Shared ownership valuation: buying & selling

This article explains shared ownership valuations for buying, selling, staircasing and lease extension. It also looks at what shared owners can do if they’re not happy with a valuation.


What is a home worth? One answer is that any home is worth whatever someone is willing to pay for it. There’s some truth in that. But, for various reasons, it’s an over-simplification at the best of times. Things get more complicated in the case of shared ownership, where there is likely to be more than one purchase transaction for the same home, whether purchasing additional shares, lease extension and/or simultaneous sale and staircasing.

Shared owners in homes with building safety remediation issues face additional complexities, which are explored in this feature: Shared ownership, the building safety crisis and nil valuations.

Shared ownership valuations

The Royal Institution of Chartered Surveyors (RICS) regulate surveyors in the UK. In theory, this should ensure both independence and consistency. But property valuation is – arguably – as much of an art as a science. In negligence cases, a valuation margin of 10% may be considered reasonable.

It doesn’t help that property valuations are required by a range of individuals and organisations with sometimes divergent interests.

Housing associations and shared ownership sales prices

Once the sales price of a new-build shared ownership home has been established, the value for every future transaction – staircasing. lease extension or selling – is set by RICS valuers using a standard methodology. But housing associations set the initial sales price.

Pricing new homes is difficult generally. So how do housing associations set sales prices for new-build shared ownership homes? Typically, they would seek advice from one of the larger surveying firms – perhaps Savills or JLL – and from internal sources of expertise at the commencement of a new scheme to establish indicative prices for planning and budgeting purposes. This is the starting point for setting the sales price when those properties eventually come to market.

Of course, the wider economic context and/or property market could have shifted in the meantime. Housing associations would review comparable sales both online and via discussions with local estate agents. The final sales price would take into account a range of factors including construction costs, any white goods or services provided, and mortgage lenders’ requirements

But, as any accountant will tell you, developing pricing strategies and tactics is not just about costs. There are a great many factors which drive pricing decisions. Not least that if sellers pitch too high they get fewer takers resulting in slower sales; and if they pitch too low they get ‘too many’ takers.

Tip for first-time buyers – bear in mind it may be possible to negotiate a lower purchase price for a shared ownership property.


“I got the price of my shared ownership flat reduced by £30,000 before committing in 2005”.

Kirsty, shared owner, Moat Homes

Mortgage lenders and shared ownership valuation

Mortgage lenders are primarily interested in whether their investment (in your shared ownership mortgage) is safe. If the worse came to the worst would they lose money? Any lender’s mortgage survey will be in line with their own criteria for lending.

First-time buyers and shared ownership valuation

Of course, valuation can be a double-edged sword for any home owner.

First-time buyers want (or need) low valuations. The same applies to valuations for staircasing or lease extension purposes. But most people will want a high valuation when they come to sell that same home….. This is perhaps particularly true for shared owners given the positioning of shared ownership as a ‘step on the housing ladder’. Many shared owners hope to make a gain on sale to put towards their next home.

Estate agents and shared ownership valuation

An estate agent’s job is simply to obtain the best possible sales price. This may be higher or lower than a RICS valuation, for reasons discussed below..

Buying a shared ownership home

What does ‘affordable’ mean?

Shared ownership is often described as affordable housing. But what does ‘affordable’. mean? The main focus of Government and housing associations is access to home ownership. Affordability is generally defined as an affordable mortgage deposit. A deposit on a part-share will inevitably cost less than a deposit on 100% of that same property. But ‘affordable’ is not necessarily the same thing as ‘cheaper.’ It’s worth checking if the grossed up (100%) sales price of a new-build shared ownership home is higher than otherwise comparable resale properties.

Shared ownership and market mechanisms


“The usual market mechanisms which help regulate property prices may not work as well in the case of shared ownership. Because the market is made up of buyers purchasing part shares, differences in value may have less effect than in the wider property market. For example, someone buying a 25% share in a flat worth £400,000 might be tempted to pay £20,000 extra. But in the open market buyers might never pay £480,000 for that property”.

