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DeadCat

Can Builder Pull-out Of Sale If Valuation Is Low?

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I recently offered £172,500 on a new build 1 bedroom flat in Surrey (sale price was £179,950 reduced from £212,000) which was accepted. Ive subsequently found that similar flats in the block have recently sold for £168-£170k and I was planning on gazundering the developer and offering £162k the day before exchange. There is no need for me to do that now as the lenders valuation came in at £160k. The developer was up in arms over this result and contested it immediately but the Surveyor is standing by the valuation. The sales woman in charge is of the opinion that the valuation is ridiculous (she is deluded) and even had the cheek to ask if I would pay the extra to cover the shortfall in the mortgage in order to make up the previously agreed sale price!

This flat is one of the last to be sold in a development of 129 flats which were first marketed in 2007. The flat is in a good quality town centre location 4 minutes walk from the train station which has direct access to two central London stations.

I have placed a £1,000 reservation deposit on the property.

Does anyone know if the Developer can pull out of the sale, say wait 9 months and put it on the market again? Does the reservation deposit mean they contractually have to sell it to me?

Thanks

Edited by DeadCat

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Sorry to state the obvious here, but what does it actually say in your reservation contract regarding this scenario? (or at least cancellation of some kind).

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http://www.telegraph.co.uk/finance/persona...urt-action.html

If you signed a contract with no get out clause.....be very careful!

In a reverse scenario to that described in the Telegraph I'm not intending to pull out but I am worried that the Developer might due to the low valuation and my subsequent revised offer. We have not exchanged contracts yet.

If I pull out then I lose the £1k reservation deposit which is fair enough. If they pull out then I would expect the £1k to be returned. I'm not worried about the deposit but I'm just wondering if they can or are likely to pull out if they can think they can get a better offer (what with the jobless recovereh, so called upturn, change in sentiment etc. encouraging their delusion).

Edited by DeadCat

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Sorry to state the obvious here, but what does it actually say in your reservation contract regarding this scenario? (or at least cancellation of some kind).

It mentions nothing about the developer being contracted to sell it to me. I guess that's only the case when we exchange contracts. I just wondered if anyone could guess what the developer would be thinking in this situation, i.e. should they pull out in the hope of getting a better offer.

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It mentions nothing about the developer being contracted to sell it to me. I guess that's only the case when we exchange contracts. I just wondered if anyone could guess what the developer would be thinking in this situation, i.e. should they pull out in the hope of getting a better offer.

Wont the developer want you buy it at the agreed price 172.5K, otherwise he gets your 1K deposit and then gets to re-market the property straight away?

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Wont the developer want you buy it at the agreed price 172.5K, otherwise he gets your 1K deposit and then gets to re-market the property straight away?

The flat has been valued at £160k and i'm not going to pay more than that in any circumstance even if I could afford it. The lender will only lend me 70% of the value and I cant afford to make up the difference (not that I want to).

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It's a bit hard to guess the Developer's position - either they need the cash and 160 is acceptable ... or they've got enough in the bank and will hold out for 172ish.

I agree with you that 160 is the price you should be looking at though.

I see that your post isn't actually about contract terms ... but I must say, I'm surprised to hear that there is nothing about cancelling (not that I have any experience with these things). Citizens' Advice Bureau will be able to give you some solid advice involving your deposit. Based on the information to hand, if I cancelled and was forced to forfeit the deposit I would send a letter to the Developer demanding repayment or a trip to the small claims court (done that before in the case of rental property, which clearly is very different to this case).

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Wont the developer want you buy it at the agreed price 172.5K, otherwise he gets your 1K deposit and then gets to re-market the property straight away?

Yeah, this. You agreed 172.5k. You lose it if you pay less. It doesn't matter what the valuer says that just dictates what the bank is comfortable lending on the property and has little real relevance to the market value of the property (it's a total finger in the air job anyway). If you haven't got more cash then what were you doing offering 172.5k in the first place?

