Archive for the ‘Must Read Issues’ Category

When is a “new” home not worth what you paid for it?

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Buy today at, say, £250,000; sell tomorrow for less (regardless of market conditions).

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According to “new thinking” (post-Credit-Crunch) the answer is NOW – an immediate fall in reported value can be expected.

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Developers and Lenders have noted valuation inconsistencies over many years now despite their attempts to QA out certain historic bugs-in-the-system. EG: once upon a time all parties came together and established the concept of “New-Build-Premium” on brand new homes; this has since been rescinded and no longer exists.

Valuation uncertainty can be traced to many factors, such as – market volatility, poor professional direction (to Valuers), differing policies adopted by the many lenders/valuer-chains, lack of transparency on Builders’ buyer-incentives, etc…..

Indeed, Valuation nowadays seems to have drifted from a professional opinion of what the local market will bear to simply what can be inferred by comparison with historic transactions. The result? Over-cautious Valuations by “directed” Valuers (as opposed to the Valuer exercising free-will and giving a true professional opinion).

Nationwide has been operating a New Homes Valuation guidance scheme that includes an opinion of “resale value*” as well as “current value” (*market value but upon the special assumption that the property has already been occupied – for six months, at least: making the home “second hand”).

This resale value means that any element of premium being paid because the home is “new” is to be discounted from the figurework.

This is a real grey area and official guidance by Royal Institution of Chartered Surveyors, and others, is not entirely clear and not nearly comprehensive enough to currently protect its members from claims of negligence.

The problem for Valuers is that the second-hand market that produces comparables may not have the same design features, low-maintenance materials, low-energy-consumption figures (etc…) as the new home.

This now causes the Valuer to have to identify exactly (1) what creates the value of the new home, (2) of those factors, which are unique to the particular new home and (3) which of those factors should be excluded, (4) how is each excluded factor to be assigned an element of value, plus (5) which new home features disappear after six months (when the condition of the home is not perfect any more).

A new science is in the making – how much additional value does a door-bell create? What deduction should be included for having a non-porous driveway in a floodplain area? You could easily disappear in dispair at the complexity of these matters.

The answer is always simple – look at Valuation holistically and ensure any significant new features are then identified and considered: make notes to explain your logic, any evidence you have to support that logic and then value accordingly.

One feature that has seemingly had its own solution is the 2008 introduction of the Council of Mortgage Lenders INCENTIVES DISCLOSURE FORM. The Valuer must ask to see this document on all New Home valuations. The Form lists the sale incentives used – discounted mortgages, cash-back schemes, no-fees mortgages, free gifts, nothing to pay for a period, carpets and curtains included, etc…. However, for clients who have revealed their financial affairs to us PROinspect has seen many of these Forms and it is our opinion that the actual sale price remains less than transparent.

Another, and topical, factor to mention is that in poor market conditions Auction Sale results can be viewed as distressed-sales and not wholly indicative of the overall local marketplace (and repossessed homes can often be in poor condition).

Another problem is that the world is imperfect and knowledge is not freely shared. Each Valuer will have comparables, but not all comparables. FACT – imperfect knowledge creates valuation variations.

The latter feature is the basis of why most Loan Companies have in-house or controlled PANELS of Valuers. Each valuation instruction to a Panel Member goes with a list of known comparables.

This practice creates a closed cartel of Valuation instructions. This is not necessarily a bad thing: any system is as good as its weakness link – if the instruction data is good then the valuation opinion output is capable of being accurate.

In an ideal world all Valuations would be placed on a national database and be freely available within days of completion. Each Valuation instruction would come with all known data.

In essence valuation will have moved away from expressing a professional opinion to be replaced with data analyst skills. Is this the first shot of the creation of a two tier valuation and mortgage market – (1) 100% mortgages based upon data analyst Reports and (2) restricted mortgages based upon all other opinions?

As always, part of the answer is focused in market education: most of the public will be unaware of the politics of the art of valuation (and they may not even care about such matters) and therefore may be happy to continue to blindly accept whatever the Loan Company tell them and not elect to pay for an independent assessment of worth, perhaps also not even commissioning a private condition survey, to assess the real risks of purchase.

Credit Crunch showed how financial Institutions can be systemically rotten and not put the client first: New Home loan Valuations and Valuers are in danger of being sucked into a similar vicious cycle unless true leadership can be shown by the Royal Institution of Chartered Surveyors (the leading body that regulates Valuers) who need to rise above the dictates of the Council of Mortgage Lenders.

