Posts Tagged ‘Marketing’

If you have ever had a UK mortgage you will know that often, but not always, you get a copy of a Valuation Report. This report is NOT a survey and never has been. So, what is the status of the Valuation and can you rely upon it?

Let us start with the definition of Value? An assessment of what the general marketplace would bring forward and offer for the purchase of a home. It assumes certain things – that reasonable marketing has already been completed and reflects the state of the market prior to valuation.

Unless the basis needs to be different for a specific stated reason then the general valuation methodology is as follows:-

Analysis the market for similar homes – similar in terms of location, size, construction, accommodation, materials and design plus condition. Rippling out from an epicentre (the location of the home) you then look for nearest match actual sales or the asking prices of homes not sold but are on the market and available to buy. Furthermore, an analysis must be made of  selling prices of similar homes that have sold over the last six months or so. When all this has been done then the data is used to assess the subject home making allowances, both negative and positive, for each material difference.

This comparison method is an imprecise science. Indeed I would describe residential valuations as an art and not a science. When politics, Bank protectionism and potential rogue factors such as Valuer age and brought into the equation it is not at all surprising that the very large majority of UK residents remain confused over what is a survey, what is a valuation and what do I need if I am buying.

Some of the below listed factors can be both helpful or troublesome in any individual case as often we need to be protected from our ignorance. However, I for one believe that the Valuation Industry has fallen well short of educating the public on what a simple Valuation is.

So where does confusion set in?

(1) It is not a survey. No home Valuation can be termed a survey. A Survey is a detailed assessment of the risks affecting, and the condition of a home based upon a reasonably comprehensive inspection of all the component parts of the structure.

(2) No bid from a special purchaser can be reflected as this would be a special case and not general market value.

(3) It assumes that both seller and potential buyer act knowledgeably and prudently. However, this is not my own experience of over 35 years of acting for sellers and buyers.

(4) Special rules can apply. For example – if the home to be valued is brand new it is nowadays determined that the loan worth of a new home is based upon its value as if the home was second-hand (not new). It is the same principal as buying a car – in theory once purchased the car is not new and is instantly worth less.

(5) Many Developers (selling brand new homes) provide incentives for you to buy their products. Discounted this month! Cash-Back deals! Carpets and Curtains included this month! No mortgage payments for a year! No Fees purchase! You know the sort of thing. The Valuer must have knowledge of such matters and ignore the time limited benefit of such incentives. This means a possible down-valuation of the property is about to land on your doorstep. This is standard UK Home Valuation policy and procedure.

(6) Another theoretical problem is that the Loan Valuer is valuing for loan purposes: he is not valuing for YOU. This may seem rather a strange thing to say but if I bought a home and asked a Valuer his opinion of “value to me” he would ask me why I am buying. I might say that the home is next door to my parents house and it has special value to me. In this example I might be prepared to pay a premium, something extra to market value. Such a definition would be termed “special value to me” and is not market value.

(7) Market trend analysis problems. A Loan Valuation is prepared by a Valuer acting for a Loan Company assessing the worth of the property for loan purposes. If the Loan Company knows, fact or perception it does not matter, that values are about to fall, then Employer instructions to that Valuer would be to be cautious: perhaps even to down-value most cases in order to ensure customers do not go into negative-equity and perhaps be at risk of defaulting on the mortgage. By this method the Bank is protecting itself from its customers and such business methods are a potent resource it is armoury. These market and company pressures can get out of balance. The worldwide credit-crunch showed us the power of perception and protectionism by Banks and Finance Houses. The customer always came second to Bank profits.

(8) In theory you could get differing opinions of value, based on the same assessment methods (see later comments), depending on whether your Valuer is a Mortgage Company Valuer or your own employed Valuer (as well as whether your home is brand new or second-hand).

Indeed such Loan Company policies can, collectively, actually influence market value. Lets assume you own a non-standard home form with very few similar houses like it. The demand for your home may be quite restricted if loan finance is in short supply. All it would take is for the Loan Companies to come together and agree to not lend above, say 50 per cent of valuation, or if your Flat is over the lower five storeys in a block, if your home is constructed in a certain way, etc….

