24. Selling at undervalue

When a property is sold at an undervalue, it means the selling price is below the property's market value. This situation can occur for various reasons, including a quick sale requirement, a transaction between family members, or a distressed sale due to financial difficulties. 

Implications 

• Market perception: Selling at an undervalue can lead to perceptions that the property might have issues, such as structural problems, legal complications, or other hidden defects. This can make other potential buyers wary. 
• Buyer attraction: Conversely, a lower price can attract a larger pool of buyers who see it as a bargain opportunity. This can potentially lead to a quicker sale. 
• Financial impact: You will receive less money from the sale, which might impact your financial plans, especially if you need the proceeds for another property purchase or to settle debts. 
• Legal and tax considerations: Selling at an undervalue might have legal and tax implications. For example, if the sale is between family members, it could be subject to scrutiny by tax authorities, especially concerning inheritance tax or capital gains tax. 

Impact on property sale 

• Due diligence: Buyers might conduct more thorough due diligence to understand why the property is priced below market value. Be prepared to answer questions and provide documentation to support the sale price. 
• Mortgage approval: Buyers seeking a mortgage might face challenges if the lender's valuation does not match the sale price. Lenders typically require a property valuation, and if the property is valued higher than the sale price, they may question the discrepancy. 
• Negotiation dynamics: Pricing the property below market value can change the negotiation dynamics. Buyers might expect to negotiate further reductions or additional concessions. 
• Legal documentation: Ensure all legal documentation, including the sale contract, clearly outlines the reasons for the undervalue sale to prevent future disputes. This is particularly important in transactions involving family or friends to avoid potential claims of duress or undue influence. 

What to consider 

• Professional valuation: Obtain a professional valuation to understand the market value of your property. This will help you make an informed decision and justify the selling price to potential buyers and lenders. 
• Estate agent advice: Consult with an estate agent to discuss the implications of selling at an undervalue and to develop a strategy that balances attracting buyers with maximising your proceeds. 
• Legal counsel: Engage a solicitor or legal advisor to ensure that all legal aspects of selling at an undervalue are properly addressed, including any tax implications and the drafting of sale agreements. 
• Transparency: Be transparent with potential buyers about the reasons for the undervalue sale. This can build trust and mitigate concerns they might have.