Home Report valuation report
ESPC has carried out research to analyse sales prices in relation to Home Report valuations.
- Over the last two years, 35% of homes sold have achieved their Home Report valuation. The figure peaked at 52% in August 2009 but more recently has fallen below 30%.
- The evidence is that the valuation is being viewed as a reasonable starting point for negotiations with the majority of properties selling within 5% either side of the valuation.
- Likelihood of a property achieving its valuation drops significantly after it has spent eight weeks on the market.
- Lower value properties have a reduced likelihood of achieving the Home Report valuation reflecting greater difficulties at this end of the market.
- Lenders frequently requesting follow-up valuations at time of sale, potentially adding to costs faced by consumers.
New research conducted by ESPC has revealed that almost two-thirds of properties sold over the last two years have sold for less than the Home Report valuation. ESPC's research, which looked at sales completed from July 2009 to June 2011, found that 35% of homes sold had achieved their valuation during that period. The figure peaked at just over 52% in August 2009, but more recently has fallen below 30%. Although most homes are selling for less than what they were valued at, in most cases the discount from the valuation is comparatively low. During the first half of 2011 the average selling price of a property stood at just over 96% of the valuation and 60% of sales completed had a selling price within 5% of the valuation.
David Marshall, business analyst with ESPC commented: "It's no secret that market conditions have favoured those who are in a position to buy over the last couple of years. There have consistently been more homes for sale than there are people looking to buy meaning sellers have had to work harder to attract buyers. About 15% of sellers are choosing to market their home below valuation when it first goes on the market which reflects the level of competition in the market. Additionally, when it comes time to negotiate on price the balance of power clearly favours the buyer.
"In the majority of cases the difference between the selling price and the valuation is relatively small - typically under 5% - which indicates that both buyers and sellers have a level of confidence in the valuation. Nonetheless, even when the percentage difference is low the difference between the valuation and the selling price can still be significant in cash terms and there are a number of cases where even bigger discounts are being negotiated.
"One thing we've definitely seen is that the longer a property spends on the market, the less chance it has of achieving its valuation. 65% of homes sold within eight weeks have achieved their valuation compared with just 24% of those which spent longer on the market. This can create problems as sellers often become attached to a valuation that may be several months old giving them unrealistic expectations of what their home is likely to sell for."
ESPC's research also revealed that there were differences in results across different market segments with lower valued properties having a lower chance of achieving their valuation than those in higher price brackets. Just 26% of homes valued under £100,000 achieved the valuation compared with over 45% of those valued between £300,000 and £500,000. Those valued under £100,000 achieved an average selling price equal to 95% of the valuation whilst those valued in the £300,000 to £500,000 bracket achieved an average of 99% of the valuation.
Graeme Hartley, director of The Royal Institution of Chartered Surveyors (RICS) said: ""It's no surprise that many properties, especially at the lower end of the market are selling for an average 5% less than the Home Report valuation. Some potential buyers are still having problems getting a mortgage and raising a deposit. Those with finance will want a 'bargain' and may not be prepared to pay the full valuation. Sellers need to be realistic about the price they can achieve for their property. The valuation in a Home Report should be seen as a guide to what a property may achieve: for some it will be higher, for others it will be lower."
ESPC's David Marshall agreed: "The market for smaller, typical starter homes has suffered most over the last couple of years due to a drop in demand from first time buyers and buy-to-let investors whilst the market for quality family homes has been comparatively robust. Buyers towards the lower end of the property ladder have therefore been in a stronger position to negotiate discounts resulting in the figures we've seen here.
"Many lenders are requesting an additional valuation be conducted once an offer has been accepted on a property either because the original surveyor who produced the Home Report is not on their panel or because of the length of time that a property has spent on the market. This means either the buyer or seller is often left facing the cost of one or more additional valuations and unfortunately, with smaller homes spending longer on the market, these additional costs are most frequently being faced by those who can least afford it. The Government's interim review on Home Reports also noted that there was a significant number of additional reports and we believe it's important that professionals in the industry all work together to identify what improvements can be made to ensure reports meet lenders' requirements without additional costs being passed onto the consumer."