How Have Property Overvaluations Ocurred?

Further Reading - Was My Surveyor Negligent?

Surveyors have told me that they have been under immense pressure from lenders to ‘validate’ the purchase prices and that they feared being dropped from the lenders panels if they down-valued too many properties. There were no specific threats but this was the fear!

My view is that surveyors have spent too little time researching each property value and have limited their research to finding comparable prices (usually from the same complex) to support the purchase price. My own view is that the correct procedure is to find properties of comparable quality, location, facilities etc and then consider not only brand new sale prices but importantly they should have considered re-sales prices. To me this is the most blatant failing that I have uncovered. Of the hundreds of properties that I have researched the common factor is that there exists re-sale evidence that undermines the prices that have been paid by our clients. I firmly believe that the surveyors have ignored re-sales evidence focussing instead on sales of brand new properties in the same complex. When you consider that the purpose of a valuation is to assess the suitability of a property as security for a mortgage this failing is critical.

I would even go on to suggest that this is one of the largest contributing factors to the whole bad mortgage debt problem that we have experienced in this country.

Common Scenario’s

The Property Club Purchases

Many of our clients purchased via property clubs and these are the most common scenario that we are seeing. having been promised 15% or more discount. In many cases these discounts were not genuine. The properties were available from the developer directly at the same ‘discounted’ prices and in some cases the property club uplifted the developers’ price to discount them down again.

The Property Broker Purchases

The worst cases that we have seen have been purchased via Property brokers. These guys were competing directly with the property clubs and in some cases were working in association with them. They used the same kind of tactics but tended to work on small scale developments and in some cases have purchased via property clubs themselves. We have seen examples of brokers reserving properties with the developers or even with property clubs and ‘flipping’ the properties on for heavily marked up prices.

Some of these cases are blatantly obvious because the prices paid stand out against others in the same development and in some cases there is land registry data to show that properties were purchased recently for a substantially lower price.

 The most common scenario for claims are from clients who have purchased through property clubs. In some cases our clients paid a fee, attended a training course on how to purchase properties and then were led by the hand by the property clubs into purchasing properties that appeared to meet all the criteria spelled out to them in the training. In almost all cases our clients believed that they were receiving a 15% discount or higher and in some cases the discounts were given off the list purchase price and a deposit was paid based on the discounted price. In other cases the discount was used as the deposit.

I didn't arrange my valuation

Further Reading - Was My Surveyor Negligent?

This is not a problem. Your lender will have instructed a surveyor to assess the suitability of the property as security against your mortgage. The surveyor is under a well established third party duty of care to the purchaser. Legal precedents exist and many legal cases have been won on this principle.

This is the same principle used in the case of Scullion v Bank of Scotland.

What is the basis for a claim?

Further Reading - Was My Surveyor Negligent?

Surveyors are allowed a reasonable margin of error when conducting a valuation. What is ‘reasonable’ is to be defined by the judge but generally speaking a unique property such as a country mansion would be harder to value than a suburban house where all the houses are the same and there is a lot of history of sale prices to provide comparable evidence. The margin of error allowed on unique properties is therefore higher than on non-unique properties.

For the purposes of litigation and to satisfy our legal team we have to demonstrate a 15% variance between our expert surveyor valuation and the client’s original valuation.

The surveyor in acting for the lender was under a duty of care to the purchaser. This is a firmly established legal precedent and many cases have been won under this principle including Scullion v Bank of Scotland

Was my Surveyor Negligent?

Further Reading - Was My Surveyor Negligent?

What matters is whether a judge accepts that your surveyor was negligent which means that we cannot give you any hard and fast rules to determine whether your case will be successful or not.

Your surveyor will be deemed to have been negligent if the court accepts that your property purchase was overvalued beyond a level of acceptable tolerance. The acceptable variation is typically 10% and 15% between the original valuation and the retrospective valuation.