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Yeah, this. You agreed 172.5k. You lose it if you pay less. It doesn't matter what the valuer says that just dictates what the bank is comfortable lending on the property and has little real relevance to the market value of the property (it's a total finger in the air job anyway). If you haven't got more cash then what were you doing offering 172.5k in the first place?

Why should I lose the £1k if I pay less? The valuer has valued it at 160k and therefore this is what the property is worth on the open market. I dont want to pay more than whats it worth, doing so would be financial suicide. I could afford the £172.5k with a mortgage but if i can only get a mortgage based on £160k that means I would have to make up the difference out of my own funds which I dont have.

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Why should I lose the £1k if I pay less? The valuer has valued it at 160k and therefore this is what the property is worth on the open market. I dont want to pay more than whats it worth, doing so would be financial suicide. I could afford the £172.5k with a mortgage but if i can only get a mortgage based on £160k that means I would have to make up the difference out of my own funds which I dont have.

You have a very poor understanding of what is going on here and should not have paid a 1k deposit if you did not know what you were signing up to.

You need to check what you signed when you paid over the deposit of 1k but it is very likely that it refers to the £172.5k offer price that you made at the time. If you didn't want to make that offer, you shouldn't have done.

If the valuer had valued the flat at 175k would you have been rushing back to the developer to pay more? No of course not. So why do you care what the valuer says. A flat is worth what someone will pay for it. You wanted to pay £172,500, oh except you didn't have the finance.

The reality of this situation is that you thought you had the finance to complete but don't actually, so are not out of pocket vs what was agreed, and are now trying to renege on the deal you agreed to allow yourself to afford it.

A valuer's price is not the same as a market price, particularly lately when valuers are tending to value on the lowside to avoid valuations coming back to bite them in the a$$.

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You have a very poor understanding of what is going on here and should not have paid a 1k deposit if you did not know what you were signing up to.

You need to check what you signed when you paid over the deposit of 1k but it is very likely that it refers to the £172.5k offer price that you made at the time. If you didn't want to make that offer, you shouldn't have done.

If the valuer had valued the flat at 175k would you have been rushing back to the developer to pay more? No of course not. So why do you care what the valuer says. A flat is worth what someone will pay for it. You wanted to pay £172,500, oh except you didn't have the finance.

The reality of this situation is that you thought you had the finance to complete but don't actually, so are not out of pocket vs what was agreed, and are now trying to renege on the deal you agreed to allow yourself to afford it.

A valuer's price is not the same as a market price, particularly lately when valuers are tending to value on the lowside to avoid valuations coming back to bite them in the a$$.

Thank you for your reply but I can assure you that I do not have a poor understanding of what is going on. I made the offer based on what I thought the property is worth and what they would accept. I had the finance to easily pay the £172.5k with my deposit and mortgage. I was not to know that the flat is worth a lot less than what I offered and what it would be valued at. I don't know if you are winding me up but why would the valuer value it any higher than my offer? He is working for me and the lender to ensure that I dont get ripped off by a developer over valuing their properties.

The reality is that I had the finance to complete at £172.5k if it had been valued at that or a bit less (assuming the developer would accept a slightly lower offer). As the value is a lot less the lender will only lend me 70% of the value (I have 30% deposit). I dont have the money to bump the price back up to £172.5. In any case why would I if the flat is worth less than that?!

Edited by DeadCat

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No, you don't have a clue, because this valuer is either working for you, or the bank. Which one is it?

The lender has employed the valuer to estimate the current market value of the property. This protects the lender as well as me from making a bad investment. I have paid the valuation fee, not the lender, so they are as much working for me as the lender.

Maybe you could explain in better detail what it is I don't exactly get as I'm strugging to understand the points you are making.

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The lender has employed the valuer to estimate the current market value of the property. This protects the lender as well as me from making a bad investment. I have paid the valuation fee, not the lender, so they are as much working for me as the lender.

Maybe you could explain in better detail what it is I don't exactly get as I'm strugging to understand the points you are making.

So the valuer is working for the bank, in which case they want to undervalue the property to limit the real LTV that they are lending on.

