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Pity The Poor Lenders

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http://firstrung.co.uk/articles.asp?pageid...articlekey=1108

If a house buyer defaults on a mortgage loan, he loses the property and anything he has invested in it. He is also likely to lose other assets and may end up bancrupt. If the cause of his demise stems from the fact that he was conned into paying too much for the property, you might think he was the victim of a ripped off. Er.... apparantly not. According to the mortgage industry, the real victims in this situation are the lenders. The poor things must go through hell when they have to sieze assets and throw people onto the streets.

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http://firstrung.co.uk/articles.asp?pageid...articlekey=1108

If a house buyer defaults on a mortgage loan, he loses the property and anything he has invested in it. He is also likely to lose other assets and may end up bancrupt. If the cause of his demise stems from the fact that he was conned into paying too much for the property, you might think he was the victim of a ripped off. Er.... apparantly not. According to the mortgage industry, the real victims in this situation are the lenders. The poor things must go through hell when they have to sieze assets and throw people onto the streets.

What this article signally fails to mention is that it is RICS' member surveyors themselves who have been taking back handers and making over-valuations. The article gives the impression that RICS and the Council of Mortgage Lenders are somehow "co-operating" to get to the bottom of this issue. In fact the CML has repeatedly criticised RICS for being part of the problem and in a recent statement by the CML they said they had been unable to obtain a satisfactory explanation from RICS.

VP

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http://firstrung.co.uk/articles.asp?pageid...articlekey=1108

If a house buyer defaults on a mortgage loan, he loses the property and anything he has invested in it. He is also likely to lose other assets and may end up bancrupt. If the cause of his demise stems from the fact that he was conned into paying too much for the property, you might think he was the victim of a ripped off. Er.... apparantly not. According to the mortgage industry, the real victims in this situation are the lenders. The poor things must go through hell when they have to sieze assets and throw people onto the streets.

The only institutions that make a profit out of misery are the banks.

No wait, dentists too :D

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There are 4 parties involved.

Builder

Buyer

Lender

Surveyor

The builder wants to sell for as much as possible. Fine. In addition they are often prepared to offer cash-backs (which do not appear on Land Reg figures) or even sell to friends and family at establish artificially high prices, in order to set artificailly high precedents (comparables). Not fine. Fraud in fact, in my opinion.

The buyer is prepared to pay "x - cashback", and they are often prepared to lie to the lender to ensure they get the mortgage

The lender wants to know they can get "x - deposit" if they are forced to repossess.

The surveyor wants to make sure that the property is worth "x" which means they can't be sued if it was subsequently proven to be worth less than "x" on the date of valuation. Properties are valued by way of comparables, ie what do other similar properties sell for?

The best comparable is the next door brand new flat - unless the surveyor has been mislead by the buyer / builder of that next door flat (see above). It is a very similar property, in similar condition, and presumably was sold very recently.

The next best comparable is similar nearby properties. The trouble is these are often older and on a pure price per sq ft basis are maybe worth 2/3s what the new flat is going for. People do pay a premium for new build for a start so surveyors have to taker this into account, and secondly any surveyor who valued at the price of second hand stock would quickly find themselves with no business as no lender (they don't make money by not lending) or buyer (they want to buy remember, they've offered on the place) would use them.

There may be some surveyors who take backhanders but very few. Those that do are probably most often influenced by the buyer or their mortgage broker to get the deal through. (Not the lenders fault). Or they may be paid by the builder. But I stress that to qualify as a surveyor takes a minimum of 3 years and very few will be prepared to take the risk. (There is much greater risk of dodgy EAs as they are paid a lot less and have probably invested precisely nothhing on training).

In short, lenders can only lendbased on the value they have been told. Surveyors can only value based on comparables and cannot be blamed if they have been deliberately mislead by builders getting dodgy figures onto the land registry database. Buuyers who offer silly money compared to second hand stock or mislead their lender about cashbacks are at fault. As are builders who try to mislead the publiic and surveyors.

What could and perhaps should be done is to establish a way of calculating a "fair" price per square foot for an area. eg what is the average price per square foot for victorian terraces and average or better private second hand stock? Once the surveyor has established that they should then be compelled to only value at more than 10 or 20% above this level when they have a VERY VERY good reason for doing so. This would massively upset developers who would see the prices they could charge held back.

FF

ps

VP, I am sure there are dodgy surveyors, but can you please draw my attention to any articles about them? Surveyors have procedures to follow and I genuinely believe, that while they can improve those procedures in the way I have suggested, they really are the smallest part of the problem.

