Valuations - An art or a science?

Valuations - An art or a science?



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One often hears of lenders asking for a second valuation to be undertaken in a bridging deal and it subsequently breaking down, but what are the most common reasons for this?  

We asked a couple of industry figures to explain what some of these are and also heard from one about what initiatives could help… 

But what are the most common reasons another valuation is sought? 

When we asked Goldentree Financial Services about the issue, Janet Gibbons, Lending Team Assistant, told us that they would never even think of asking for a second valuation. Janet said: “We can even do some deals without a formal valuation when we can rely on our in-house surveying and valuation expertise.”

 

However, another valuation will indeed be requested by a lender when an application has, for example, stated that a piece of land has planning permission but it subsequently transpires that it does not but the clients are in the process of having it granted.

 

Simon Juniper, Director at Only Bridging, told us: “It highlights the fact that when you present a case the facts need to be correct.

 

“If a borrower has applied in this way - doesn’t have planning permission but is in the process of having one granted – this obviously changes the value of the land and has actually made the first valuation ineffective, hence the reason for sending out another valuer for this case.

 

“If an application only has a draft copy of the planning permission the value of the land is simply not as high as if planning had been granted.”

Michael Yianni, Managing Director of Belleveue Mortlakes, gave us a few examples as to why another valuation maybe required.

Michael said: “There may be concerns over potential ‘conflicts of interest’ or information may come to light that that valuer has too close an ‘association’ with the applicant. There may also be situations of ‘duress’ where a pushy applicant has hounded the valuer, attempting to exert some sort of influence.

 

“Another reason is that the initial valuer may simply not have done a good job. His or her report may be littered with grammatical errors, spelling mistakes, mistakes in methodology, which all help create an air of distrust over the report.

 

“I’ll give you an example: A valuer values a property at £750,000 but the applicant firmly believes the property is worth £900,000. He may even be able to produce an old report trying to prove his case. The initial valuer is totally unwilling to budge and a new valuation is instructed.”

 

Michael added that having two separate valuations from two independent, separate practices in this instance would go a long way in reducing risk.

He said: “In the ideal world, time or finances not being of the essence, it would be far safer to have two valuation reports from two independent surveyors on every property that is valued, especially properties of over £500,000 perhaps.

“Valuation is an art not a science, as we all know, and one only needs to look at the history of valuation litigation with cases clogging up the courts, especially in post ‘boom’ periods, with many thousands of ‘incorrect/negligent’ valuations having taken place over the years.

 

“Secondly it would be of tremendous assistance to all surveyors if applicants were not permitted contact with the surveyor and all contact is via the lender. The RICS has produced various publications on this very subject.

 

“Lastly, one of the reasons surveyors may make a mistake is due to an unreasonable amount of pressure from the lender to turnaround a case quickly. Any human being is more likely to make a mistake when rushed, no matter how good he/she is, therefore there should be industry wide timeframes to complete differing reports, allowing a reasonable amount of time to do a professional job.”

 

When a bridging case is going through the application process, paperwork is being written up by the lender and the broker at great speed. However, mistakes can be made, which hampers can hamper the progress of a case.

 

But false or incomplete information in applications still remains the key reason as to why cases are ultimately not approved. So, make sure that all your clients’ application information is as accurate as possible, even if planning permission is imminent, to ensure your deals are not one of those that fizzles out.

 

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