out can’t be beaten.
At Surveyor Local, we only work with chartered surveyors who are members of the RICS. And with a nationwide panel to choose from, our sales team can arrange a local surveyor to carry out the survey of your choice quickly and efficiently.
Call now on 0800 022 4428 for expert advice on the survey that best suits your needs or get a no-obligation quote here.