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Inaccurate Mortgage Valuations in Mallorca and Spain


I was very pleased to see this article (see link below) from my friends and fellow Chartered Surveyors, Survey Spain, giving a little more meat on the bones for those of us battling to explain the perennial problem of low and “inaccurate” mortgage valuations in Spain! I have lost count of the number of times I have had to try and explain that mortgage valuers rarely value properties at the purchase price and that just because the valuation is 15 or 20% less doesn’t mean the client is “buying badly” or is “over paying”!

What Survey Spain have been able to do is use their contacts within the Spanish valuation community to actually look at some examples together, and thus see where methodology differences are impacting on the reported figures.

Chartered Surveyors in MallorcaWhat is clear is that the rules and methodology imposed on the Spanish Valuers are largely to blame for the problem. All valuers work within a framework of regulations, like we do as Chartered Surveyors with the “Red Book”, but it should be stating the obvious that those regulations should be there to ensure consistency and accuracy in identifying an estimate of open market value (ie what a buyer will pay for the property in the open market!) rather than some academic exercise divorced from the way the market operates and prices property!

See here for the full article found on the Spanish Property Insight web site – Why are tasador valuations always wide of the mark? 

While to be fair a lot of the differences identified within the article are very specific to the two cases they were looking at, some broad conclusions can be reached as to why  these valuations need to be taken with a “pinch of salt”, if what we are looking for is an accurate “open market” estimate of value!

  • The big one, as they say, is deducting 15% for costs. ie they appear to take the open market value and deduct the 15% while we would quote the open market value and simply advise clients that “to this one will need to add up to 15% to cover buying costs”.
  • Covered terraces appear to be dealt with in a variety of different manners (cost or value) that have little or no baring on the true open market value that the space offers the property. Valuation is an art not a pure science but to take arbitrary figures like whether a covered terrace is more or less than 15% of the built area and then apply a “cost of construction” or “end value” valuation to the space, is bizarre to say the least! What any of this has to do with open market values I really don’t know! Their actual values will depend on a whole host of factors – orientation, views, situation of the property etc and these can only be accurately addressed on a case by case approach rather than via artificial formula.
  • With valuers having to guarantee their figures for 6 months, and given the rap they were given for their over inflated valuations prior to the crash, it is hardly surprising that they now “cover their backs” and will want to err on the side of caution when setting the final figure!
  • Point 6 in the article,  ie that the Spanish Valuers are paid very little for each valuation, hides a very key problem and that is “comparable evidence”. All valuations need to be based either on actual sales of “similar” properties OR, as is the case in Spain, where reliable data on actual sales figures are very difficult to obtain, on asking prices LESS a % deduction for “negotiation”. How much that deduction should be will depend largely on the strength, or otherwise, of the market but can average out to circa 5-10% in a “normal” market. The properties used as comparables, quite obviously, need to be as similar as possible in terms of their character and location / situation as that of the subject property. In reality in Spanish valuations you often see properties from different villages / locations, or vastly different characteristics that make you suspect “time is of the essence” in getting the exercise done rather than care, attention and accuracy at the moment of putting a value on the property!!

The long and short is that if you are buying a property, and are taking out a mortgage, hope and pray that the valuations is what you need for achieving the loan that you want but DON’T expect it to accurately reflect the open market value of the property or the price you have agreed to pay!

If you would like a Property Finding Service from a Chartered Surveyor that will not only identify the best properties but help in identifying their underlying values to assist with negotiations  then please contact me.

Categories: property values in Mallorca, property values in Majorca, Property Valuation advice in Mallorca, Mortgages in Mallorca, Mortgage valuations in Spain, mortgage valuations in Mallorca, Mortgage valuations in Majorca, Mallorca chartered surveyors, Chartered surveyors in Mallorca, Uncategorized, Buying Property in Mallorca - The Buying Process & Due Diligence

Added on Monday, September 25, 2017