Witness:-

Real value of flat 200k (say)

Valuer values at 200k, bank lends at 70% LTV, 140k loan, bank is in trouble if property values drop more than 30%

Valuer values at 150k, bank lends at 70% LTV, 105k loan, bank is in trouble if property values drop more than 47.5%

You can see how a low valuation protects the bank.

It MAY be that the flat is worth less, but equally it is very likely that it's worth what you offered and the valuer is low-balling you. If I were you I would probably see if I could get a couple of other valuations done at a lower cost but given that you are short of cash this may not be feasible.

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So the valuer is working for the bank, in which case they want to undervalue the property to limit the real LTV that they are lending on.

Witness:-

Real value of flat 200k (say)

Valuer values at 200k, bank lends at 70% LTV, 140k loan, bank is in trouble if property values drop more than 30%

Valuer values at 150k, bank lends at 70% LTV, 105k loan, bank is in trouble if property values drop more than 47.5%

You can see how a low valuation protects the bank.

It MAY be that the flat is worth less, but equally it is very likely that it's worth what you offered and the valuer is low-balling you. If I were you I would probably see if I could get a couple of other valuations done at a lower cost but given that you are short of cash this may not be feasible.

I understand what you're saying but surely it would be unprofessional and against the RICS rules of conduct to deliberately undervalue a property. The developer has supplied comparables but the valuer is still standing by the price.

What you are saying now is that you are recommending me to pay money on further valuations in order for me to pay more for the property?!

Either you think I am an idiot or you are on a wind-up mission.

Edit: Or you are a developer, builder, estate agent or other VI

Edited by DeadCat

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I understand what you're saying but surely it would be unprofessional and against the RICS code of conduct to deliberately undervalue a property. The developer has supplied comparables but the valuer is still standing by the price.

What you are saying now is that you are recommending me to pay money on further valuations in order for me to pay more for the property?!

Either you think I am an idiot or you are on a wind-up mission.

If you don't want it walk away but I strongly suspect that given what you have signed already such an action will cost you £1k.

I am not trying to wind you up I am just telling you that surveyors have definitely started to value properties on the low side lately. Other people on this forum can give examples of finding surveyors willing to raise their valuation based on evidence or other surveys.

Ultimately if you want something you gotta pay for it. If you don't want the flat, you're going to lose 1k. If you do want it you need to either stump up the difference or pay for a revaluation.

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If you don't want it walk away but I strongly suspect that given what you have signed already such an action will cost you £1k.

I am not trying to wind you up I am just telling you that surveyors have definitely started to value properties on the low side lately. Other people on this forum can give examples of finding surveyors willing to raise their valuation based on evidence or other surveys.

Ultimately if you want something you gotta pay for it. If you don't want the flat, you're going to lose 1k. If you do want it you need to either stump up the difference or pay for a revaluation.

The OP is willing to pay the market price, as determined by the surveyor. Why on earth should he/she pay above the odds?

The OP may not lose the 1k, depending on the contract - e.g. terms might include that the deposit is conditional on survey, valuation, mortgage approval etc.

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The OP is willing to pay the market price, as determined by the surveyor. Why on earth should he/she pay above the odds?

The OP may not lose the 1k, depending on the contract - e.g. terms might include that the deposit is conditional on survey, valuation, mortgage approval etc.

1) market price is what someone will pay. OP offered 172.500 therefore that was at least then the market price.

2) maybe not, but I did say that.

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If you don't want it walk away but I strongly suspect that given what you have signed already such an action will cost you £1k.

I am not trying to wind you up I am just telling you that surveyors have definitely started to value properties on the low side lately. Other people on this forum can give examples of finding surveyors willing to raise their valuation based on evidence or other surveys.

Ultimately if you want something you gotta pay for it. If you don't want the flat, you're going to lose 1k. If you do want it you need to either stump up the difference or pay for a revaluation.

I do not intend to pull out and have never said that. My concern was that the developer would pull out. If they do then I expect the £1k back. The reservation deposit is not what I'm worried about though.

