Below market value explained

"Below market value" (often shortened to BMV) means a price lower than a home would be expected to sell for on the open market, with proper marketing and enough time to find a buyer. Cash and quick-sale buyers usually offer below market value, because they take on costs and risks an ordinary buyer doesn't, and they need to make a profit. A BMV offer isn't automatically a bad deal. Whether it's fair for you depends on what you'd actually keep from each way of selling, and how much speed and certainty are worth to you.

This guide explains what market value really means, why quick-sale offers are lower, how to work out your own home's value, and how to judge an offer. It's general information for England and Wales.

What is "market value"?

Market value is, roughly, the price a willing buyer would pay a willing seller after the home has been properly marketed, with neither side under pressure. It isn't a single exact number. Two good valuers can come up with different figures for the same house, and the final sale price depends on who happens to be looking at the time.

It's also not the same as:

• The asking price. That's what the seller hopes for. Homes often sell for less, especially if the asking price was set high to win the agent the instruction.
• An online estimate. Automated estimates use data about the area and property type, but they can't see the condition of your home.
• What a neighbour's home sold for. It's a useful comparison, but size, condition, garden, parking and timing all make a difference.

Why are quick-sale offers lower?

When a company buys your home for cash, it pays for things an ordinary buyer wouldn't, and takes on risks you'd otherwise carry:

What the buyer pays for or takes on	Why it lowers the offer
Stamp Duty (or Land Transaction Tax in Wales) and legal fees	Costs of buying, often including your legal fees too
Repairs and refurbishment	Many homes bought this way need work
Holding costs	Council tax, insurance, utilities and finance while the home is worked on and resold
Selling costs	Agent's fees and legal fees when they sell it on
Risk	Prices can fall, and building work can cost more than expected
Speed and certainty for you	No chain, no buyer's mortgage, a date you choose
Profit	It's a business

In return, you usually avoid an estate agent's fee, viewings, repairs and months of waiting, and some buyers pay your legal fees.

How far below market value are cash offers?

There's no fixed figure. It depends on the home, its condition, the area, how quickly the buyer can resell it, and the buyer itself.

The best official evidence we know of is the Office of Fair Trading's 2013 study of the quick house sale sector. It found that sellers typically gave up between 10% and 25% of their home's market value, and occasionally much more. It also warned that some firms made an attractive first offer and then cut it later, so the figure that matters is the final offer, in writing, before exchange of contracts.

Be wary of anyone who says they'll pay close to the open-market price for a quick cash sale. As the OFT put it, if they're buyers, how would they make a profit? If they're really brokers, what would they do differently from an estate agent?

How to work out what your home is worth

You can't judge an offer until you know roughly what your home would sell for on the open market. Use more than one source:

1. Sold prices. HM Land Registry's price paid search shows what homes in England and Wales actually sold for. Look for similar homes on your street or nearby that sold in the last year or so.
2. Market trends. The UK House Price Index, published monthly by HM Land Registry, shows whether prices in your area have been rising or falling since those sales.
3. Agent valuations. Ask two or three local estate agents. They're usually free, but ask each one to show you the sold prices behind their figure.
4. A formal valuation. GOV.UK notes that a formal valuation is carried out by a qualified valuer, who will charge for it. A RICS registered valuer gives an independent figure, which can help if you're an executor or co-owner and need to show the price was fair.

Then adjust for condition. If your home needs a new roof, rewiring or a new kitchen, or a lender might not lend on it, the open-market price will be lower than for a similar home in good order. See how much is my house worth and how to get a house valuation.

How to judge whether an offer is fair for you

The fair comparison isn't "cash offer versus asking price". It's "what I'd keep from a cash sale versus what I'd realistically keep from an open-market sale". Here's an illustration for a house with an open-market value of £200,000:

Open-market sale through an estate agent	Amount
Sale price, if a buyer pays the valuation figure	£200,000
Estate agent's fee (1.2% plus VAT at 20%)	−£2,880
Your legal fees	−£1,500
Five months of mortgage interest, council tax, insurance and bills at £800 a month	−£4,000
What you'd keep, before paying off any mortgage	£191,620

In this example, any cash offer should be compared with about £191,600, not £200,000. If a cash buyer pays your legal fees and charges nothing, the difference between its offer and £191,600 is the real price of the speed and certainty.

Then weigh up the things that don't fit neatly in a table:

• The risk of the sale falling through. The government estimates around one in three transactions falls through, which can mean starting again and paying the holding costs for longer.
• Price reductions. Open-market buyers often negotiate after their survey, especially on homes that need work.
• Your deadline. If you have to sell by a certain date, a cheaper but certain sale may be worth more to you than a higher but uncertain one.
• What happens if you wait. Many councils charge a premium on homes that have been empty for a year or more, and the other bills keep coming.

Our cash offer vs estate agent calculator does this sum with your own numbers. For many homes in good condition, it will show the agent route leaves you better off.

Questions to ask about any below market value offer

• How did you work out the market value, and which recent sales did you use?
• Is this a final offer, or could it change after a survey or inspection? What would change it?
• Are you buying with your own money? Can you show proof of funds?
• Will you pay my legal fees, and are there any other fees?
• When can you complete, and what could delay it?

We'll show you how we worked out our offer from recent sales nearby, and it's below market value, so you can compare it fairly. There's no obligation to accept.

When a below market value sale makes sense, and when it doesn't

It can make sense when: the home needs work you can't afford, you have a fixed deadline, the costs of an empty home are mounting, a sale has fallen through more than once, or the home is hard to sell on the open market.

It probably doesn't when: your home is in good condition and sells easily where you live, you can wait a few months, and getting the highest price is what matters most. In that case, an estate agent will usually get you more, even after their fee.

If you're behind on your mortgage, talk to your lender and get free advice from MoneyHelper, Citizens Advice or StepChange before you consider a below market value sale.

Selling below market value to family

Selling to a son, daughter or other relative for less than the home is worth has tax consequences:

• Inheritance Tax. GOV.UK says that if you sell your house to your child for less than its market value, the difference counts as a gift. No tax is due on a gift if you live for 7 years after making it, but if you don't, it may be taxed.
• Capital Gains Tax. If you sell a property for less than it's worth to help the buyer, HMRC uses the market value, not the price paid, to work out your gain. If it's been your only home and you've lived in it the whole time you've owned it, Private Residence Relief usually means there's no Capital Gains Tax to pay anyway.

The rules depend on your circumstances, so speak to a solicitor or tax adviser before agreeing a family sale.