We have a situation where the valuer has chosen to value a building which we are purchasing cheaply, or perhaps we are under the illusion of buying cheaply!
Does this mean we are mistaken? After all, we are dealing with a RICS certified, professionally insured valuer.
And therein lies the problem. As the economy looks increasingly shaky, and the property market is wobbling, valuers will be looking to protect themselves. In regards to lending, technically the valuer works on behalf of the lender, though you pay them. Realistically, the first priority is to protect their own behinds in the guise of protecting the lender or client. This is also human nature. Same goes for lawyers, some are worse than others, in the name of protecting the clients they actually are protecting themselves. There are very few who can look at a deal and actually quantify the risk commercially.
A while back we purchased a property on behalf of a client in Cromwell Place in Kensington. A freehold building next to the French school. We purchased the building for £5.2M, Knight Frank in all their wisdom valued the building at £3.1M. We sold the building for £5.8M, a few months after completion. Luckily, the lender took a pragmatic view of the deal, and agreed to lend regardless of the valuation, they had enough acumen to know this was way off for a building with this kind of stature. The valuer charged us about £20K for this privilege, and handed us an impressive looking booklet justifying their final number.
There is a reason why some become professionals and others deal makers. The latter have a different skill set to the former, and sometimes they do not correlate. Therefore, the deal maker cannot be dependent on the final word of the professional. Guidance should of course be taken, but the final decision is a commercial one.
We had a similar situation where the lawyers advised us not to go for a building in Kilburn due to some title issue which apparently had arisen. We were in a contract race. Our client took the decision to exchange, and this deal paid off for us and the client.
In short, we will of course examine the valuation carefully, but in this situation, we will be proceeding with the deal. Although it seems we will now have to seek another lender or buy in cash.
The valuation report is now a good card for us to play with the agent and the vendor in reducing the agreed price even further. As this is now on record, and should another buyer come in the danger is they will need to traverse down the same road. This is therefore good leverage to reduce the price even further. As time goes on I suspect this will be occurring with even more frequency; valuers will cover themselves and lenders will therefore be forced to pull out of the deal. Interesting times ahead.