Special character of city “under threat”

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English Heritage says two-thirds of Conservation Areas at risk of neglect.

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This was reported – the main, front page headline – in the Winchester based Hampshire Chronicle in mid-2009.

Will the use of Article 4 Directives be extended so affected homeowners cannot even make small changes to their homes? Will Listed Building Officers use this new background influence to retrospectively demand past “improvements/works” are rescinded, new windows removed and replaced with single-glazed casements, paint colours changed, gutter types be replaced, Satellite Dishes removed or relocated, etc…… The list is potentially endless.

This opens up the old argument of just what is being protected? Also… all potential owners of Listed Buildings, or non-listed homes but within a Conservation Area, should always have a survey completed as added protection against retrospective claims (it doesn’t hold water that you didn’t do it – you are still liable).

Conservation should not mean “no change whatsoever”: districts and individual homes evolve with time and circumstances and often conservation policy and actions can cause district stagnation and either enhancement or depreciation in worth/value. A balance must be struck between parties to retain our bricks-and-mortar heritage.

In my own Town of Bishops Waltham, one of the Conservation Areas said to be “at risk”, we have several examples of such conundrums:-

High street shops have erected metal brackets to hold seasonal Christmas trees along the high street. Building Control officers sought for their removal as unauthorized development, mainly upon Listed Buildings, in a conservation area. Fortunately, common sense, for once, has intervened.

The larger, and more thorny, issue in Town at the moment revolves around a brownfield site as a possible Sainsbury superstore. Say No To Sainburys is plastered around town and feelings are running high.

Sainsburys say that nectar card analysis reveals that a large Store in town is more than required by the spending power of town residents alone and that a local store would encourage us to stop travelling to Fareham or Hedge End where giant stores abound, and are often grid-locked.

Local shops say NO, the town and high street would become a ghost town and destroy the quite charm of our market town. This NO faction, as always, are very vocal and believe the majority are against Sainburys.

Looking at this issue holistically and dispassionately, can our high street support an ever growing population with diverse needs, is parking adequate, are cars congesting what should be a pleasant shopping experience, how can our commercial centre grow and meet are needs?

The same basic underlying factors are at play –

Is the status-quo set in concrete or can a market town grow sensibly to serve residents needs? Can large changes OR many small changes be made yet not spoil the essential character of our environment?

I recently toured Asturias through to Galicia in north-west Spain, an area of small farmsteads, rural in character and with breathtaking countryside and coastlines. Change is happening big-time : a coastal motorway is opening up the region and nearly all major Towns are having ring-roads built, cobbled-stoned high-streets created, etc…. Change is a part of life and they are embracing it (probably with EC grant funding, but that is another story).

People, buildings and environments must adapt to current needs and trends if a sustainable community is to be created, one in which our children may just decide to stay in, rather than make an early bee-line to the nearest City (civilization, as only our youth see it).

Whether it is to Sainburys objectors, local Conservation Officers or a Listed Building owner, I say the same thing; be tolerant and do not shut off change for the sake of it.

Metal brackets or a fully fledge, massive Sainburys stores are matters that require proper judgement plus an empathy with not only our own needs but also those of the whole community. What does common-sense say to you – no change or evolution in a controlled fashion?

Time will tell. To change or not to change?

ARCHIVE ARTICLE THAT INCLUDES THE ONLY SURVEYOR JOKE I COULD FIND ON THE INTERNET:

MAN : This house is a ruin. I wonder what stops it from falling down.

SURVEYOR: I think the woodworm are holding hands!

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Who/What does the most damage to a home?

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Woodworm: Rot: Leaks: Frost: UV radiation: Acid rain: DIY: Cowboy-Contractors: Ground movements: Occupier neglect, ignorance & lack of maintenance: Poor design: Inappropriate materials: Storms: Damp/Condensation ?

Woodworm: Multiple forms of woodworm exist – some are “notifiable hazards”. Not usually treated until well-established. Can be costly if ignored for many years or you have Death Watch Beetle.

Rot: Basically only two main forms – Wet & Dry. Wet rot – treat/repair what you see. Dry rot – add a “0 or two” to what you think it might cost!

Contractors: Some are brilliant, some are not! Always get a recommendation – find out what is excluded/included. Always find out when payments are required.

Health & Safety is vital but it can also cause increased costs. Ignore standards and codes and YOU will be in trouble. Even simple low-costs repairs sometimes need massive access costs. Lives are lost needlessly every year because we ignore H&S!