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The builder wants to sell for as much as possible. Fine. In addition they are often prepared to offer cash-backs (which do not appear on Land Reg figures) or even sell to friends and family at establish artificially high prices, in order to set artificailly high precedents (comparables). Not fine. Fraud in fact, in my opinion.

If it's fraud, who is being defrauded? Bearing in mind that you can't defraud someone with whom you don't have a relationship, so builders can't defraud mortgage lenders unless they're borrowing money from them themselves.

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If it's fraud, who is being defrauded? Bearing in mind that you can't defraud someone with whom you don't have a relationship, so builders can't defraud mortgage lenders unless they're borrowing money from them themselves.

I did say that in terms of the spirit of the law primarily. However...

In the case of valuations surveyors can and have been found liable for mistakes in surveys whereby the person who has sued them has not had a relationship with them. The courts have found that although it was the lender with whom they had a contractual relationship in terms of a mortgage val they are also liable to the buyer to whom they could "reasonably forsee" would rely on the survey report even thouugh they may have never seen it. (ie the buyer thinks that if the lender will lend then the report must be fine therefore "I'll buy").

Equally I can see how a court could take the view that a developer could reasonably forsee that lenders base their lending on valuers opinions which are based on comparables. Therefore deliberately overstating prices when selling to friends, which was designed to encourage high valuations and therefore lenders lending too much could be seen as a builder trying to defraud a lender.

The lender is being defrauded in spirit because they are being fed a string of lies and half-truths in order to make them lend more than a place is worth. The buider is knowingly doing this and just because they do not have a direct, contractual relationship does not necessarily mean the courts would not find in a lenders favour.

EDIT

And they have a direct relationship with the buyer. Trading standards don't like shops who say "SALE 50% OFF" when the product has never been available at the quoted old price. By offering a "discount" when no-ne has paid full price is exactly the same thing in my book. It may well be in the eyes of the law too.

Edited by Father Fred

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If it's fraud, who is being defrauded? Bearing in mind that you can't defraud someone with whom you don't have a relationship, so builders can't defraud mortgage lenders unless they're borrowing money from them themselves.

Its conspiracy, the buyers are defrauding the lenders and the builders are conspiring with the buyers to allow them to do this.

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From what I have seen, surveyors are a pretty unsavoury crowd. I recall one surveyor explaining how his entire professional life was driven by 'reciprocality'. His approach to an assignment was intimately linked to who the client was and what reciprocal benefits exist. He explained how he always ready to a favour to an estate agent who pushed work his way.

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From what I have seen, surveyors are a pretty unsavoury crowd. I recall one surveyor explaining how his entire professional life was driven by 'reciprocality'. His approach to an assignment was intimately linked to who the client was and what reciprocal benefits exist. He explained how he always ready to a favour to an estate agent who pushed work his way.

Fair point in some cases I am sure. What "favours" exactly?

Any surveyor who overvalues or misses problems risks being sued... and surely that would overide getting the odd extra bit of work?

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Does anybody know anybody who ever sued a surveyor?

Does anybody know a surveyor who got sued?

I don't hink I vever saw such a case in the media.

I think their liability is largely theoretical.

ABB

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Does anybody know anybody who ever sued a surveyor?

Does anybody know a surveyor who got sued?

I don't hink I vever saw such a case in the media.

I think their liability is largely theoretical.

ABB

They can and do, but not that often. You can't be "wrong" on a valuation, it is only an opinion of market value on day of valuation. You can only be successfully sued if you are well out AND you can't prove that the valuation was arrived at using logical, competant methodology. As for subsidence etc, again you can be sued but there could well be disclaimers saying carpets have not been moved (so problem could not have been spotted****) and at any sign of problems they recommend further investigation by a specialist.

FF

**** Before you moan surveys would cost 10 times plus the amount if every surveyor had to take round a carpet fitter and some muscle.

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There may be some surveyors who take backhanders but very few. Those that do are probably most often influenced by the buyer or their mortgage broker to get the deal through.

There is an implicit bribe... additional work in the future v. no work.

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They can and do, but not that often. You can't be "wrong" on a valuation, it is only an opinion of market value on day of valuation. You can only be successfully sued if you are well out AND you can't prove that the valuation was arrived at using logical, competant methodology. As for subsidence etc, again you can be sued but there could well be disclaimers saying carpets have not been moved (so problem could not have been spotted****) and at any sign of problems they recommend further investigation by a specialist.

FF

**** Before you moan surveys would cost 10 times plus the amount if every surveyor had to take round a carpet fitter and some muscle.

It is unfortunate that the whole pyramid scheme is based on these 'opinions',

and their potential for abuse/backscratching.