Richard Murphy (MRICS, RICS Registered Valuer,) Richard John Clarke Chartered Surveyors

New-build premium

The Homes Owners Alliance point out that: “new-build properties include an extra premium on the sale price that, like a new car, depreciates as soon as you move in“. This applies to shared ownership as much as to any other type of property. There are some good reasons for this, of course. A new home is likely to come with guarantees and warrantees, and should be well-presented with no wear and tear. But such benefits may not entirely explain new-build premiums.

A new-build premium means that a quick onward sale by a shared owner could – unless property prices are rising rapidly – result in a lower valuation than the initial purchase price. (Which begs the question why affordable housing schemes focus on new-build homes; a question which there simply isn’t space to address here….).

Lease length and valuation

Of course, not all buyers purchase new-build shared ownership homes. Some buy a share of a resale property. In this case, it’s important to take account of lease length and, in particular, the number of years remaining until the all important 80-year threshold (after which lease extension becomes substantially more expensive).

RICS guidance notwithstanding, it appears that different firms may have different approaches when it comes to taking lease length into account for the purposes of valuation. One surveyor told me: “For the purposes of our valuations anything over 80 years is a long lease; ie the value of the property has not dropped. Leases under 80 years will have a lower value”. But another had a more nuanced view: “The valuer needs to know the lease length to do a valuation and shouldn’t make assumptions as there is no need these days. Previously Land Registry information wasn’t as readily available as it is today”.

The cross-subsidy scheme and potential conflicts of interest

Housing associations face a potential conflict of interest in setting sales prices for new-build shared ownership homes. On the one hand, shared ownership is positioned as a Government-backed affordable homes scheme delivered by not-for-profit housing associations. But, on the other hand, housing associations rely to some degree on shared ownership sales to generate income for social rented housing (the cross-subsidy model).

Initial rent is calculated as a percentage of the sales value. This also potentially creates self-interest for housing associations to set a higher rather than lower sales price. There is a strong argument for transparency on the part of the sector. Unfortunately, this is not always forthcoming as evidenced, for example, in the response by the National Housing Federation to a Shared Ownership Resources Open Letter on the question of whether rent generates surpluses for housing associations.


Valuation: staircasing and lease extension

Any registered valuer should arrive at roughly the same valuation using the same methodology. This applies regardless of the nature of a transaction: staircasing, lease extension or sale.


The value for all transactions after the initial sale is set by chartered surveyors using the same methodology. Ultimately, we don’t need to know the reason for the valuation in order to value a property. Often people need a valuation in order to decide what they want to do. For example, if they feel the value is too low to sell, they may decide to staircase instead.”

Unfortunately, if a surveyor overvalues a staircasing valuation then someone is buying at a higher rate than they should be and when they come to sell it they are left with a nasty shock. That’s why it’s important to be sure that your surveyor understands shared ownership and valuation”.

Armen MIrzoian (MSc IMC, RICS), Senior Surveyor, Copeland Yussuf LLP

RICS valuers have a professional obligation to act as an independent expert regardless of who is paying the valuation fee. (Usually the shared owner rather than the housing association).

However, some shared owners have expressed concerns about requirements to use housing associations’ recommended valuers. They fear conflict of interest where those valuers act for housing associations as well as shared owners, or gain commercial benefit from participation in recommended panels.

Valuation: selling a shared ownership home

Shared ownership leasehold contracts generally specify an 8 week ‘nominations period’ to give housing associations an opportunity to find a buyer who meets affordability criteria. If the housing association can’t find a suitable buyer, the shared owner will usually be given permission to sell on the open market via an estate agent.

A high sales price benefits sellers (so long as it isn’t high enough to deter potential buyers). It also benefits estate agents if they are working on a commission basis. Estate agents operate in a highly competitive market and will be keen to solicit business. They might initially propose a higher sales price to entice a client in. It’s not unusual to find that the estimated selling price comes down once the contract with an estate agent has been signed. Or perhaps later on if required to attract viewers and ultimately a buyer. For this reason, an initial estimated sales price may be higher than a valuer’s assessment.

On the other hand, it’s possible an estate agent’s valuation could be lower than the sales price required by the housing association, say, if the housing association’s surveyor doesn’t take adequate account of a short lease… or perhaps higher specified rent than local comparable properties (arising from contractual annual rent increases). This could be problematic if the housing association has a policy of requiring any shortfall between the sales price and the valuation to be paid over to them.

I’m not happy with a valuation. What can I do?