These types of thing have happened in the past. Financial Regulators have failed to stem the tide of Bank Power and must accept some element of blame for the consequence – Credit Crunch.

Summary? What do we need to remember in this less-than-transparent world?

• A Valuation is not a survey.
• Some Valuations will assume things different to your own circumstances.
• Loan Company Valuation policies may adversely affect the Valuation by hamstringing the Valuer.
• Never assume that because a Bank will lend to you that the property must be in good condition.
• Where a valuation variation/discretion may be exercised nearly every time that discretion will not be in your favour (it will be in favour of the Banks).

One final thought . A scenario has been highlighted to me by various hits upon my own website (worried buyers or home owners) and by my experiences with preparing Expert Witness reports for Court work. The average age of a residential Valuer is very high in some countries. I do not know the statistic but would guess that it is around the 58 to 60 years old level in England. This means that many residential Valuers are nearing retirement age. As such, it is alleged, they do not want to adversely affect their pension or employment status-quo. This, allegedly translates to over-cautious valuations, often very significantly below market sustainable values therefore limiting the loan available to you and damaging the demand for that type of property.

Just to complicate matters further the UK Valuation industry is about to let loose a new form of Valuer – somebody who analyses market data and says that the value could be between X and Y. Plus, some loan valuations are to be produced by automated means, a further extension of market data analysis rather than an assessment based upon a human actually inspecting a property. These matters will further confuse us as we come out of the current UK General Election and Economic downturn but I will not analyse these matters here (another day, another article and another Valuation!).

When it comes to selling your home privately you stand to gain a lot of money by way of saved costs. But, just how easy is it?

A sell (selling by “private treaty”) is, on the one hand, perfectly feasible if:-

1. you simply sell to a relative or to your neighbour without any advertising or marketing. Your have not “marketed your home” and the Law and how House selling regulations are interpreted says this is a private transaction. It could easily be considered a “marketed sale” if you depart from strict guidelines – do you know all the in’s and out’s of such Regulations?
   
2. If it is a genuine private sell without marketing then you would not need a Home Information Pack (the HIP with Energy Performance Certificate – the EPC).
3. and you avoid all the hassle of advertising and have people trample through your private space – your home – your pride and joy.
4. You also avoid Estate Agents with sharp suits and smooth tongues. What price for this?
   

On the other hand:-

1. Are you sure you are not under-selling your home?
2. Have you considered the possible benefit to value if you first did certain repairs? Are you sure you know who to ask for this advice? Spend £500 on XXXX and you might ask for twice as much as added to the house value!
3. Do you know how to vet your buyers to ensure they are serious and aren’t going to cause problems “later”.
4. Are you sure you have infringed the law and property regulations and may get a Penalty Notice served on you at any moment?

Balancing these competing forces will tell you which way to go but do think seriously about it.

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Selling your house privately? What are you saving?

Save 1.5% commission = £1,500 plus vat (per £100,000 of house value)

Save your HIP cost = £400 with partial vat

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The only problem you have is the unknown…….

If you are truly knowledgeable then you are saving real money and the consequences, if all goes wrong, will be minor.

If you are not fully knowledgeable and may need help if the going gets tough then you may just regret attempting to penny-pinch.

Perhaps getting the Estate Agents in to give “initial free advice” (without telling you may go private) is not such a bad thing?

Perhaps getting PROinspect in to talk about value and disrepairs, and the effect of doing repairs – effect on value – also isn’t so silly?

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A third Way?

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Nowadays nothing is new. Starting to string up are PROPERTY BROKERS: often these are internet based, but not always.

Website services exists for simply listing your home are available for sales – this means you will need the good old HIP but the fee for this limited brokerage service will be much smaller than a full Estate Agents commission.

Certain Brokers mix internet service with limited marketing and other actions. Again these will save you a large sum.

The secret here is to correctly match what your home needs to dispose of it to those services that are available to you. Why not invite a fee quotation from a (1) traditional Estate Agent, a (2) “partial” Agent/Broker and (3) a full internet Broker service whereby no visits to your home are made at all (sometimes with the exception of a professional Photographer)? You could then assess the value that each brings to the table and match that with what you believe your home needs to get it sold.

