My Buy to Let properties are being undervalued?

Reply to the comment left by "Simon " at "16/08/2016 - 16:26":

Indeed Simon, but I thought it was interesting that it was valued just below an interest rate threshold price. Had it been valued a pound higher, I'd have qualified for a lower rate. Co-incidence……….

Reply to the comment left by "Gunga Din" at "17/08/2016 - 12:49":

Now that is fishy...

It is fascinating reading this thread and I am bemused by the conspiracy theories. It occurs to me to add a few more words to what I have already said above.

The banks that my firm act for provide us with very limited information; these are high street well know banks. As valuers we undertake our own investigations into the property. We certainly do not get told any information about agreed terms, interest rates, maximum LTV, etc. Perhaps some banks do tell their valuers but having been doing the job for 25+ years I have never know it to happen.

Whilst reflecting on this situation yesterday a colleague asked me to audit a report on four investment houses. He had repeatedly asked for the tenancy agreement and only at the last minute was any documentation forthcoming - a computer printout of ASTs which were all unsigned. It should be noted that the borrower had an agent acting so it's not as if he was doing everything himself. This happens all the time.

It is 2016 - why can a landlord not readily provide a signed tenancy or lease?

Banks are inquisitive (suspicious?) about the nature of their security and valuers are expected to comment on a wide range of matters - ASTs, EPCs, safety matters, etc. If a borrower is up to speed then this immediately puts them in a better position as regards the valuation; if there is a perceived risk then valuers and banks will be more cautious. It is in a borrower's interests to understand what is required and to make sure they are fully compliant and have all documents to hand.

My parting shot is over fees. It takes many years to qualify as a chartered surveyor yet clients expect to pay very low fees. Some banks have woken up to this and now pay decent fees for thorough reports, although many in the residential sector are still using basic tick box reports for inadequate fees. I know that the valuation process is for compliance but it's no use having the cheapest report that does not help move matters on or where the valuer cannot justify their actions. I also know that banks do not encourage valuers and borrowers to have much interface, but most will be pragmatic - common sense must prevail.

Apologies for a long response and sorry if I have repeated some of Graham Bowcock’s points. I am almost minded to ask if anyone would like to follow me round for a few days, listen to the edited information (AKA lies) we are given by owners, landlords and even tenants designed to mislead and also to see how much work is involved in producing a list of comparable evidence and a rationale which would stand up in court when dissected by a good barrister or a judge. Only tempted, this is not an open invitation!!

Immediately post the Brexit vote residential valuers were advised (incorrectly in my opinion) by the RICS to put caveats into all reports. This was withdrawn within a few days and after complaints from the Council of Mortgage lenders who urged us continue to carry out the valuation process as before. Below is what I received from one of the largest panel manager companies:

We would encourage valuers to continue to follow best practice as set out below: -
That Market Value is defined as the “The estimated amount for which an asset or liability
should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
Valuers should reflect the market, not attempt to lead it.
Market Value is applicable on the date of valuation and is subject to a set of assumptions.
Valuers should value properties in accordance with lender and RICS guidance.
Valuers should use the best available comparables in accordance with the hierarchy of evidence in RICS Information Paper “Comparable Evidence on Property Valuation”.
Valuers should maintain good links with local estate agents in order to collect evidence of sales in progress and any other market intelligence.
Comparables should be supported by a robust rationale which explains the valuer’s thought processes. I

And I would like to answer a few other comments/misconceptions in comments in the thread.

In 44 years I have never been instructed to return low values by any lender and I have probably done work for at least 200. Similarly, no employer has advised me to drop values to be safe.

The question mentions undervaluing. This term has no meaning – we simply value having regard to the local market. In many cases the owner over-values. I suspect that they have an amount they want or need and the estimated value is therefore a simple sum based on lender criteria not on their research of the market.

We are required to have on file a minimum of 3 comparable properties both for capital value and for rental value. In most cases I have more than this and in difficult cases perhaps 10 of each.

I never use auction results as they rarely reflect a real world scenario and the buyer must have the money readily available.

Most lenders have a system for challenging a value. It is referred back to the valuer who will normally provide the details of the comparable evidence used and the rationale for the valuation. In many instances this will be a Surveyors Comparable Tool report which is researched and produced via Rightmove. The owner or purchaser has the opportunity to find and present other evidence which the valuer will consider. However, it must be completed sales and not estate agents’ opinions or asking prices pulled off Rightmove. Most surveyors will also consider exchanged contract sales and others which are not yet available from the Land Registry records which are always 2-3 months out of date provided they can be confirmed. Sales agreed are also appropriate evidence (and are used in SCT reports) but would normally be treated with some caution particularly in a volatile market as we have now.

If you are a purchaser surely you would want to know that you are overpaying? A valuation report gives you a bargaining tool.

Some lenders require that we value on a single let basis and do not consider student or HMO lets. Best to check first the lenders criteria.

Very few valuers will go very far from their base. Lenders and panel managers require a maximum of either 20 or 25 miles outside the M25, with much tighter limits in London. Rarely, some specialist and high value properties will be valued at a greater distance but this is down to the expertise required for, say, a farm or a castle.

Beware also that we are not only expected by lenders to provide a value but also to look after their best interests so if I have suspicions of some type of fraud or attempt to circumvent the lenders I criteria I am expected to report it.