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Valuation of property during coronavirus crisis
We’ve already had a couple of clients who own a property that is not disregarded under the capital rules and have had a loss of income as a result of the coronavirus.
They wouldn’t normally be eligible for means-tested benefits because they have a property they could, under normal circumstances, sell and then realise the value of, which would exceed £16,000 (depending on the equity they have in the property). However, as things currently stand, I’m guessing it’s nigh on impossible to actually sell a property. Do people think there’s any scope for arguing that the value of properties should be heavily reduced at the current time, as the realistic likelihood of realising their pre-coronavirus market value (or of selling them at all) is actually very low?
I’ve had a look at R(SB) 18/83 and R(SB) 6/84. The former confirms that we have to look at whether the value of a capital asset can actually be realised when assessing what it is worth, and the latter confirms that we have to look at the market value of an asset at the date of claim and ‘the price which the asset commands as between a willing buyer and willing seller’.
I wonder, how much is a house worth at the moment? Has anybody even thought about it? Could you even get a valuation? Would anyone actually buy it? Would it even be legal to buy or sell a house, as you’d be hard pressed to do it without violating rules about social distancing and unnecessary travel? If it isn’t legal, does that mean that houses are currently worthless for social security purposes? There’s arguably little realistic prospect of finding a ‘willing buyer’ at the moment.
Just putting it out for discussion, as this will probably come up quite a bit.
Inclined to agree with you. Value is that of a willing buyer to a willing seller. At the present there is next to no market.
However, the live issue then would be that this could quickly change so a claim to benefit could rapidly turn into an overpayment etc.
Sorry but I don’t think this has any legs at all.
Property sales have “paused” to some extent but it has never been the case that they would take place instantaneously. Buying property is a long-term purchase and isn’t going to be guided solely by whether the property is immediately accessible - its not like the house has been destroyed in a flood and is now worthless. It is still there and still retains its long term value - trying to argue that a property which was worth (say) £200,000 unencumbered is now functionally worth nothing just because the hypothetical completion will be delayed by 3 months is ambitious in the extreme.
Wouldn’t the better route to be to argue that you are trying to take reasonable steps to dispose of the property but are struggling to do so as a result of the reduced operations of most estate agents?
Hmm. Totally agree re: reasonable steps but…
It remains willing seller to willing buyer and there’s evidence around of a collapse in prices around the UK. The last figure I saw was a 13% fall over the year but 75% or more in the short term. I’m not sure the length of time to purchase or future value has any relevance at all. The valuation is as of the date of claim and not based on the long-term picture.
I’m not sure I see a clear difference between the impact of Covid-19 say and the impact of having a £100,000 house owned by siblings where there is a sitting tenant and a sibling wants to sell their share. The house remains valued at £100,000 in the long term but on the facts right now it’s value is negligible because no-one would buy the siblings share. Sure DWP would argue but they’d also lose (this is a real case and they did).
If the seller can find a buyer willing to offer their original asking price then my argument rather obviously founders. How then will they find that buyer?
Hi Elliot & Mike
In neither of the cases we have encountered have the clients actually had any intention of selling the property they own, so the argument about taking ‘reasonable steps’ to dispose of a property isn’t a goer. It’s more about the hypothetical market value if they were to try to sell it in the current climate.
We’re only very early on at the initial claim stage, nobody has even been refused anything as of yet, so we’ll see how things pan out. I just thought it was worth raising for discussion as it’s an interesting question.
In terms of a potential overpayment issue Mike, if benefit is awarded, you’d presumably be referring to an overpayment only from the date on which the housing market resumes functioning, i.e. when the lockdown ends?
Cheers
Alex
Edit: This was posted without sight of Mike’s second post.
[ Edited: 16 Apr 2020 at 03:54 pm by AlexJ ]I’ve got a friend who has been in the process of selling his house since last year, they got willing buyer for their’s around February and have a property they want to buy and had offer agreed. The pandemic has slowed things done for obvious reasons but it’s still going on, so I’m inclined to agree with Elliot on this one.
Hi Elliot & Mike
In terms of a potential overpayment issue Mike, if benefit is awarded, you’d presumably be referring to an overpayment only from the date on which the housing market resumes functioning, i.e. when the lockdown ends?
Yes, I would.
Bit of lockdown spirit required on this one I think. I see no reason to not make the argument. Very much depends on the local market and the specific circumstances but that’s not necessarily an impediment.
