Dealing with property valuations, whether through lenders directly or from externally sourced surveyors, can differ greatly from deal to deal. Lenders often have a varying policy on obtaining property valuations with regard to who they instruct to carry them out, the costs involved, their stances on accepting pre-issued valuations from a non-approved firm and if a property valuation is even required at all.  

 

 

It is essential that your client is aware of the different stances lenders take on valuations in support of an application and whether a full survey needs to be carried out on the property before progressing with the deal.

 

 

 

A property valuation is a brief document confirming what the property is currently worth, based on Open Market Value (OMV) or Projected Market Value (PMV), and instructed by the mortgage lender. Usually presented in a ‘tick box’ format, a valuation is a simple document which is primarily for the lender’s benefit to confirm that the property is worth the funds that are being lent against it.

 

 

 

So, who is responsible for carrying out the valuation?

 

 

 

Tomer Aboody, Director at MT Finance, told us that his company uses an independent valuer on each of their cases to ensure a completely transparent valuation report. He said, “We generally insist on using our panel valuation firms only, and will only accept reports from non-panel firms if they are highly reputable and the firm itself has re-issued the report in our name.”

 

 

 

Similarly, Alan Margolis, Head of Bridging at United Trust Bank (UTB) confirmed that UTB has an approved panel with a Panel Manager to provide accurate valuation services in each deal. He explained that UTB does not accept re-addressed valuations and added that a report will only be accepted, “…if the firm is approved by the Bank and in such cases the exiting valuation is used as the basis of a UTB valuation - we do not accept a simple retype.”

 

 

 

Echoing this sentiment, Steven Nicholas, Chief Executive of Tiuta plc said, “We like to instruct all surveys ourselves.”

 

 

 

However, he added: “If the valuation and report has been carried out independently prior to Tiuta’s involvement, then the report would be thoroughly reviewed in-house prior to agreeing acceptance by both our Underwriting and Internal Property team.” 

 

 

 

The Council of Mortgage Lenders (CML) highlights the main issue with accepting pre-issued valuations: “Lenders will generally treat all requests to accept mortgage valuations which have already been carried out in conjunction with surveys with extreme caution. 

 

 

 

“Any lender which accepts such valuations risks surrendering control of an important part of the lending process and exposes itself to an increased risk of fraud.”

 

 

 

The use of an approved panel should be a token of reassurance as Ray Clune, Co-Director at London Surveyors and Valuers Ltd, explained: “As an approved firm, lenders are comforted that we are able to carry out high standard reports promptly but getting sufficient time for proper research of local market conditions and values. We provide them with professional indemnity cover, the value of which is £15 million pounds per any one claim. …customers can also have reassurance that our processes have met stringent audit requirements and that the reports are compiled by experts.”

 

 

 

With this in mind, it is vital that brokers make their clients aware that a pre-issued valuation may be rejected by the lender if it does not meet their specific valuation requirements. Borrowers may incur further costs in having their current valuation report rechecked or having to pay for a new one altogether.

 

 

 

It is always recommended that clients use the approved valuation panel in all deals so that the lender is confident that the report is adequate, and there are no surprise rejections further down the line which may slow down the whole process.

 

 

 

And so, the key issue from a lender’s perspective with regard to valuations appears to be the associated risks with fraudulent valuations from non-approved firms. The CML establish that, “The main risk is that an intermediary may either ‘doctor’ a valuation report or exert pressure on the valuer/surveyor concerned to provide an ‘appropriate’ valuation figure. Unless the lender has maintained total control of the process by commissioning the valuation itself … it cannot be wholly confident that such interference has not taken place.”

 

 

 

Tomer Aboody told us that the risk control process at MT Finance ensures reports are accurate for the borrower and lender alike. However, he did note that this kind of fraud is present in the short-term market.

 

 

 

He said: “Although it is rare, we have encountered instances where ‘friendly valuations’ had been submitted in support of an application. On one case the square footage reported was incorrect by 1000 square feet.”

 

 

 

Aside from fraud, another issue surrounding valuation reports appears to be the lack of guidelines concerning the costs involved. This is something the upcoming MMR is proposed to address. The lenders we spoke to pointed out that the majority of lenders using an approved panel of external valuers remain distanced from the pricing structures and instead the valuation fee is charged by the surveyor.

