I can hardly believe we are in to March already, with the first two months of the year literally having flown by.
Thanks to Andy Jacovou for covering my weekly blog spot whilst I was away visiting family in Fort Worth, Texas.
It was interesting to read his article on surveyors and lenders’ reliance on often the opinion of one individual to make or break a deal. This continues to prove an issue and one that I would like to add my tuppence worth.
Just last week I had a development deal for a substantial new-build, luxury residence in Esher, Surrey nearly fall foul to a bad valuation decision. Firm ‘A’ having valued the site at the same level the client had paid for it two years ago, despite a rising market and having the uplift in value gain for full planning approval for knock-down and rebuild a substantially larger plot - in this instance demolishing a 3,000 sq/ft property and building a 7,000 sq/ft property. The client, an experienced house-builder, had a GDV of £2.6 million in mind, based on recently completing a similar project in the area. Despite this, we were faced with an even bigger down-valuation on the GDV given by the surveyor, of £2 million, based largely on the fact that a house of this size had not been built before in the road and £2 million was in his opinion the ceiling for a house in this road, no matter how big.
Following a further meeting between client, broker, funder and I, we all agreed that it was on this occasion worth a second opinion.
Not just an ‘audit’ valuation or asset manager site visit, but a full second valuation.
The funders went out on a limb and foot the cost of the second valuation, with the client having paid for the cost of the initial survey. Now before I continue, one of the issues that always crops up with an initial down-valuation, followed by a second valuation, is that the lender has already seen the original valuation report and despite their best willingness to want to fund a deal - they cannot simply ignore the down-valuation like it never happened.
Their opinion will always be tainted by this down-valuation.
Different funders deal with this issue in different ways and it can depend on the confidence they have in the client and broker, as much as the property itself. Worst case scenario, they will go off the lower of the two valuations, so a second valuation in this instance is unlikely to help, even if it were to come in higher.
Sometimes, they will take a view across both and go on the average of the two. If you are extremely fortunate and with decent, well thought out evidence, you can, as I did in this instance, get them to lend against the higher of the two valuations, with our second valuation coming in £200,000 higher on the initial site value and a whopping £800,000 up on the GDV! (a difference of + 71 per cent).
Now both firms were reputable and on the panel of many of the bridging / development lenders we deal with regularly and both holding the necessary experience, qualifications and PI cover to do their job.
Why then, do we have two vastly differing opinions on values?
The only conclusion I can draw is that it was the personal opinion of the two individuals that led to this discrepancy. Yes valuations are subjective, but two professional firms, surely should not differ by such a massive margin in their professional opinion? Fortunately, in this instance, the lender was adequately satisfied to run with the higher of the two valuations and the deal has subsequently offered and all being well, will fund this month.
However, I have also had cases fall down, due to poor valuations being given and killing the deal, costing the client hundreds of thousands of pounds ultimately (not just the initial valuation cost). Anyone who has ever attempted to appeal a valuation will know it is almost impossible to get a surveyor to increase his valuation, once a figure has been stated.
You can go through the motions of arguing, but generally they stick to their guns, not wishing to be proven wrong, putting the fate of most property deals solely in the hands of the nominated surveyor on any given day, which let’s face it, could depend on which side they got out of bed or the weather! Again, not wishing to bash surveyors in general, as in the main I think most of them do an excellent job, but every now and again, they are wrong and when they are, it needs a determined client and specialist broker fighting your corner to get the right outcome and save the deal, plus a lender who truly understands the development project, to ultimately make the right lending decision. I am pleased to say in this instance the outcome was good and by working together, we were able to get the job done, said Bob the Builder…
I can hardly believe we are in to March already, with the first two months of the year literally having flown by. .
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