Hmm. Totally agree re: reasonable steps but…
It remains willing seller to willing buyer and there’s evidence around of a collapse in prices around the UK. The last figure I saw was a 13% fall over the year but 75% or more in the short term. I’m not sure the length of time to purchase or future value has any relevance at all. The valuation is as of the date of claim and not based on the long-term picture.
I’m not sure I see a clear difference between the impact of Covid-19 say and the impact of having a £100,000 house owned by siblings where there is a sitting tenant and a sibling wants to sell their share. The house remains valued at £100,000 in the long term but on the facts right now it’s value is negligible because no-one would buy the siblings share. Sure DWP would argue but they’d also lose (this is a real case and they did).
If the seller can find a buyer willing to offer their original asking price then my argument rather obviously founders. How then will they find that buyer?
The obvious way to test this point is that if you offered someone £16,000 to acquire their 50% stake in a £200,000 property with an immovable sitting occupant holding the other 50%,, they would bite your arm off, whereas if you offered someone £16,000 to acquire a 100% stake in their £100,000 property which they are currently struggling to sell because of Covid, you would get laughed at.
The logical end point of the argument is that all houses (and presumably cars, antiques, fancy guitars etc.) are currently next to worthless.
That’s not been my experience though Elliot. That 50% “stake” isn’t something going through an estate agent so your market of willing buyers is immediately reduced. You’re reduced generally to family, friends and friends of friends (a heady mix when it comes to anything involving money). Who else would buy and why?
Rightmove has quite a lot of properties in Trafford area at quite significant prices.
https://www.rightmove.co.uk/property-for-sale/Trafford.html
Someone better tell the Chancellor that they’re worthless, cos the recession is about to get must worse if you;re right….
Reasonably, difficulties in the housing market means devaluation - but you have to consider it from a financial perspective - if there was heavy devaluation shrewd buyers would jump on it (in fact it occurred to me that now might be a good time to become a homeowner), and prices would surge again.
So sure, a modest reduction in the value of the property seems reasonable, but I wouldn’t expect any miracles.
Spoke to a friend of a friend last night. Estate agent. Basically little is moving bar things already underway and valuations online and in shop windows are effectively meaningless. No-one wants to push them downwards as the sellers don’t want that but if, for example, someone had a need to move now (part of a chain, notice already given etc.) and they bid on an advertised property they would be unlikely to get any response bar can you wait.
In that context I think what Rightmove etc. show isn’t really relevant. That’s about the wider market again. This is willing seller to willing buyer. Find me that willing buyer and then let’s talk actual value.
Or what about requesting a “re-mortgage valuation” report from the mortgage lender or alternative mortgage lender?
Or what about requesting a “re-mortgage valuation” report from the mortgage lender or alternative mortgage lender?
Same again though. This is not about the value put on a property by an estate agent or a mortgage lender. It’s about a realistic assessment of the market. My last client with this sort of issue part owned (50% I think) a £180,000 property. Their sibling had their share valued at around £70,000 as they’d put in more when buying I with legal fees; redecoration, repairs etc. Estate agent didn’t want to know because they couldn’t shift a 50% share. Mortgage valuation simply confirmed it as being worth £180,000. DWP eventually agreed with a valuation of around £10,000 because there was simply no-one there to buy.
This is a fundamentally different situation though Mike, the comparison is redundant.
The reason that the partial stake has little value is because the hypothetical purchaser is only acquiring a speculation. They can’t do anything with the property which they partially own. All they can do is either take expensive legal action to force a sale of the whole freehold or just hope that the other owner eventually relents and agrees to a sale. This means that there would be an uncertain return on investment at an uncertain time. Anyone who would be prepared to agree to a purchase of this nature would need to see a substantial return on investment in order to justify the risk.
(The reason that the valuation in your case is low is not because there was nobody there to buy it, but because the hypothetical willing purchaser would pay less that the face value of the property divided by the number of shares to account for the risk and difficulties entailed. The Jacobs decisions from a few years ago have done away with the “nobody would buy it” argument. The existence of a willing buyer is assumed.)
The current situation does not devalue property in the same way. All it does is delay how long it will take to sell the property. A hypothetical willing buyer would pay more or less the same for a property now as they would have done before the pandemic because the property will still be there after we get back to normality.
Yes, sorry. Nobody to buy was poorly phrased. More about the amount the willing buyer would pay.
I appreciate there’s a key difference Elliot but I don’t think a hypothetical willing buyer right now would put anything down unless they were in a chain and forced to vacate their own place. That’s the key.
To be fair, the current pandemic will obviously cause house prices to fall but I still can’t buy the argument that they have no value at all currently.
