Home Sales Hurt By Undervaluing |
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Sales falling apart due to some lenders’ intentional undervaluation
Property sales and remortgages are falling apart because some mortgage lenders and surveyors are intentionally undervaluing homes. The National Association of Estate Agents (NAEA) has told the BBC that on average properties are undervalued by at least 10% and that surveyors afraid of being sued by lenders were being overcautious. But the Royal Institution of Chartered Surveyors rejected denied the accusation, citing constant change and imperfections in the housing market. If a property’s valuation by the lender is lower than the price agreed, the lender may decide to offer a smaller mortgage. This could leave the homebuyer short of funds and cause the deal to collapse. If a property is repossessed and the lender is forced to sell below its purchase price, it can sue the original valuer for negligence. This occurred regularly during the housing slump of the early 1990s and, the NAEA said, as a result of the uncertainty in today's market, valuers are once again ‘frightened’. Concerns about insurance Chief executive Peter Bolton King: "They are perhaps worried about their professional indemnity insurance - they are thinking back to the 90s when surveyors were being sued by lenders for allegedly not getting the valuations right. "They are perhaps worrying about the market and almost deliberatively knocking off 10% almost regardless of what the property sold for. "The other reason, which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations." Sellers are also affected by undervaluing as they may have to drop prices and those seeking remortgages are left with little or no flexibility. August 11, 2009 |