New Homes Quality Board case study: Inflated property valuation

Clear communication and transparency are essential in property sales, and this was demonstrated in a recent case study published by the NHQB. It highlights the risks of unclear pricing and improper handling of reservation fees, providing key lessons for housebuilders and developers.

Summary of the issue

A customer reserved a show home for £900,000, including £850,000 for the house and £50,000 for the show home package. The customer thought the agreed price reflected the value of the property; however, the mortgage valuation came in much lower at £680,000.

After a second valuation, the developer adjusted the house price to £775,000 but increased the show home package to £75,000 to reflect the valuation price.

Following this new offer, the developer imposed a deadline for acceptance, but the customer ultimately withdrew from the sale.

Although they were initially told by the sales consultant that they would receive a partial refund of their £1,000 reservation fee, they later learned they would receive nothing.

The New Homes Ombudsman’s decision

The Ombudsman found that the developer had not acted transparently. The revised pricing was not explained and the reservation fee refund information provided by the sales adviser was incorrect.

The developer argued that the reservation fee retention was fair due to their legal fees exceeding the cost of the reservation fee. The Ombudsman disagreed on the basis that the developer was only entitled to deduct those incurred in processing and holding the reservation.

The Ombudsman ruled in favour of the customer, awarding £300 in compensation and £500 as a partial refund of the reservation fee.

Key takeaways for developers

1. Clear communication: Ensure customers are fully informed about any price adjustments with detailed explanations.
2. Staff training: Sales staff must be well-equipped to handle pricing and reservation queries accurately.
3. Fair handling of reservation fees: Ensure any deductions are clear and justifiable.
4. Apologise and resolve: When mistakes occur, acknowledge them promptly, apologise, and offer fair compensation.

Conclusion

This case demonstrates the importance of transparent communication in property sales. Developers should provide clear pricing details, ensure proper staff training, and handle reservation fees fairly to maintain customer trust and avoid disputes.