Confused About Purchasing a Property

cordy1969

Hello Everyone,

Looking for some clarification please.

Firstly are the laws or regulations here about agents under valuing properties to attract bidders.
Is there any requirement for an agent to step away or excuse himself/herself if they have a conflict of interest. For example the agent is friends with a bidder and trying to intimidate underbidders away from the property for their friend.
Do banks have to do a valuation on a property for the mortgage process. Again for example. If a couple has a pre approved mortgage for 250k and the house is only valued at 200k and they keep bidding up to 250k will the bank still lend them the full amount or is it based on the agreed value a bank places on the property.
And is there any way of asking an agent to prove other bids on a property are genuine or financially achievable from the other parties. I suspect ghost bidding to increase the value.

Thanks in advance for any assistance.

Yourmama

I don't get your first point. It is common to put a house on the market under the value to attract more interest and possible bid war. You can't really tell if you are bidding against ghost bidder. Agents are meant to log all bids but I suppose it's easy to forge. Bank will value the house as well but this is only formality to confirm the house really exist and is worth somewhat in the region of similar houses in the area. They will put the value whatever you negotiated.

cordy1969

Yourmama wrote: »

I don't get your first point. It is common to put a house on the market under the value to attract more interest and possible bid war. You can't really tell if you are bidding against ghost bidder. Agents are meant to log all bids but I suppose it's easy to forge. Bank will value the house as well but this is only formality to confirm the house really exist and is worth somewhat in the region of similar houses in the area. They will put the value whatever you negotiated.

Ok thats what I was asking, so here it is ok to undervalue a property to increase bidder activity.
Also you're telling me that if a house if worth 200k but the purchaser pays 300k the bank will value it at 300k? I'm sorry that doesn't sound financially responsible and I'm still confused that a bank would allow this. Are you 100% sure that is the case?

awec

cordy1969 wrote: »

Ok thats what I was asking, so here it is ok to undervalue a property to increase bidder activity.
Also you're telling me that if a house if worth 200k but the purchaser pays 300k the bank will value it at 300k? I'm sorry that doesn't sound financially responsible and I'm still confused that a bank would allow this. Are you 100% sure that is the case?

If the bank are adamant that the house is only worth 200k you will not get a 300k mortgage on it.

cruizer101

Yourmama wrote: »

Bank will value the house as well but this is only formality to confirm the house really exist and is worth somewhat in the region of similar houses in the area. They will put the value whatever you negotiated.

Not necessarily, there was someone on here recently who had the problem that the bank valued their house at less than they had bid, I'm not sure what happened in the end but it does happen even if rare.

theteal

If the bank only values it at a certain amount, the bidder is free to continue bidding higher but the additional funds won't be coming from that bank

cordy1969

I'll explain the situation a little more clearly.

The bidder I'm bidding against has a pre-approved mortgage of 250k. The bidder is also friends with the agent and the agent basically said to me that they are pre-approved to this amount and are willing to go that high to secure the property.
Here is my point:

Median house price for the area is 189k this house has reasonable modifications/extensions to increase its value. Based on this is the market price for the house is in the area of 210k. In any other country I have lived in banks normally value a house close to or if not just slightly below median house prices plus extensions etc.

So if say for example the bank values the house at 210k although I would say it would be closer to 200k anyways.

Bidder A

pre approved mortgage 250k
deposit required 50k

bank values house at 210k, so bank is prepare to lend 80% of the value.
Bank lends 168k based on the value of the property.

deposit of 50k plus 168k = 218k

Their current bid 245k. SHORTFALL of 27K?????

so how can this bidder offer a bid of 245k, I don't believe they can raise those funds based on the above calculations. So how to I compete against what I see as a false bid?

thanks

davo10

The value of a property is not a fixed price, it depends on what the highest bidder is willing to pay for it. Considering house prices have risen substantially in recent years and a high percentage of house purchases go for above asking, any price an EA puts on a house could be undervaluing it.

Given that prices are still rising, I suspect valuers/banks base their valuation on recent sales and what is on sale at the moment rather than a median value over a few years. The market today is different from 6 months ago.

catrionanic

The banks valuer will value it at the market rate, not what was paid. We had an issue with the valuer putting a lower valuation on the house than we had paid a few years ago. But a second valuer agreed with us.

The asking price being set deliberately low is normal practice in order to generate interest. Most house buyers will adjust their search criteria as a result, and not look at houses where the asking price is close to their budget.

Estate agents are audited to ensure bids are all recorded and are genuine. I'm sure there probably is the occasional bit of ghost bidding going on, but it's nowhere near as common as conspiracy theorists like to think. For the extra hundred quid the agent would earn in commission (they usually charge 1-2% of the selling price, so an extra 10k in bids really doesn't mean they get much personally from.it), it just isn't work risking their license.

It is also in the interest of the estate agent to ensure any bidders have adequate finance in place. The agent is working for and being paid by the seller. The seller won't be too happy to discover at a late stage in the game that the successful bidder cannot finance the property after all.

