I am going to segway from one Brightstar Boys blog to another and talk about surveyors, valuation reports and all the sorts of things that frustrate borrowers and brokers alike....
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div>I am going to segway from one Brightstar Boys blog to another and talk about surveyors, valuation reports and all the sorts of things that frustrate borrowers and brokers alike.
Kit’s blog last week was on the theme of subjective decisions by individuals that can make or break deals and the fact that two different survey firms can come up with different figures for the same property. There are always margins of error, and I believe that plus or minus 10 per cent is allowable, but Kit’s examples were on much bigger differences – big enough to make or break a deal.
However, while these types of outcomes do happen in the commercial sector and the frustrations are just as tangible, there are other complications that can be just as vexing for clients and brokers alike.
In defence of surveyors (and what is the line… some of my best friends are surveyors) their hands can sometimes be tied by the terms of the instruction that they receive from lenders. I have various examples over the years, but to protect the innocent, let’s use an anonymous case study to illustrate the point.
Client A owns a commercial property that is let to their own trading business, but it is in a predominantly residential area and the local authority are sympathetic to a residential scheme. However, there is no planning in place, just indications that the site is ripe for development and its best and highest use will be as residential.
Client A either knows the local market or speaks to some local agents to get a view on the property. The agents know what local developers are active and the sort of money they will pay for a site of this nature. Let’s say that the agents ballpark a figure of £1 million for the property and that is the figure that client A now has in mind for his transaction.
Client A wants to arrange some finance on the site with a view to moving his business, for expansion or any number of reasons. The financial accounts for the business look good and they make an application to borrow £700,000 for a refinance and capital raise based on the property value he has in mind.
The deal gets approved and a survey is instructed and this is when things get complicated. The survey is not instructed to report on the OMV and likely sale price for the site given buyer’s expectations and the ‘hope’ value that attaches to the property.
They are simply asked to value the property on the basis of the lease from the trading company and the vacant possession value for a commercial unit.
Given those restrictions the surveyor comes back with figures of £500,000 and £600,000 respectively. Client A is outraged, the deal is falling over and they bemoan the idiocy of the surveyor because he has already turned down an offer of £900,000 from a buyer.
Ask the same surveyor to give an estimate for marketing the property for sale and they say £1.1 million, but the small prints of the instructions are crucial.
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