For example – if your home is modern and on a large estate (is similar to most other homes and many have sold recently or are on the market) then provided it is in reasonable order then you may not need the full services offered by a traditional Estate Agent.

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A final two thoughts – (1) what about home swaps? Google house-swaps and see. PROinspect would immediately mention that if you go down this route then a private survey would be essential for self-protection purposes: (2) what about selling quickly to an Investor? Various organisations will buy your home “upon request” where an offer can be provided without a full viewing: the latter may be required as you are seeking to avoid an imminent repossession or you simply need the equity in your home quickly – no fees but perhaps you will not get full market value (in some cases nothing even ner to full value). Google sites like National Home Buyers to see how such schemes may work for you.

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A Footnote — I have recently been involved with Estate Agents in the disposal of my Parents home closeby. A long chain developed but we priced the house to sell and found a home to buy quickly. When chain problems cut in, and they often do, our own Agent acted with great authority and rapidity and circumvented several problems before they got out of hand. I have been very impressed with the professionalism shown (and suspect some Agents would not have been so helpful). We have not yet exchanged but are confident we will.

I must state that my Parents just could not cope with self-selling their own home and needed full Agency services: even though I could sell my own home I would normally request full Agency services because I am a busy person and just could not find the time to do all that a modern Agent has to. This is not a choice but a necessity.

ARCHIVE ARTICLE from late 2008

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Should You Disclose Hidden House Defects OR Is Ignorance Bliss?

“Let the Buyer Beware” is an established legal principal in our beloved Country but, in some circumstances, this is a minefield and you may best declare defects to intending purchasers.

It’s illegal for a home seller to knowingly conceal major defects. If you are unsure about whether you need to say something or not, speak to your Solicitor BEFORE you contact your Estate Agent or begin marketing.

If you are a purchaser we at PROinspect suggest you ask the Sellers specific questions – not “is anything wrong with xxxxxx” but instead something like – “The cracks to the rear wall – are these recent, have you informed your Insurers, are these getting worst or are they of a long-standing nature, how long have they been there?”

Generally, you’re responsible only for serious defects you knew about or should have known about. Therefore, it’s a good idea to have your home inspected prior to putting it on the market to figure out what needs to be repaired or replaced. But, when was the last time you knew of somebody who actually did such a thing (except for perhaps redecoration and minor issues)?

However, if you are convinced that selective repairs could cause a greater return on money spent then commission your own Surveyor to tell you what repairs are necessary and what improvements will increase the selling price. Often the good Estate Agent could tell you these secrets!

Don’t be fooled into thinking that every penny you spend will give you back two pence – often, unless you do only the right things, your spend will not affect value at all and therefore taking professional advice is a must!.

While it’s always best to disclose serious defects, it would be wise to disclose the following problems to the buyer: these are “in use” issues that perhaps would only come to light once a person starts living in your home (as opposed to matters that should surface during a Surveyor inspection):-

• Plumbing and sewage issues
• Water leakage of any type, including in basements
• Termites (rare in the UK) or other insect infestations
• Heating or air conditioning system issues
• Property drainage problems
• Foundation instabilities and/or claim history
• Problems with title to the property
• Neighbour issues that aren’t obvious (including Party Wall Act notifications/awards)
• Lead paint, asbestos, hazardous glazing, radon gas, etc……
• Homes registered under the Defective Premises Act (usually “system built” Homes).

If you disclose a defect and the buyer decides to purchase the home anyway, the seller isn’t then responsible for the consequences. A seller who doesn’t disclose known serious defects can be sued by the buyer after the defect is discovered. The seller may then be responsible for the costs of repairs and other damages resulting from the undisclosed defect.

A seller may also be ordered to take the property back if a judge “rescinds” (invalidates) the sale because the seller didn’t disclose defects. You can also be held responsible for the buyer’s claim/court/purchase costs and fees.

If the Courts decide you have been fraudulent, you may also have to pay “punitive damages” that can be very high.

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The case for buying Non-New Homes: New Home Defects Cost £30m a year!

Although many homebuyers readily pay a hefty premium for a new home to avoid the hassle of renovation when they move in, it is costing £30m a year to put right defects discovered in the first ten years after the completion of a new home.

