How a survey affects your property value
Once the company has valued your property, and has made you an offer which you’ve accepted, they will book a RICS survey. This is a basic assessment of the property that will identify major defects. It’s the same inspection that mortgage lenders use when assessing if a property is fit for a mortgage.
If defects are identified, then a genuine house buying company will share the report with you immediately so you can see the problem. Inevitably, they’ll revise their offer at this point, and you’ll have the option to take it or leave it. (Unless you have signed a contract, in which case you could be forced to take the lower offer. This is why you should never sign a contract with a cash house buyer).
Once again, cash house buyers are businesses, not charities, so if you need £10,000 worth of work doing, expect the offer to be reduced accordingly. The cash buyer can’t simply absorb these costs as it could wipe out their profit margin entirely.
More often than not, as a seller, you’ll know that there’s an issue with your house, and there’s no point sticking your head in the sand and hoping that no one will notice, because they always will. If there’s a major issue with the property, you can guarantee it’ll get flagged up at some point. You may as well fess up from the start and be straight with your cash buyer. That way you’ll know where you stand with a realistic offer from the get go, instead of waiting and worrying that you’ll be found out.
Why is my cash house buyer valuation lower than my estate agent’s?
It all comes down to the business each one is in. A cash house buyer makes their money by buying and selling your home. An estate agent makes money by commission when someone else buys it. That means that the cash house buyer needs to make a realistic valuation to protect their profit margin, while the estate agent can value your home at whatever price they want to get you signed up, knowing that even if you have to reduce later to a more realistic price, they’ll still get the bulk of their commission.
For estate agents, signing you up is the name of the game, as one industry insider told us:
“The estate agent market is extremely competitive. You’ll often have 3 or 4 market leaders in an area that ferociously compete against each other! Each agent is heavily targeted on how many new listings they can achieve each month, and if they under-perform then they’re out. It’s ruthless”
Under this much pressure to secure your business, most estate agents will tell you whatever you want to hear. Let’s be honest, if estate agent A values your home at £230,000 and estate agent B values it at £250,000 who are you going to choose? Unfortunately, this encourages estate agents to over-value your property, because once they’ve signed you into a fixed term contract, you’re stuck.
Yes, agent B will initially market your home at the inflated price, but when it doesn’t sell, you’ll have no choice but to reduce it. Many sellers end up selling at the lower, more realistic valuation that agent A gave them, but only after wasting months waiting for a sale.
Sadly, this is standard practice. According to Rightmove, between 2005 and 2021 only 23% of properties listed on their website sold for their final asking price. (Note that is the ‘final asking price’, not the over-optimistic starting price). So it seems that when it comes to the true market value of your home, estate agent valuations are about as accurate as Mystic Meg.
Cash house buyers still use estate agents for valuations
Despite everything we’ve said above, cash buying companies will still use estate agent valuations. The difference is that they demand evidence to back up the price. Cash house buyers don’t want smoke blown up their behinds, or a flattering valuation to boost their ego, they want a realistic price, backed by cold hard facts.
It’s in the agent’s interest to provide accurate figures, because the cash house buyer will often list the property with them once they’ve bought it. Even then, most reputable house buying companies don’t just take the agent’s valuation at face value. They also use their own experience, and carry out their own research, to back up the agent’s numbers.