How to Choose the Right Property Survey

Whenever you buy a property with a mortgage, the lender will insist on a Valuation Survey to check the property is worth lending against. Unfortunately such valuations exist to protect the lender’s interests, not to inform you adequately as the buyer. The fact you generally pay for this survey no doubt explains why 80% of homebuyers rely on the lender’s valuation. But on this occasion you shouldn’t follow the crowd. If you’re smart, you’ll commission your own independent survey. When you do you must choose between a Homebuyer’s Report, and a Building Survey (aka a “full structural” survey).  This article will help you understand why it’s worth paying for an independent survey, what you can expect for your money, and how the type of property you’re buying should determine which survey you choose. 

 Valuation Survey: Necessary but Insufficient

Valuation Surveys are brief and superficial because your lender is less concerned with the quality of the property than the security of their loan. In the current credit climate this loan is generally a much lower sum than your offer price. The surveyor will usually be in and out of you future home inside an hour, or may simply “drive-by”.  Such a survey will merely check that the price paid is in line with similar properties in the area given its age, condition and location. It won’t scrutinise your future home for any potentially costly faults. You’ll get a copy of a short and fairly uninformative report. Since you are not the client, you will have no redress over any errors. So you are unlikely to be any better informed or protected than you were before – despite having paid up to £300 for the privilege.

 Homebuyer’s Report

The surveyor will usually spend at least a couple of hours in the property and up to half a day producing a standard format report typically about 20 pages in length. You can expect this to be written in plain English. It will assess whether the property is a reasonable purchase at the offered price so you can make an informed judgement as to whether your purchase is sound and your offer is fair. You can expect a comprehensive account of the property’s overall condition, and a summary of any urgent or significant repairs. If you do wish to re-negotiate you will do so with a much surer grasp of the hidden costs you’d face as the new owner. The valuation should cover both market and insurance value.

 Building Survey

Unlike the Homebuyer’s Report this does not automatically include a valuation unless you ask for one. The contents will be much more detailed (up to 40 pages or more), and the language more technical. If you’d appreciate photos to illustrate the analysis, do check this before commission as there is no standard format for this survey. The surveyor will make a thorough check of every visible or accessible part of the building, spending up to a day on site. You can expect to wait up to two weeks for the full report. If you need to get a verbal top-line earlier you should make this clear at the outset.

You can expect a detailed account of major and minor defects, a thorough analysis of the building’s construction and condition, and technical advice on remedies and ongoing maintenance. Both survey and report can be tailored to your particular concerns.    

 Choosing the Right Survey

A Homebuyer’s Report is well suited to any standard (brick or concrete) property in reasonable condition built after 1930, which has been subject to little in the way of alteration or extension.

A Building Survey is worth investing in for properties built before 1930, when building regulations were more relaxed. Period properties may not have the foundations expected today. Full surveys are also worthwhile for any property of less conventional construction (timber frame or stone), any dilapidated building, and also anywhere which has been extensively renovated or where you plan major alterations. You should regard the extra expense as a worthwhile investment given that such properties are more expensive to fix and harder to value.

 Choosing the Right Surveyor 

Lenders may offer to upgrade your survey for an additional payment, but you have no guarantee as to the quality of the surveyor. Choose someone independent who knows the area well. If you are buying a period house, make sure that the surveyor has relevant expertise.

An independent property survey is always worth paying for to avoid costly mistakes. Think of it as the best value insurance policy you’ll ever buy.

How to Assess a Property’s Value

Searching for a new property is a famously stressful experience. So when you eventually reach the point of negotiation you’re in a high-stakes game, one where you’re likely to feel as if the vendor’s agent holds all the cards. Fear of losing out naturally makes you vulnerable. Once you’ve set our heart on somewhere, all those media reports of slow markets and falling prices offer little comfort or assistance. In reality every house price will be negotiable to a greater or lesser extent.

N is for Negotiability

 After months of fruitless searching you see somewhere you like. It’s got everything you want in a home. Unfortunately it’s at the upper edge of what you can afford.

 So how can you tell whether your dream home is really worth the asking price?

 And if the price is too full, how much lower might you sensibly offer instead?

 You want to know the property’s Negotiability – or N-Factor for short.

 Establishing the N-Factor is not an exact science. There’s no magic formula. But negotiability is generally determined by the inter-relationship of 4 variables: Desirability, Comparability, Supply, and Proceed-ability.

 D is for Desirability

 If you didn’t like the property you probably wouldn’t be reading this in the first place – but how many others are really interested? It’s harder to tell with fresh instructions. The longer a place has been on the market, the lower its D-Factor will be. Changes of estate agent or multiple agencies are both tell tale signs of a lower D-Factor.

 C is for Comparability

 How many comparable properties exist in your favoured area? In a typical suburban street the answer is very clear. Consequently, variations in asking price between similar homes in the same street are not too hard to understand. Character or period detached properties in the country are naturally more difficult to compare in this way.

 I always employ a few simple principles when assessing value for clients, whether in town or country.

Firstly I adjust recent historic selling prices for property inflation by postcode.

Secondly I assess fair value from top down or ground up, i.e. the cheapest/ most expensive property in the street, neighbourhood, or village. I’m always wary of “herd pricing” by estate agents, an inevitable consequence of the way competition between agents to secure instructions can push up asking prices.

Thirdly I benchmark both these measures against total internal floor space. Outbuildings such as garages, stables or garden rooms should be treated as distinct from living and working space in the main dwelling.  

A good comparability analysis is invaluable. It enables you to make a reasoned assessment of what intangibles (such as a quiet site, large plot, Grade 2 listing, or thatched roof charm) are really worth to you as premium over fair value based on the C-Factor.

S is for Supply

How many similar properties are there on the market currently? In other words how much choice do you the buyer have in practice?

The lower the S-Factor, the more important it is that you are decisive in choosing what to offer and how best to frame your offer. Because the longer you wait, the more likely you are to face competition.

P is for Proceed-ability

Have you the finance ready? Are you a cash buyer, chain free, or under offer?

Proceed-ability has a clear hierarchy. Cash buyers top the hierarchy, followed by sale agreed chain free buyers, then sale agreed buyers with a chain – and so on. The importance of the P-Factor is easily under-rated. It is increasingly screened by the vendors’ agents at all price levels. They will always favour the more proceed-able buyer.

A Working Formula for Negotiability

Property valuation is not an exact science. But we can illustrate the relationship between the 4 Factors with a simple formula:

 D/ (C+S) – P = N

It doesn’t matter whether this is strictly robust, mathematically speaking. What counts is the relative (high/ medium/ low) levels of the component Factors, and how they modify each other to drive that critical Negotiability.

The higher the right hand figure (N) is, the smaller you may expect the gap between the asking price and the selling price to be. To secure a place with a high N-Factor you may have to pay close to the full price. But as that right hand figure gets smaller, you may reasonably expect a higher gap between asking and selling price. 

Using this approach has three big advantages.

Firstly, it lets you put a sensible figure on Desirability in the context of a given location and property type. It’s nice, sure – but is it really worth £XXX,000?

Secondly it helps you turn Comparability into an effective and meaningful benchmark to furnish a reasoned argument to the vendor’s agent in support of an offer below the asking/ guide price

Thirdly, it reminds you to emphasise your Proceed-ability in your first offer and any subsequent improved bid. Sell your property first before you start making serious offers, and you’ll be treated much more seriously by vendor’s agents. They may well even favour such buyers over higher bidders who are less able to proceed.

Applying these principles should make your negotiation less daunting and more straightforward, and deliver the home you deserve at a fair price.