Shared Ownership Resources sponsor Richard Murphy, of Richard John Clarke Surveyors, offers the following tips.

Richard Murphy profile pic (re tips on shared ownership valuation)
  • Knowledge is power, It’s extremely helpful to understand what the valuation should be BEFORE commissioning an independent RICS valuation. Armed with this information you can decide how to proceed if the valuation isn’t in line with your expectations.
  • You could do this by approaching an independent surveyor with experience of shared ownership for a desktop appraisal, making sure to specify the lease length. A desktop appraisal would be cheaper than the full valuation report. You could expect to pay around £240 including VAT.
  • Talk to experienced local estate agents about the prices comparable flats are selling for.
  • Research asking prices of local for sale properties. Take into account relevant factors such as price per square foot, location and condition. But be aware that property portals may not include lease length in property details.
  • Check sold property prices in your area on Rightmove.
  • If you are staircasing, or extending your lease, and the valuation is lower than you expect, that’s a bonus. Or if a valuation is higher than you expected, you can send your evidence to to the valuer to see if they are prepared to adjust their assessment.
  • If you are selling, and the valuation appears high, the market will decide. The property may not sell quickly or, indeed, at all. In this case you will need to be aware of your housing association’s policy on paying over any difference between the valuation and the selling price.
  • If the valuation appears low, and if your priority is a higher price rather than a quick sale, you can again make representations with evidence to the valuer.

The featured photo at the top of this article is by Frans Ruiter on Unsplash.

9 Comments

  1. Kirsty
    July 27, 2021
    Reply

    Very useful article providing interesting context around shared ownership and valuations. The list of actions at the end is an especially useful resource.

    What I find very perplexing are the various “policies” that Housing Associations seem to have … as opposed to what is actually in the lease. It seems to be a complete lottery what Housing Associations have what policies which erodes trust in the model and Housing Associations … alongside a lot of the other issues there are with Shared Ownership.

    • Sue
      July 28, 2021
      Reply

      Thanks for your comments, Kirsty. Glad you found the list of actions useful.

  2. Kate
    July 28, 2021
    Reply

    Another invaluable article, thank you.

    I’ve recently pulled out of a shared ownership purchase because the valuation came back as nearly £30k less than the asking price. The asking price was also about the same value above equivalent properties in the area. As my personal situation is temporary and I planned to staircase to 100% within 18 months – 2 years, this was not a good deal for me. This phase of the development was the first in a major project and the advice I received was that this price would set the benchmark for future phases with other developers falling into line with this initial pricing purely because the purchase on this phase had gone ahead. I Was purchasing without a mortgage and do wonder if a mortgage valuation would have been different. This is not an area where prices are likely to fall, Houses rarely come up for sale and there has been no new development for years.

    The following information made me sit bolt upright.

    “…But housing associations set the initial sales price.”

    On new build housing developments prices can go down but if it’s a large development and you are buying on phase 1 they are more likely to go up especially in places where demand for new houses is high. Developers are unlikely to reduce asking prices if a higher price has been achieved on an earlier phase.

    In addition, affordable housing can sometimes be set at a lower initial price to equivalent outright sale houses on a development so when the RICS surveyor makes what I now see as the ‘first’ valuation, eg for staircasing, if they are not used to valuing shared ownership properties this may cause difficulty in accurately comparing the shared ownership property with new build open market sales and re-sale properties. Facilities such as en-suites and utility rooms are often left out of shared ownership properties, their position on the development can be in the less salubrious parts of the estate and the quality of build and fixtures and fittings can be lower than properties available for outright purchase. This can make shared ownership hard to value and the potential for price inflation of the shared ownership property more of a likelihood. Shared ownership properties come up for resale less often than open market properties, making fair valuation even harder for a valuer who isn’t used to valuing shared ownership properties.

    The fact housing associations can exercise this much power over not only the affordable housing sector but the entire housing markets is very worrying.

    • Sue
      July 28, 2021
      Reply

      Thanks for your detailed comments, Kate. Use of new-build properties to deliver affordable housing schemes does, indeed, raise some interesting questions. Particularly with regard to first-time buyers who may intend to sell on fairly quickly but may not be aware of new-build premiums, and their potential impact on the likelihood of making a gain to help purchase a subsequent home (per ‘foot on the housing ladder’ marketing rhetoric).