This figure, the highest in the last few years, emerges in a report from the National House-Building Council (NHBC) which supplies the ten year warranty on the great majority of UK new homes.

Of £30m paid out in 2003-4, NHBC says £11m covered claims made within two years of moving in, while £18.3m went to owners of homes between three and ten years old. The figures appear at a sensitive time – for builders have come under fire in recent TV consumer reports for their failure to maintain building standards, or to correct defects fast enough when buyers complain.

In theory, builders should correct most defects found early on. NHBC tends to get involved when problems are longer term, or when agreement cannot be reached with a customer.

If your new home hits big trouble, there’s a one in two chance the problem is underground. Nearly half the money paid out – 49% – went on repairs to foundations, substructure and underground drains. Around 30% was needed to put right load bearing walls and floors, while 9% – about £2.7m – went on roof repairs.

NHBC also reveals that in 2003-4 a total 29 complaints went to independent arbitration and 34 were reviewed by the Financial Ombudsman Service. Of those 34 cases, the NHBC won 23 with five partially in its favour, while three were won by the complainer and in three cases a settlement was agreed.

In the last five years, the highest previous annual payout was £28m. NHBC, holding insurance reserves of £1.24 billion to cover 1.6 million homes currently protected by warranty, says complaints are “taken very seriously”.

Critics of the NHBC warranty have claimed for years it fails to protect homebuyers against building botch-ups.

But the soaring cost of putting things right comes despite the fact NHBC has 330 inspectors across the country making a total of more than one million site inspections every year.

NHBC itself thinks the weather could be partly to blame. In a statement, it said: “New homes are one of the few remaining hand built products, made up of thousands of elements and constructed outdoors in all weathers. Where a problem does occur and NHBC is involved, NHBC’s 10-year Buildmark warranty is in place to protect the homeowner and ensure the work is carried out”.

The amount NHBC paid out in claims each year should be viewed in context of the number of new homes we cover. NHBC Buildmark currently covers over 1.6m new homes – so £30m paid out last year in claims relates to over £256bn worth of property.

But there are risks the repair problem on new homes could worsen before they get better – for two reasons:-

Firstly, Government policy increasingly obliges builders to re-use “brown” land in urban centres – where risks of foundation problems are higher, depending on what was there before.

Secondly, the fear that builders face a savage squeeze on margins as house prices fall. The suspicion is that Builders can only restore profit margins by hacking back costs. That could be tricky to square with customer demands for higher quality.

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So what is PVCu?

The ‘PVC’ part of it stands for Polyvinyl Chloride. The ‘U’ stands for Un-plasticised, often wrongly called Un-modified. The terms PVCu, uPVC, PVC-U, and PVCU all essentially refer to the same product (European harminisation means most Countries now use the letters PVCu).

Poly Vinyl Chloride, which we know as everyday ‘PVC’ is modified, i.e. softened and can then be used in the manufacture of products such as hand bags, sport bags, shoes and fake leather. It is the use of this material which has made us familiar with the abbreviation ‘PVC’.

Pure PVC-U is not quite suitable for window and door profiles. A small amount of stabilisers and additives are required, the mix of which may vary slightly between different manufacturers of profiles for window and door systems, and is necessary to provide longevity, high weather and UV resistance, and also to achieve a brilliant white colour.

The basic material properties of PVCu make it ideal for window, door Conservatory applications: such properties being:-

• Does not rot or biologically decompose.
• Resistant to weathering with low maintenance requirements.
• Is tough on impact.
• Retains its shape within normal climatic temperatures.
• Fairly good insulation performance.
• Can be stiffened by interior insertion of aluminium or steel reinforcement.
• Can be reshaped at very high temperature and can therefore be recycled.
• Factory fabrication means high on-site installation speed.

PVCu lacks authenticity when it comes to the more traditional designs and note that it is not acceptable to Planning Authorities for use in Listed Buildings, and is not popular with them in Conservation Areas (it could be a criminal offence to replace say softwood windows with pvcu windows in a Listed Building!).

In a low Carbon footprint world many home-owners are now using traditional, but sustainable hardwoods instead of such synthetic materials.