There’s no time for the checks that are carried out by high street banks in more traditional lending environments. This means that there is greater reliance on information presented by the introducer, broker, and client which adds an element of risk to the deal.

The key to preventing a case failing is to do as much research as you can before submitting it to the lender. 

The value

Cases are initially assessed based on the estimated value provided by the client or broker. The accuracy of this practice is questionable, however, and we see a significant number of cases where actual valuations come in at a lower level. Also, some valuers report that the estimate of value often differs from the figures confirmed with the client onsite, raising questions about where the estimated figure has come from. 

Valuers perform a number of checks when undertaking a valuation of a property. This will include checking the residential and commercial property portals to see whether it has been marketed in the past. Checks sometimes find properties sold only months earlier at one figure being given a much higher estimated value. This increase can be explained if significant work has been undertaken, but in most instances this is not the case.

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While you cannot prevent a client from overinflating a value, you can research recent sales of similar properties in the area to assess whether it is realistic. Overinflating a price to try to increase the final market value simply does not work. It is best to be as realistic as possible, which builds trust between the valuer and the lender/broker.  

Be warned: a ‘market assessment’ from an estate agent is a guide but it is not reliable for valuation purposes. The estate agent is trying to win an instruction and will be as generous as they can be to secure it. This is the opposite of a ‘Red Book’ market valuation, which gives a value based on actual evidence. 

Inaccurate descriptions

This can be best described as Chinese whispers. In many cases, a potential deal will come from a broker to a master broker and on to the lender, and sometimes more brokers are involved in-between. By the time the description of the property reaches the valuer it may have changed significantly.  

Examples include: 

• a single industrial unit was divided into 10 industrial units and a house 
• a retail shop with a flat over was a shop with a 20-bed HMO over  
• a terraced house was a shop with a flat over
   

In some cases, a quick check on Google can provide an accurate description but in others it’s worth checking full details of the property with the applicant.  

Suitability / condition

The biggest stumbling block is when a property’s condition affects its saleability and a cash value has to be applied. In these cases, there may be no time to undertake further investigation of the remedial works required to make the property suitable security.  

Examples of defects that will result in a cash value being applied include: 

• Japanese knotweed 
• structural defects 
• derelict condition
• not habitable 
• poor condition 
• defects that make the property uninhabitable 
• incomplete building works
   

While it is not possible to foresee defects such as Japanese knotweed, questions can be asked about the condition of the building and Google Street View can reveal some obvious issues.

Where a property is being developed, the value will depend on its stage of construction. A building that is constructed to main shell level will have a higher value than a building with only the walls completed because the structure of the former is viable.  

Time 

Getting a valuation completed within a matter of days is often possible but sometimes timescales are too tight to make it work.  

The speed at which a valuation can be done depends on surveyor availability and the type of property being surveyed. For example, while undertaking a valuation on a vacant shop with a flat over is straightforward, some types of property need more thorough consideration, particularly those in multiple occupation or those requiring development-related reports.  

Planning 

The current or proposed planning on a property can significantly affect its value. The key trigger for development is that planning permission has been obtained. Hope value cannot be taken into account when valuing property unless it is in an area allocated for development such as infill development. Check the local authority planning portal if you are in doubt.

Avoiding the most common problems: 

• Check that the value is realistic, basing it on similar properties sold and the latest property sales data. Has the property recently been up for sale or sold through one of the property portals? 
• use Google Street View to assess whether the property matches the description 
• question the applicant about the type and condition of the building
• check that you have enough time to complete your research and get a valuation
• check planning permission for development properties by researching the local authority planning portal