Mistake number three – They put too much trust in valuations.
Now, don’t get me wrong, as I said in point number one, valuations are a great way of making sure you aren’t paying over the odds.
But they are not such a good way of confirming you are buying a bargain.
Why do I say that? Because valuers have a tendency to down value. As a generalisation, at best they will accept the purchase price as being the value, at worst they will knock a bit off “to cover themselves”.
So it can and does happen that you know you’ve negotiated a bargain at a price below the true value of the property (there are many reasons why a vendor will sell “below market value” but I don’t have time to go into this here) but the bank’s valuer adopts the purchase price.
Over the years there’s been a lot of discussion amongst valuers and banks whether a purchase price agreed between two parties at arm’s length is the real measure of value. But sometimes, regardless of what price is agreed you know the property is worth more.
Unfortunately it’s very rare that a valuer will report the value at the higher figure.
So what? Unless they are confident of their own ability to spot a bargain, an inexperienced investor might conclude, especially if the valuer adopts the purchase price, less a bit, that this isn’t such a good bargain after all
In the next post we’ll take a look at mistake number 4
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor