Dreams dashed by home survey

PROPERTY valuations are well known for being more an art than a science. Does there come a point, though, where a surveyor's subjectivity causes problems not only for individuals but the entire economy by holding back recovery?

Scotland on Sunday reader Colin Avinou, who eight weeks ago fell in love with a luxury flat in the AMA Springside development in Fountainbridge, believes this could be so.

He said: "It seemed a good time to buy, so I looked round and found this flat, which was exactly what I was after. It was built to a very high specification, close to the centre of Edinburgh, with a parking space. I knew straight away it was for me."

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The flat was priced at 225,000, which Avinou thought fair given the amenities and standard of finish. Nevertheless, he bartered hard with the agent Savills in an attempt to get the price down, although he wasn't surprised when he couldn't get them to budge.

He added: "They threw in a few extras, like stamp duty and legal fees, which seemed reasonable. But I couldn't get them to move on price. They seemed confident this was what the property was worth."

Savills felt it was on safe ground over the price. It had commissioned three independent surveys which priced the flat at 245,000, 263,500 and 252,500. This gave an average valuation of 253,000, which the agent then discounted by more than 25,000. Furthermore, an identical flat had just sold at 233,000.

Avinou's next job was to get a mortgage. He didn't envisage problems, as he had a 30 per cent deposit, and although self-employed, he had been for the past 24 years so had a good income record.

His broker suggested approaching Northern Rock, and it agreed to lend him the money within four days, subject to valuation. So Avinou ordered his solicitor to begin preparing the missives, paid a 1,000 non-refundable deposit to the developer AMA and began plans for his new home.

But his joy was short-lived. When the valuation arrived, Northern Rock said the property was only worth 170,000. Avinou was stunned. He was unable to proceed on this basis, and was now out of pocket to the tune of nearly 2,500. He had lost his deposit, run up nearly 1,000 worth of legal fees and had paid 450 to Northern Rock, all for nothing.

Avinou said: "Either Savills and AMA are giving misinformation to prospective buyers, or Northern Rock is undervaluing.

"Either way, people like me are caught in the middle. On the one hand, we can't get a mortgage because valuations are so low, but on the other we are out of pocket because of paying non-refundable deposits and various fees. Everyone is winning except buyers, who are getting stung all round."

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After Scotland on Sunday intervened, the developer offered to refund the deposit, which a grateful Avinou welcomed. Savills and AMA also provided full details of earlier valuations.

Savills' Beth Hocking said: "We are confident we have priced the flats correctly, based on three independent valuations and recent sales.

"No-one is pretending everything is easy right now, and current new-build mortgage valuation practices are causing some problems. Yet, in these challenging times, Springside has been one of Edinburgh's regeneration success stories. AMA has continued to develop the site at the former brewery and demand for the high-end luxury apartments has been relatively steady."

Of course, they could be wrong and Northern Rock's valuation could be closer to the truth, in which case, did the bank do Avinou a favour? Yet the Rock largely stonewalled inquiries, and made little attempt to justify the price it put on the property.

The taxpayer-owned bank refused to disclose how long the valuer spent on site, what led him to value the apartment as he did or which recent sales he used for comparison. The Rock obliges its surveyors to produce details of three comparable recent transactions, but it refused to reveal which properties were used.

In a statement it said: "As a responsible lender, Northern Rock obtains a mortgage valuation report from an independent third party on our approved panel of valuers. Northern Rock uses only qualified chartered surveyors who have appropriate professional experience in the residential areas in which they operate. We rely upon their expertise and local knowledge, and abide by the recommendations."

Yet its valuation is 25 per cent below the price the buyer was, and still is, willing to pay. It is 33 per cent lower than the average of three independent valuations in April, since when prices have been largely static, and 36 per cent below the highest.

Behind the scenes, surveyors admit they received written instructions from some banks reminding them of their duty to value properties realistically, and warning their lawyers will not hesitate to sue if the lender makes a loss on any loan offers based on their recommendations. One agent said: "This is scaring the living daylights out of surveyors."

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As such, history looks set to repeat itself. Surveyors seem to throw caution to the wind when it comes to feeding bubbles, then lose their nerve when boom turns to bust.

During the property crash of the early 1990s, persistent under-valuations were blamed for paralysing the property recovery.

In this case, Edinburgh mortgage broker Punter Southall's John Postlethwaite said he was surprised at the size of the discrepancy in the valuations. He explained: "There are problems in the new-build sector, and although this is a regeneration project, it is a mixed area.

"In general, though, difficulties arise because lenders insist on larger deposits for new build. But that wasn't the problem here. The buyer had an adequate deposit. It is true you can get variations on valuations, but a gap this big is quite unusual."

Charcol's Ray Boulger added: "Low valuations can be a problem for first-time buyers, who may have neither a big enough deposit, nor the confidence to proceed when the valuation comes up much lower than anticipated. Experienced buyers are more likely to trust their own judgment.

"We are seeing a few problems with low valuations. But where they occur we challenge the lender, provide more information and ask them to reconsider. It has to be said, some are more accommodating than others."

The Royal Institute for Chartered Surveyors in Scotland said a difference of 10-15 per cent would not be unusual, but a big divergence was rare. A spokeswoman pointed out that it was not a straightforward site to value and would have required complex methodology. She said: "As a regeneration project, strictly speaking there is nothing to compare it with. It is a mixed road with Georgian houses at one end and social housing at the other. You would have to be particularly careful about the properties which were used for comparison, as otherwise you would be comparing apples with bananas."

Meanwhile, Avinou is still nearly 1,500 out of pocket due to legal and mortgage fees. He could ask Northern Rock to compensate him or provide him with a detailed explanation of how the valuation was arrived at. If it fails to provide full details of the properties used for comparison and analysis of other relevant factors then he could take his case to the Financial Ombudsman.

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He has also lost the flat he would still like to buy. He said: "I have considered applying for another mortgage, but am afraid that the bank will send out the same surveying firm and I'll just lose more money."

The external development of phase two of the AMA project has been completed, but internal refitting will not begin until phase one has been sold. Tradespeople looking for work will have a while to wait yet.

How to make the numbers add up

1. Don't get carried away

Do not part with any money for fees or a deposit until you have a mortgage offer with a valuation, so are sure you are in a position to proceed.

2. Appoint the valuer yourself

Most people simply pay a fee to the lender, who then instructs the surveyor. However, from that point the surveyor is working for the bank or building society, not the borrower. In this situation, borrowers can lose all their rights. The lender does not have to explain why a valuer came to the figure he did.

3. Choose a valuer working in the area

You will still have to choose a valuer acceptable to the lender, which normally means a member of its panel. But if you appoint a valuer with knowledge of the area and the type of property you are buying, you can have a high degree of confidence in the report.

4. Make the most of the feedback

If you appoint the surveyor yourself, you have the right to expect him or her to justify their verdict. If the valuation is disappointing, then you can ask why. It may be he or she simply doesn't like the design or the location, or genuinely believes it to be overvalued. But he or she will give you this feedback directly, rather than exclusively to the lender. He will also tell you which properties were used for comparisons.

5. Pursue the lender for compensation

If you pay the lender directly for the valuation and he refuses to explain why it is low, or to give the addresses which were used for comparisons, then you may have grounds for a complaint to the Financial Ombudsman and redress, or at least a refund of the valuation fee. The Ombudsman would probably take the view that you were entitled to the information, as you paid for the survey.