Property prices could fall by up to 20% due to coronavirus pandemic
Tulips.
The housing market is generally a long game.
Not to mention, at least compared to some other countries I’m familiar with, the English housing market has some daft legislation that makes for a fairly awkward and uncertain process when buying a house at the best of times.
And I think the person in your case Mike is actually the person that would most struggle to buy a house now - in terms of urgent need to liquidate assets, secure a mortgage etc. Other people would probably, with some reluctance, proceed as normal.
To be fair, the current pandemic will obviously cause house prices to fall but I still can’t buy the argument that they have no value at all currently.
Property prices could fall by up to 20% due to coronavirus pandemic
That 20% is the same as my 13% figure i.e. an annual figure. No-one is talking about the death of the market right now and the impact that has.
Still, nice to be able to think about an almost mundane piece of casework for the first time in nearly 4 weeks.
I appreciate there’s a key difference Elliot but I don’t think a hypothetical willing buyer right now would put anything down unless they were in a chain and forced to vacate their own place. That’s the key.
But why not? If I am a property investor or a “we buy any house” style set up or a buy to let landlord, how much do I really care if it will take longer to complete?
And we don’t need the exact value of the property - we just need to know if it exceeds £16,000. If you have the money, it would be hard to go too far wrong buying random houses sight-unseen at that price.
I suspect the acid test here Elliot/Valder would be to see if that buyer exists. Theoretically yes. In practice, what’s the evidence for that right now? The sort of person who might ordinarily have indulged such speculation may have just had exactly the sort of rude financial awakening the rest of the world has.
I suspect the acid test here Elliot/Valder would be to see if that buyer exists. Theoretically yes. In practice, what’s the evidence for that right now? The sort of person who might ordinarily have indulged such speculation may have just had exactly the sort of rude financial awakening the rest of the world has.
Yes but you are reversing the test again. We aren’t asking whether a buyer exists but what that hypothetical buyer would pay.
I suspect the acid test here Elliot/Valder would be to see if that buyer exists. Theoretically yes. In practice, what’s the evidence for that right now? The sort of person who might ordinarily have indulged such speculation may have just had exactly the sort of rude financial awakening the rest of the world has.
Yes but you are reversing the test again. We aren’t asking whether a buyer exists but what that hypothetical buyer would pay.
Well you know my position on that. I think anecdotally all the evidence points to a hypothetical buyer not going near such things with a hypothetical bargepole right now.
Incidentally, here is the Covid-19 update from “We buy any house”:
To re-assure you during these unprecedented times, our business is continuing to run as close to normal as possible in the circumstances. Our highly skilled and motivated team are now fully set up to carry out their normal working activities from their homes, using our world class technology and communications systems. This will allow us to deliver our high standards of service to you.
We are making a change to our house survey process, which is a key part of how we prepare our offer for you. Due to recent government guidelines regarding social distancing we are now offering our customers a contactless alternative to our standard house survey, whereby after sending us some photographs of your property one of our qualified surveyors will carry out a questionnaire via a video conference, meaning that you will not need anyone to come into your house in order to receive your offer.
This fundamental change will allow us to continue to support you in the sale of your house during this period of time, whilst ensuring we prioritise the safety of both you and our people. We want you to know that we will work hard to progress the sale of your property during this time and are available to answer any questions you may have, just as we have been in the past.
Please don’t forget, we are here to help you. So please do get in touch if you would like to hear more about how we can buy your house.
How about we see what April and May say?
I think the difference is approaching this looking at individuals rather than groups (or a market).
Sure, an individual buyer might be more reluctant than usual, but the lower the price gets, the more willing he becomes to buy again. More importantly, in this interconnected world, a shrewd buyer elsewhere might snap up the deal once the price suits his level of risk aversion. Then factor that over a large market.
For that matter, maybe China becomes a big(ger) property investor in the UK if their economy recovers prior to the UK’s.
Price’s are only base on individual risk aversion in small, isolated markets. If you were selling a croft in a small village in the Highlands for instance, chances are no-one in that village would want to buy it now, and with no interest in it outside the village (or even knowledge it is for sale) you could probably make the argument that it is currently worthless.
Owen: Ding! You win… a tulip! Delivered next spring. Feel free to sell on your prize (if you trust me to deliver).
Owen: Ding! You win… a tulip! Delivered next spring. Feel free to sell on your prize (if you trust me to deliver).
Woohoo! Maybe I can trade it for a couple of houses - finally a millenial can make it onto the property ladder…