I feel that the current system is self-serving, and what value is a cheap

survey, if it is loaded with disclaimers?

Maybe more expensive ones would be a good thing, iff

the surveyor carried more liability for errors.

The Home Information Pack might help in this respect, at least it stops

people being charged multiple times for essentially the same visual survey

of a property that is surveyed by many buyers.

However, both RICS and CML seem opposed to that idea, again using

the cost argument.

Perhaps it would also be a barrier to flippers and

other speculators...

ABB

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Its conspiracy, the buyers are defrauding the lenders and the builders are conspiring with the buyers to allow them to do this.

Yeah, poor old lenders... except they could stop this tomorrow if they wanted by introducing limits on income multipules and higher deposits, but they are simply interested in lending as much money as possible, remember they have a virtually unlimited money supply so they intend to gather as much interest as possible. Same goes for Lloyds etc falling over themselves to sell personal loans no matter how unsuitable and unsustainable.

The lenders are only worried about new build flats because they are pure speculation, they have no emotional hold over the buyer, a BTL'er in trouble will simply do a runner and leave the bank to mop up the mess, Lea Bevin style.

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:):):)

Halfpennyworth on surveyors' functions and liability in respect of property valuations:

What a surveyor does:

1. Valuing residential property is the bottom end of a surveyor's workload. The work is simple and the fees are small.

2. What a valuation surveyor does is to give you the benefit of his knowledge and experience as to prices in the form of an independent opinion as to the correct value for a property. For this he charges a fee based on the value of his knowledge and experience. Estate agents do the same, but their opinion is not independent and they do not claim it is. If you know any other way apart from an independent opinion of getting a fix on the likely price of a property, what is it ?

3. It does not usually crop up in residential transactions, but surveyors can provide prices based on different types of transaction. Open market buyer (willing buyer, willing seller, no hurry), forced sale, compulsory acquisition by government etc. These prices are often very different for the same property.

4. The house price sites (nethouseprices, mouseprice etc.) provide one step in the surveyor's work - what used to be called the comparables. Given the in many streets the properties are very similar, many of us with a bit of experience can do a rough estimate that is pretty similar to what a surveyor will achieve.

5. The main reason for surveyor's valuations in most residential transactions is that the lender wants some check on the basic valuation. This is why the lender often requires and (sometimes) pays for the survey. The lender is not interested in millimetric accuracy - they just want to make sure the valuation is fairly close.

Why Surveyors Mostly Get it Mostly Right:

1. They have a strong incentive to get it right as they can be sued for getting it wrong. Even if they are insured, if they are found liable their insurance premia will climb steeply. The damages for getting it wrong will not necessarily be the difference between the price they set and the "correct" price, but the stick is there.

2. There are rotten apples in every barrel, and valuation is to some extent subjective. So some surveyors will get it wrong, and some will deliberately get it wrong to a limited extent. If they get it wildly wrong it will be quickly noticed and easily proved.

3. As previous posters have noted, surveyors can be liable at law to various people, not just the party that instructed them and has a contract with them. This is a complex legal topic and there is not space here, but the point that matters here is that surveyors can be made liable - that is enough to motivate them to get it right. Being liable to lots of different people does not really add much.

4. In practice, surveyors are usually sued by lenders. Lenders are big, permanent institutions with their own lawyers and they do not go away. The owners of surveying firms, and their insurers, have bad memories of being sued in the 1990s and do not want a repeat. Hence the "down-valuations" that we are now seeing to some extent, where the surveyor says it is worth less than the agreed price.

5. An individual residential transation is a tiny fragment of a surveyor's workload and fees. It is most unlikely that he would risk his professional standing, good name and livelihood by deliberately misvaluing. Some posters here make the silly and offensive assumption that all surveyors are amoral. Even if this were trye, quite simply, the parties to a residential transaction could not make it worth his while. The position may be different with large blocks of flats.

5. Previous posters have speculated that there is an organised conspiracy going on. This is laughable. However, if it did happen the surveyor would be committing a crime, as well as being relevantly wrong and thus liable to a civil suit. Again this is a complex area, but note the statutory crimes of "Obtaining a pecuniary advantage by deception" and "Obtaining property by deception" also exist. The advantage or property does not need to accrue to the person who carries out the deception, so a cheating surveyor would likely be caught by these provisions.

Enough ....

:):):)

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Banks are part of the system that creates booms and busts as it’s not easy to get rich without one or the other and this is what they are actively doing between them. The IMF is a safety net but with both the UK and USA plus a few more having so much debt the danger is that they could loose control and then you got yourself a meltdown

Not convinced then consider this !