Most of your post sounds like the typical estate agent conspiracy theories that we see on an almost daily basis on this forum.

amcalester

Makes no odds to you though because if the same rules are applied to you, you won't be able to outbid the other buyer.

And if the 2 bids are the same, the auctioneer will advise the seller to accept his associate's bid.

awec

cordy1969 wrote: »

I'll explain the situation a little more clearly.

The bidder I'm bidding against has a pre-approved mortgage of 250k. The bidder is also friends with the agent and the agent basically said to me that they are pre-approved to this amount and are willing to go that high to secure the property.
Here is my point:

Median house price for the area is 189k this house has reasonable modifications/extensions to increase its value. Based on this is the market price for the house is in the area of 210k. In any other country I have lived in banks normally value a house close to or if not just slightly below median house prices plus extensions etc.

So if say for example the bank values the house at 210k although I would say it would be closer to 200k anyways.

Bidder A

pre approved mortgage 250k
deposit required 50k

bank values house at 210k, so bank is prepare to lend 80% of the value.
Bank lends 168k based on the value of the property.

deposit of 50k plus 168k = 218k

Their current bid 245k. SHORTFALL of 27K?????

so how can this bidder offer a bid of 245k, I don't believe they can raise those funds based on the above calculations. So how to I compete against what I see as a false bid?

thanks

You are over thinking it.

Where did you get this 210 figure from?

All the bank care about is if they had to sell the house because of a mortgage default could they get their money back.

cordy1969

catrionanic wrote: »

The banks valuer will value it at the market rate, not what was paid. We had an issue with the valuer putting a lower valuation on the house than we had paid a few years ago. But a second valuer agreed with us.

The asking price being set deliberately low is normal practice in order to generate interest. Most house buyers will adjust their search criteria as a result, and not look at houses where the asking price is close to their budget.

Estate agents are audited to ensure bids are all recorded and are genuine. I'm sure there probably is the occasional bit of ghost bidding going on, but it's nowhere near as common as conspiracy theorists like to think. For the extra hundred quid the agent would earn in commission (they usually charge 1-2% of the selling price, so an extra 10k in bids really doesn't mean they get much personally from.it), it just isn't work risking their license.

It is also in the interest of the estate agent to ensure any bidders have adequate finance in place. The agent is working for and being paid by the seller. The seller won't be too happy to discover at a late stage in the game that the successful bidder cannot finance the property after all.

Most of your post sounds like the typical estate agent conspiracy theories that we see on an almost daily basis on this forum.

Not looking for conspiracy theories, simply asking a question I just entered more detail above.
BTW I am a cash buyer and its well within my budget, all I'm looking at it to why I should have to overpay for a property against a bid that I don't think can be sustained.
If I walk away from the property which I'm about to do, and the other bids falls through. Does the process start all over again?

How do you know how much cash someone else has?
I could have mortgage approval for 250k, but have another 250k in cash.....

Iago

cordy1969 wrote: »

I'll explain the situation a little more clearly.

The bidder I'm bidding against has a pre-approved mortgage of 250k. The bidder is also friends with the agent and the agent basically said to me that they are pre-approved to this amount and are willing to go that high to secure the property.
Here is my point:

Median house price for the area is 189k this house has reasonable modifications/extensions to increase its value. Based on this is the market price for the house is in the area of 210k. In any other country I have lived in banks normally value a house close to or if not just slightly below median house prices plus extensions etc.

So if say for example the bank values the house at 210k although I would say it would be closer to 200k anyways.

Bidder A

pre approved mortgage 250k
deposit required 50k

bank values house at 210k, so bank is prepare to lend 80% of the value.
Bank lends 168k based on the value of the property.

deposit of 50k plus 168k = 218k

Their current bid 245k. SHORTFALL of 27K?????

so how can this bidder offer a bid of 245k, I don't believe they can raise those funds based on the above calculations. So how to I compete against what I see as a false bid?

thanks

raising the funds is easy, maybe they have 80k but are taking an 80% loan of 168k anyway or maybe they have family that will give them some money or or or

None of that matters really. A house is worth exactly what somebody will pay for it on the market, if 247k is too high for you then you put in the offer you think represents value and you wait. In the meantime evaluate other options and see if you find something else.

Ultimately either the bid is genuine and the sale goes through, or it isn't and they might come back and accept your offer. Either way you can't control what a 3rd party does so why sweat it?

cordy1969

awec wrote: »

You are over thinking it.

Where did you get this 210 figure from?

All the bank care about is if they had to sell the house because of a mortgage default could they get their money back.

I got this figure based on median house prices for the area and recent sales. Also based on inclusions and extensions. I am from the building industry so I'm aware of how to value a property.

davo10

cordy1969 wrote: »

so how can this bidder offer a bid of 245k, I don't believe they can raise those funds based on the above calculations. So how to I compete against what I see as a false bid?