The flat's been valued at £160k. It is up to the developer to prove it is worth more. The comparables have failed. The only thing they can do now is pay for their own valuations in an attempt to swing my valuers opinion. I don't know why you are suggesting that I pay any more money. It's a good job that I am not an idiot because if I was and had listened to your advice then you would have cost me several hundred pounds. I hope that you are not giving other people the same advice.

Flatbread understands my situation. I want to pay the market price, whether thats 160k, 165k, 170k or whatever. If the value is 160k then thats what i want to pay and the developer will have to agree or pull out.

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1) market price is what someone will pay. OP offered 172.500 therefore that was at least then the market price.

Ok, then the new market price is 160k, as that is what the OP is willing to pay now. There is no reason why the OP should, in any circumstances, try to get the valuation increased. How that does benefit him/her?

Randombear, your arguments are a bit strange... :rolleyes:

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Flatbread understands my situation. I want to pay the market price, whether thats 160k, 165k, 170k or whatever. If the value is 160k then thats what i want to pay and the developer will have to agree or pull out.

At some point you really do have to make a decision on what you think it is worth yourself. What confuses me is that you don't seem prepared to do that. The issue isn't really anything to do with paying the market price, the issue is you can't afford to increase your deposit, which to me shows you are underprepared to be considering such a purchase at all, but there you go. You are dressing this up as an issue over market price, which it isn't at all. It's an issue over your own finances. That has nothing to do with the builder. Seems to me that you are trying to blame your own lack of preparation on the builder or the valuer somehow.

You seem to think I am trying to screw you over in some way which I am not, just trying to get you to clarify your thinking which does seem a bit unsure. If you only want to pay 160k now then fine, good luck and more power to you, but you might well lose the 1k depending on what is written in whatever you signed. I would check the small print. Ultimately if you've already paid it over you might well have to go to court to get it back if the sale falls through.

Edited by RandomBear

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The issue isn't really anything to do with paying the market price, the issue is you can't afford to increase your deposit, which to me shows you are underprepared to be considering such a purchase at all, but there you go. You are dressing this up as an issue over market price, which it isn't at all. It's an issue over your own finances. That has nothing to do with the builder. Seems to me that you are trying to blame your own lack of preparation on the builder or the valuer somehow.

Wecome to the real world, Randombear <_<

People have limited money, and decide how much to buy for, based how much they can afford, and how much the property is worth.

Leaving aside the affordability issue for a moment, even if the OP had loads of dosh lying around, would he spend 172k on a flat and and willingly go into negative equity? Not if he/she has any sense...

The issue here IS one of market price - and the OP should be firm and not budge from the valuation amount. I think many builders are underwater and the OP should be able to get the flat at the valuation amount

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At some point you really do have to make a decision on what you think it is worth yourself. What confuses me is that you don't seem prepared to do that. The issue isn't really anything to do with paying the market price, the issue is you can't afford to increase your deposit, which to me shows you are underprepared to be considering such a purchase at all, but there you go. You are dressing this up as an issue over market price, which it isn't at all. It's an issue over your own finances. That has nothing to do with the builder. Seems to me that you are trying to blame your own lack of preparation on the builder or the valuer somehow.

You seem to think I am trying to screw you over in some way which I am not, just trying to get you to clarify your thinking which does seem a bit unsure. If you only want to pay 160k now then fine, good luck and more power to you, but you might well lose the 1k depending on what is written in whatever you signed. I would check the small print. Ultimately if you've already paid it over you might well have to go to court to get it back if the sale falls through.

I would rather go with the advice of a paid professional rather than my own gut feeling or even worse the developers fantasy island price. No, I can't afford to pull out an extra £12k out of thin air when I am already stumping up a hefty deposit. Who does have this kind of money lying around for this eventually?! How can I be prepared for that or anticipate it coming?!

I dont think even the bimbo in the sales office would say what you are saying.

If they pull out I'm pretty sure I won't lose the 1k. I'll camp on their doorstep and wee in their flowerbed otherwise.

Edited by DeadCat

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