Using share options it’s possible to gamble with shares that you don’t own. GM is an example of this and was all the options on it’s share to be turned into real shares then the value of the company would be more than enough to buy all the real estate in America.

Financial traders call this type of complicated trading “Financial tools” well what happens if the system throws a financial cog in this highly complicated machine.

BoE needed the ERM to step in once before and I think this crash maybe much worse than previous so hang on to your hats boys.

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LondonWatcher

1. Valuing residential property is the bottom end of a surveyor's workload. The work is simple and the fees are small.

The fees are not small and how often does a surveyor turn round to a client and offer a discount because he has already done a survey on the same property for two other buyers?

2. What a valuation surveyor does is to give you the benefit of his knowledge and experience as to prices in the form of an independent opinion as to the correct value for a property.

The valuation is an opinion. This is why it is so difficult to sue them.

If you know any other way apart from an independent opinion of getting a fix on the likely price of a property, what is it ?

They could calculate the price per square foot and do comparisons against other properties based on size, condition, age and location. Why don't they use a property equivalent of Glasse's guide that car dealers use? In truth, this idea would horrify them as they would have to commit themselves to facts and figures.

3. It does not usually crop up in residential transactions, but surveyors can provide prices based on different types of transaction. Open market buyer (willing buyer, willing seller, no hurry), forced sale, compulsory acquisition by government etc. These prices are often very different for the same property.

There is no magic in turning one guess into five guesses.

1. They have a strong incentive to get it right as they can be sued for getting it wrong. Even if they are insured, if they are found liable their insurance premia will climb steeply. The damages for getting it wrong will not necessarily be the difference between the price they set and the "correct" price, but the stick is there.

How many surveyors get sued each year? I'll bet it is a tiny number. I cannot remember reading of such a case in the last 10 years.

2. There are rotten apples in every barrel, and valuation is to some extent subjective. So some surveyors will get it wrong, and some will deliberately get it wrong to a limited extent. If they get it wildly wrong it will be quickly noticed and easily proved.

Wrong! Judgment calls are notoriously difficult to pin down.

5. An individual residential transation is a tiny fragment of a surveyor's workload and fees. It is most unlikely that he would risk his professional standing, good name and livelihood by deliberately misvaluing. Some posters here make the silly and offensive assumption that all surveyors are amoral. Even if this were trye, quite simply, the parties to a residential transaction could not make it worth his while. The position may be different with large blocks of flats.

I am not suggesting that all surveyors are amoral but I do like to check the silver and the drinks cupboard if a surveyor has been in the house.

5. Previous posters have speculated that there is an organised conspiracy going on. This is laughable. However, if it did happen the surveyor would be committing a crime, as well as being relevantly wrong and thus liable to a civil suit. Again this is a complex area, but note the statutory crimes of "Obtaining a pecuniary advantage by deception" and "Obtaining property by deception" also exist. The advantage or property does not need to accrue to the person who carries out the deception, so a cheating surveyor would likely be caught by these provisions.

The problem seems to be ramant and the accusations of conspiracy is coming from mortgage lenders, the RICS, and the CML (http://firstrung.co.uk/articles.asp?pageid...articlekey=1108)

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Guest Charlie The Tramp

Where has that "surveyor" member got to? I'd love some of his input on this thread.

He did post a reply giving his reasons.

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The only institutions that make a profit out of misery are the banks.

No wait, dentists too :D

I don't know if this is true or just an urban myth, but I was told only this week that dentists have anomalously high suicide rates for that very reason.

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London Watcher

Thx

Dog

Fees are not very high for a residential valuation compared to for some other types of work. I spoke to a friend yesterday who used to work in a surveyors office (not as a surveyor). One of the partners point blank refused to do all valuations because the risk of being sued outweighed the rewards. He concentrated on more lucrative and less risky work. Maybe one case, but to assume residential valuations are a risk-free money-pot is wrong.

The valuation is an opinion as you say. But surveyors have to be able to show they have followed RICS guidelines in a competant manner to get to that opinion.

You said "They could calculate the price per square foot and do comparisons against other properties based on size, condition, age and location."

That is basically what they do! They have to take into account how recent the comparables were, and the price per square foot is of relevance (less so in residential compared to commercial as in this country buyers are less likely to think in terms of price per sq ft). Next door sold for x, I will add 5% as the market has risen 5% since then, drop 5% as that was good nick and this is average nick, add 0% a location is as good as identical, drop 5% as this is 5% smaller (has not had an extension). Surveyors have to value as of today and not take into account their predictions of the market, though in practice a surveyor is more likely to round up in a rapidly rising market and round down in a falling market.