Unless you are privy to their financial situation and arrangements with their bank, I'm not sure how you can make that assumption.

A house is worth what the highest bidder will pay for it, not what you would like it to be. That is how the bidding process works, buyers often pay more than what I might value a property at, because they want it. This person has bid more than you, if they don't have the funds, it will fall through, if they do, that is now the value of that property to the market.

amcalester

cordy1969 wrote: »

I got this figure based on median house prices for the area and recent sales. Also based on inclusions and extensions. I am from the building industry so I'm aware of how to value a property.

You know how to value a property but not how the bidding process works?

cordy1969

amcalester wrote: »

You know how to value a property but not how the bidding process works?

Aware of the bidding process, was asking the question about unsustainable bids.

awec

cordy1969 wrote: »

I got this figure based on median house prices for the area and recent sales. Also based on inclusions and extensions. I am from the building industry so I'm aware of how to value a property.

210->250 is not a big jump.

But you are over thinking the value thing. All the bank care about is making sure the price paid is not totally out of whack with reality, to cover them getting their money back but also to make sure there's nothing dodgy going on. 40 grand above the median for the area is nothing.

Also, you've based it on the median, which means there have been houses go for more than that.

Using your process it would be impossible to ever bid above the average price for houses in the area.

Heres Johnny

Whichever one of you values the house higher and makes the highest offer will win.
Just because someone values house more than you do doesn't make the bid fake or wrong.
It's possible it is but probable it's not.
Offer what you think it's worth and don't go above that.

davo10

cordy1969 wrote: »

Aware of the bidding process, was asking the question about unsustainable bids.

How do you know the bid is unsustainable? Do you know how much money they have on deposit or their arrangement with the bank?

They have mortgage approval up to a certain amount based on income, that doesn't mean they will bid the lot or even need to borrow that much if they have deposits.

cordy1969

Thanks for all the advice.

I am walking away from the property anyways. As lovely as it is no property is worth over paying by 20% or more.

Johnny K

Why not put in a bid of what you think property is worth and leave it at that?

cordy1969

Johnny K wrote: »

Why not put in a bid of what you think property is worth and leave it at that?

I have Johnny.

Heres Johnny

cordy1969 wrote: »

Johnny K wrote: »

Why not put in a bid of what you think property is worth and leave it at that?

I have Johnny.

You are doing the right thing. If you don't feel it's worth any More, just leave your bid with them and that's it. Look again somewhere else and repeat the process

Johnny K

Leave it at that so if other bids aren't real they'll come back to you.

cordy1969

Johnny K wrote: »

Leave it at that so if other bids aren't real they'll come back to you.

LOL yes but by then my bid will decrease for mucking me around.

q85dw7osi4lebg

Offer the max you are prepared to pay for said house. If rejected / outbid, walk away. Don't overthink it.

CruelCoin

cordy1969 wrote: »

I'll explain the situation a little more clearly.

The bidder I'm bidding against has a pre-approved mortgage of 250k. The bidder is also friends with the agent and the agent basically said to me that they are pre-approved to this amount and are willing to go that high to secure the property.
Here is my point:

Median house price for the area is 189k this house has reasonable modifications/extensions to increase its value. Based on this is the market price for the house is in the area of 210k. In any other country I have lived in banks normally value a house close to or if not just slightly below median house prices plus extensions etc.

So if say for example the bank values the house at 210k although I would say it would be closer to 200k anyways.

Bidder A

pre approved mortgage 250k
deposit required 50k

bank values house at 210k, so bank is prepare to lend 80% of the value.
Bank lends 168k based on the value of the property.

deposit of 50k plus 168k = 218k

Their current bid 245k. SHORTFALL of 27K?????

so how can this bidder offer a bid of 245k, I don't believe they can raise those funds based on the above calculations. So how to I compete against what I see as a false bid?

thanks

That's not how mortgages work....

It matters not what the you or the market think the house is worth. It matters what the bank thinks it's worth.

The other bidder has 250k to play with and that's all you need to know.
He's been approved for 200k, and is funding 50k (the remaining 20%) himself.
Or he's been approved for less and has loads of savings. Not everyone is going paycheck to paycheck!

CruelCoin

cordy1969 wrote: »

Thanks for all the advice.

I am walking away from the property anyways. As lovely as it is no property is worth over paying by 20% or more.

If that's your view, then you've made the right decision.

Some people will have more than you to play with. Life's just like that.

cordy1969

CruelCoin wrote: »

That's not how mortgages work....

It matters not what the you or the market think the house is worth. It matters what the bank thinks it's worth.

The other bidder has 250k to play with and that's all you need to know.
He's been approved for 200k, and is funding 50k (the remaining 20%) himself.

I am almost certain but happy to be corrected banks will only lend up to 80% of the value of the home. And by value I mean what the bank values it at not what the vendor, agent or bidder values it at.

And that has been my point all along. Over bids that are not sustainable under the banks requirements.