 

 

 

Steven Nicholas at Tiuta plc said, “We do not earn anything in regards to the valuation; we pass the fee from the surveyor directly onto the client. Our panel members are all ‘top end’ firms and closely controlled internally reducing any potential risk.”

 

 

 

It may also be appropriate for your client’s confidence to advise that they are able, and even encouraged by lenders, to shop around for the best deal. Steven added, “There are a lot of companies on our panel and the client/broker is able to call each and negotiate the fee if they so wish.”

 

 

 

Like Tuita, Tomer Aboody told us that MT Finance does not charge any fees for valuations but a valuer may charge a fee for re-issuing an earlier valuation, which may sometimes be named a ‘re-type fee’.

 

 

 

However, giving us a more exact idea of the costs involved, James Bloom, Chief Executive of Regentsmead, said that their “…standard charge is around £1,000 plus VAT, but for large or complicated cases this can increase.”

 

 

 

James added that an imposed cap on valuation fees would be an inappropriate addition. He said, “I don’t see how you can impose a cap in a free market such as this, if the borrower is not in agreement with the cost then they shouldn’t agree to it.”

 

 

 

Yet, despite the valuation report remaining central to a large proportion of deals, there are instances where this may not be required at all. Simon Ismail, Business Development Manager at Goldtree Finance Services plc, talked us through the reasons for this, “As we lend our own funds we do not have to have a valuation for every lend and therefore do not have a panel of surveyors.”

 

 

 

Simon further explained, “For development applications we do not require a valuation. We ask for two or three local agents’ opinions on the completed units’ sale value along with local appetite for the proposed development.

 

 

 

“On all deals we visit the site/security property and meet the borrower. On what most would regard as ‘traditional’ bridge transactions we make our decision as to whether we need a valuation or not after this site visit. Our visits are usually made by two members of our team, one of whom is one of our in-house surveyors.

 

 

 

“If we are uncomfortable with a certain aspect of the security or the local area, a valuation can be helpful. We always like to use a local surveyor in these circumstances as his local knowledge is really what we are looking for.”

 

 

 

And so, where a valuation is required it is essential that brokers are able to advise their client to obtain a report from a surveyor whose specialities relate to the area within which the property is located. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surveyor Ray Clune also emphasised this point. He said, “Surveyors should only carry out valuations in the geographical areas that they have expert knowledge of … We specialise in Central London, all of our surveyors have many years of experience in this very area. We provide our clients with a list of postal codes we cover and a fee scale that relates to the estimated value or sale price of the property concerned.”

 

 

 

 

 

 

 

 

 

 

 

 

In addition to a valuation, surveyors, such as Ray, also recommend that a full condition survey should be carried out for the borrower’s benefit; however, very few lenders require their applicants to have this in order to proceed with a loan.

 

 

 

 

 

 

Ray explained: “There should absolutely always be a survey carried out as well as a valuation so that the buyer can know as much as possible about the property. Most rely on their inspection of the property which is always brief and superficial.

 

 

 

 

We even recommend a more detailed inspection on brand new properties where we prepare a “snagging list” of outstanding or inadequate work that a buyer needs to be aware of. Even though these may appear to be minor, the client is entitled to expect handover in perfect condition. Instead, builders are often in a hurry to complete to tight deadlines so matters can get overlooked.”

 

 

 

Despite this, our investigations found that very few lenders require a survey to be carried out in order to process a loan application, even though surveyors do believe they are essential in a property transaction. Therefore, brokers may like to advise clients that this may be hugely beneficial in determining the longevity and extended reliability of the valuation report issued by a lender.

 

 

 

In light of the consultation papers published by the FSA in the Mortgage Market Review, brokers will be required to undertake an advised sales process. Brokers therefore need to be aware that their clients will not benefit, in most cases, from a pre-issued valuation which is likely to cost more to be approved by the lender or may even lead to the client having to pay for an altogether new valuation.

 

 

 

Brokers can also express further due diligence in their advisory processes by highlighting the risks of fraud in obtaining a valuation report from a non-approved panel, even though this may on the surface, appear to be the cheaper option for your client.

 

 

 

By Alexandra Jones