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I have a friend who recently put a deposit down on a new-build flat in a large new development in Scotland, it's priced at £150,000. He's paid the reservation fee, and been approved for the mortgage for this amount. Several have already been sold, and his is one of the few that doesn't have someone living in it.

His bank sent out a surveyor to check over the property, and they've valued it at £130,000 - it's a new surveyor the bank has recently switched to. This leaves a £20,000 gap...

I'd assume if many have been sold, quite quickly, and people have moved in, that there isn't a real issue with the £150,000 valuation.

What kind of options does he have - can he demand a different surveyor, should he be discussing the options with developer?

Any advice welcomed.

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    I don't know much about the UK, but in the US the simplest way is often to simply go to a different bank. – Joe Jan 13 '15 at 21:40
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    Was the "reservation fee" paid to the bank or to the builder? If he has no tie to the bank then maybe switch to a bank that handled one of the previously-purchased properties. It sounds like they're using assessors who value this development more highly. – dg99 Jan 13 '15 at 22:19
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can he demand a different surveyor

You cannot. The bank uses it's own surveyors.

This leaves a £20,000 gap

If a surveyor says so, I will be wary if another surveyor will match up to that figure. That is quite a huge difference. Did you friend atleast try to haggle over the price with the builder ?

Options available :-

  • Dish out the £20k from his(her) own pocket. But think very very hard before doing it.

  • Try a different bank. Use your own surveyor to check, if possible.

  • Tell the builder the deal is off, no bank is willing to give a mortgage. This should be used only if you are ready to let go off the property. This might make the builder try to negotiate a lower price.

The point is if your friend is assuming the real value of the house is £150k, but the surveyor says it is £130k, he(she) is immediately in negative equity, considering you have already dished out the £20k from he(she) own resources or a loan worth £150k after his(her) deposit. The house price has to increase considerably to match upto that figure. If he(she) wants to remortgage/sell, then it might be a tad difficult. Are you in Glasgow or Edinburgh ? If yes it might be a bit different, but still beware. Check this on how negative equity affects you.

Ask him(her) not to jump on it so quickly. £150k isn't a small amount and should be careful in doling out £20k extra for a £130k property.

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New build properties sell at a price premium compared to the same property second-hand. Given the choice between a new build and a second-hand property buyers will typically choose the new build. The premium may be as much as 15-20%.

So the £20K difference could well be explained by that; while £150K might be the going rate for other new builds, they could only be resold at £130K.

If you're buying a new build you should be taking into account this kind of immediate loss, whether or not your lender does.

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Some lenders have an appeal process for valuations which may be an option especially if your friend has good evidence of comparable properties selling for the higher price, which apparently they do.

It's certainly also worth keeping the developer informed - they may be prepared to shift on price and/or have ideas for alternative lenders who may be more amenable.

It is however probably also worth your friend taking a long hard look at the property and the local market to make sure the current surveyor isn't on to something, and that they are not overpaying. Property valuation is an art not a science - it may be that the surveyor has been unduly paranoid, but it may also be that he hasn't.

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