You said "There is no magic in turning one guess into five guesses."

So you thin surveyors just guess do you? I have no further comment to make on this matter.

I've followed the link to firstrung and found the following quote...

"Surveyors have complained that it is increasingly difficult for them to give accurate valuations on new-build flats because their only comparisons are on similar apartments - yet it is hard to get accurate price information because of the many discounts on offer."

This is the issue, there is only so much a surveyor can do, and that surveyor is completely screwed if they go to government figures (land reg) to see what a property has sold for and it could be 30% out dependent on what freebies and cash backs were being offered and to which they have no access to. If there is a conspiracy it is between buyers, developers, dodgy solicitors who do not tell lenders of the separate contract for cash-back and Property investment clubs. Surveyors are being deliberately mislead the same as banks are.

Finally, Dog, I have a pet hate, and that is moaning about things without being able to offer a better way of doing things. Please tell me exactly how the system could be improved.

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Well, I'm not dog, but have also moaned a bit.

My suggestion would be to separate the valuation from the structural

engineering assesment.

The surveyors main role (from the buyers perspective) is to identify

potentially costly problems with the fabric of the dwelling.

Based on this, he makes a judgment as to whether the price asked

is correct, based on comparables, and offset with any faults.

I feel it is the latter part of the process that is the problem.

Perhaps they should restrict themselves to estimating the

cost of correcting the percived problems, and leave the lender

and buyer to judge the relevant discount against comparables.

I also feel that HIPs will give more scope for a more detailied

survey and therefore more reliable assesment

My reasonong being that the HIP requires only one survey

(IIRC) to be done and paid for, rather than one survey per

interested client. Although the latter is necessarliy cheaper

to enable individual buyers to reasonably fund the process, it is also

less thorough (no lifting carpets etc) and hence by definition less

reliiable.

As regards RICS guidelines, I have a problem with organisations

that set their own guidelines, and police themselves.

The problems that arose ahead of the last crash with respect to

Estate Agents excessively florid descriptions of properties

were also the consequence of self-policing.

ABB

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Mmmmmm…

To an extent the valuation is separate from the structural assessment. A buyer can choose to have a simple valuation, a homebuyers report or full structural survey. If you have a simple valuation then that takes into account condition and clearly the place is less valuable if it is falling down, but is less likely to pick up all the faults and problems which are likely to occur and will not recommend as much in the way of maintenance issues now and in the future.

A sensible buyer (with wads of cash) would get a cheap valuation done by the mortgage company to get the mortgage through easily and enable them to buy, and then pay for a separate full structural survey to be done by a separate person to help them negotiate the price down without risking the bank getting over-fussy and refusing to lend.

To my mind the surveyors main role is to establish that the buyer is not paying too much for the property… and part of this is that they are not paying “good house price” for a house that’s had a lick of paint but is about to fall down.

So you would then, having sent a surveyor round to look at the property, let the buyer (who by definition thinks the property is worth “x” as he has offered “x” for it) and the lender (who is not a valuer and has not seen the property) value the property? Does the lender just take the buyers offer and reduce it by the amount of the works needed? Has the buyer’s offer taken into account some of the faults, all of them or some? Assuming the house is very rough, then surely the buyer has taken into account the repainting and new flooring even if he hasn’t taken into account the subsidence he didn’t notice?

HIPs. A Home Information Pack will contain an HCR (Home Condition Report) that will give a basic report on the condition of the property, written by a qualified home inspector (who may or may not also be a qualified surveyor). A home inspector will go through considerably less training than a surveyor, but may know some things a surveyor will not, not least about environmental impacts / insulation etc, which seems to me a big part of why HIPs are being introduced… we, due to the EU, have got to start assessing how green our buildings are and this is the way that government is going about it.

Anyway, an HCR will neither be a full structural survey nor give any opinion as to value. Therefore, having had a HIP prepared, paid for by the vendor, the buyers bank will still need a valuation and the prudent buyer will still want a full structural survey. (One point to note though, bank valuations may become cheaper if they can be done without visiting the property by valuers using comparables and relying on the HCR to assess condition. I personally would prefer the person valuing the property I’m going to buy to have seen it however… call me old fashioned if you want!)

In short, I am unsure of the benefits of separating the valuation and structural assessment, unless you are going to first pay a building surveyor to so a structural survey and then pay a valuer to value with the structural survey in their hand as they walk round… which will undoubtedly increase costs.

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The banks deserve all that they will surely get when and if the HPC happens. They have lent far too much on dubious self certs, high multiples and with little or no deposit.

They are massively exposed.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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