Property Scam # 4 – Inflated Property Value
Number four is again looking for inflated figures, this time for property market values.
This can happen based on changes to the property or the location
Property
This is very common and can affect those looking at how to buy a HMO property, where a HMO scam is possible by selling the property based on it’s strong yield, but the bricks-and-mortar value may be heavily inflated.
This happens when scammers may take a standard house, say a 3-bedroom property (or similar), ‘say’ it is rented as a HMO and then sell the property with a massive markup.
For example, if someone said to you there is a property opportunity to buy at £400,000 with a 10% rental yield. You may think that rental yield sounds great. But the HMO scam here could be that the property as a traditional rental could be worth significantly less. The property may not have had any work done to it, and neighbouring properties may be worth £250k or £300k (as one example).
It’s important to note that where the property has genuinely been significantly converted and developed to a HMO, and the developer has gone to great lengths to undertake a quality conversion including planning (things like sui generis), architects, has created more bedrooms with an extension or significant internal layout change, these properties can honestly be worth more than neighbouring properties and are often sold (and financed) at a higher valuation.
The simplest path here is to ensure you carry out thorough due diligence when buying a house. Speak with local estate agents and letting agents. Make sure there is a HMO market with demand from tenants and this isn’t simply a HMO scam. There are also different types of home surveys, so you can get a specialist survey carried out to confirm it’s valuation.
Location
Property valuation scams often emerge in areas experiencing rapid price growth, where determining true market value becomes more challenging. We’ve witnessed this particularly in emerging regeneration zones, where developers sometimes inflate prices by 20-30% above genuine market values, claiming ‘hope’ value that the property prices will match that price in the coming months as the market is so ‘hot’.
Whilst it can be true that prices are rapidly increasing in an area can mean a big difference in value in such a short period of time, you should always back this up with a house valuation survey. These are now very affordable and you can check how much a house survey typically costs here.