  3. Clare
    July 31, 2021
    Reply

    When researching ‘sold’ prices on older estates (for resale) another complication is that even the leases filed with the Land Registry don’t note the % owned. There might be an occasional reference to “purchased an additional share” but without indicating what the starting point was, nor what it now amounts to. Are you aware of anywhere that provides this information (which is vital for understanding ‘values’ over time) other than the unrealistic option of having to knock on people’s doors and ask intrusive and probably unwelcome questions?!

    • Sue
      August 1, 2021
      Reply

      Thanks for your comment, Clare, and your query. The Land Registry holds records of the initial respective percentages held by the shared owner and the freeholder. Title registers can be downloaded for a fee of £3 (as at 31/7/2021): https://www.gov.uk/search-property-information-land-registry.

      However, as you point out, Land Registry entries for shared ownership list the most recent value, but not the percentage of ownership it relates to. Generally speaking, where staircasing has occurred without the involvement of a solicitor, it’s unlikely that the memorandum would be noted on the title. A solicitor isn’t required until Stamp Duty at 80% or above is triggered but many (most?) housing associations don’t advise shared owners about registration of the memorandum. Buyers consequently may have to rely on the seller’s word. Though the % owned by the seller is something that should be verified by a buyer’s solicitor.

      On the question of valuation and market value, a RICS valuation of the property should be the same regardless of whether the shared owner holds, say, a 25% share, 50% share or 75% share, or plans to staircase to 100% in a back-to-back sales and staircasing transaction. Valuers will always look at 100% values, and then pro-rate depending on the share held by their client.

      However, as you point out, if historical ‘sold’ prices (actual market value) are published for sales of % shares and the percentage itself isn’t available to buyers, then it may indeed be challenging to assess historical movements in market value over time. Care needs to be taken when looking at sales prices within shared ownership blocks as a result.

      I wonder if this is a problem likely to be made worse by Government reforms proposing staircasing in smaller increments than previously…?

      Unfortunately there isn’t an alternative source of information. It would be helpful if Land Registry did record shares held. Have you contacted them directly on this issue?

      • Clare
        August 2, 2021
        Reply

        Hi Sue – thanks for the information. Yes, the imminent introduction of 1% increments is likely to make this lack of transparency even more confusing. For my estate, at time of first sale there was a mix of 100% lease and shared-ownership properties: none of these are demarcated on the title documents that are available via the Land Registry. This means it’s total guesswork as to the terms of different leaseholders’ contracts, which can only be solved by asking them directly. No, I’ve not made any representations to the Land Registry about this but that would probably be a worthwhile step as the current situation does shared-owners no favours.

  4. Sandra
    September 7, 2021
    Reply

    Hello, I am a bit confused.
    So my housing association gave us £70K lower price than market in area. I do understand that they have a 8 weeks to try to sell it on their price but me as a owner of 40% I can keep saying no until 8 weeks passed and after sell it on price which I want. I found a buyer who is eligible to buy on shared ownership 40% but from price which I want to sell not my housing association. Will I be able to do it this way?

    • Sue
      September 10, 2021
      Reply

      Hello Sandra, Thanks for your query. Apologies for the delay in responding but I wanted to check the issues with an expert first. (Many thanks to Chris Baker, owner of McDowalls Surveyors, for his advice).

      If you believe the valuation is too low, you can approach your housing association and ask them to get the valuer to reconsider the valuation, or to provide further justification.

      Ideally, you’d need to provide evidence relating to similar local property sales to back up a claim that your valuation was £70k lower than local market prices. Bear in mind that estate agents’ listings may be higher than actual prices achieved. As discussed in the article, sellers sometimes aspire to one price and settle for another.

      You could also ask another firm to provide an alternative valuation. This would be at your own expense but it might help determine why, on the face of it, there is a wide gap.

      It’s essential to compare prices of properties which are similar in fundamental respects. One thing that does crop up and makes a difference is houses that shared ownership tends to leasehold whilst the wider market for houses is usually freehold. The length of the lease also makes a difference.in valuing a property. You haven’t mentioned your own lease length, so it’s not clear if this could be a factor in your own situation (particularly if your lease has fewer than 80 years remaining).

      I hope this is useful. Good luck with your sale!

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