Architects choose materials and designs that Builders must be familiar with to construct your dream home. Any mismatch of skills and understanding and the Surveyor will detect them when they become a problem later on (or advise you that XX may become a problem due to YY).

Suns rays degrade certain materials. Over-heating (thermal gain) can cause dimensional instability and cracking and inappropriate environmental standards.

Frost causes many materials to degrade or to de-laminate. Water pipes/drains can freeze and split/leak. Choose the wrong materials and early failure can occur. (Other materials within land and buildings also cause problems in differing weather or land conditions).

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The real answer to this riddle is “lack of, OR inappropriate monitoring and/or maintenance” causes the biggest problems. Any and every problem has a solution but the best answers always exist if problem diagnosis is both early and correct.

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This throws the spotlight on the -

(1)  common sense of the home owner/occupier (often DIY or Bob-the-Builder solutions make matters worse).

(2)  whether adequate insurances exist (under-insurance means your claim or claims will not be met, or only in part).

(3)  the experience and range of diagnosis tools of the Architect and/or Surveyor.

(4)  the knowledge and experience of all contractors and professionals employed to rectify the problems.

Nothing is perfect, all things degrade but the right choice of maintenance methods, choice of alterations and improvements, the choice of materials used, etc…. are all central to the quality of what you achieve with a property.

• Do you cut corners to meet your restricted budget?
• Is the cheapest contractor the best contractor?
• What alternatives to your needs may exist?
• Which is the best choice – basic repairs or green improvements to cut fuel costs?
• Have you pursued those alternatives to see if grants are available?
• Have you taken cost-v-value advice?
• Is it worth doing analysis OR would it be better to move to a better home?

The property cycle =  BUY  -  MAINTAIN  -  ALTER OR IMPROVE -  MAINTAIN  – UPGRADE & RENEW ELEMENTS  -  MAINTAIN  – MAKE A PROFIT OR LEAVE AN INHERITANCE

Your actions and decisions throughout the above property cycle will determine the eventual outcome of your initial investment in buying a home. Recessions come and go but, over the longer term, housing remains a good investment if you treat it wisely.

If you make the right decisions during your ownership of any home you will have a smile on your face: if you opt for DIY or bodged-solutions to problems, or, even worse, ignore problems or complete no maintenance at all, you enter a potential spiral of decline that may see your investment become a millstone around your neck from which you never financially or environmentally recover.

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Things to consider when investing in your next home.

• Can it be bought within budget?
• Have you the budget to maintain it?
• Have you commissioned and understood your own Surveyors Condition Report?
• Can and should you occasionally improve it to current green standards?
• Can you enlarge it if your space needs increase?
• Is there a price tone ceiling in your district (beyond this improvements may not add any value!)?
• Have you seen and understood the EPC on your potential new home?

• How exposed to frost and prevailing weather patterns is your potential next home?
• Is it within a known flood-plain?
• Does adequate, effective site/surface drainage exist?
• Has it been built upon, or next to, contaminated or filled ground?
• Can you obtain Buildings Insurance and at reasonable premiums without high excess payments?
• Is it traditionally or system built and is that method of construction mortgageable?

Do you need help in fully understanding the answers to the above information? CALL PROINSPECT.

Watch out for PCBs (POLYCHLORINATED BIPHENYLS)

Watch out for Asbestos

Watch out for Lead Paint.

Watch out for …………………..

PCBs are mixtures of up to 209 individual chlorinated organic compounds. Due to their valuable technical qualities (softeners that make sealants easier to apply and extend their durability) they have been used since 1929 and since used as a compound is many forms of insulation within Buildings (as well as being used in coolant systems, grouting and plasticisers in paint).

Since the 1970’s we now know that such PCBs have real Health & Safety risks associated with them: Environmental and Human health risks as they are very difficult to dispose of safely. PCBs have multiple ways of causing long term human health problems – one of the reasons that the Government introduced regulations that don’t allow us to simply take an unwanted refridgerator down to the local Tip.

PCBs will pass straight your skin and fibres will easily be breathed in if they are released into the air.

In Sweden, the use of PCBs was banned in 1972, with minor exceptions. A total prohition was later introduced in 1995. Home owners in Sweden are under a legal duty to audit their homes and decontaminate PCBs in all types of building erected between 1956 and 1973. This means that owners must arrange for inspection and testing using specific reporting templates. Each Buildings’ template should have been submitted to a Supervisory Authority before 30th June 2008 if an Injunction was not to be served on them (to perform that inspection and audit process and/or receive a later Fine).

PCBs in Sweden were used in Building elements such as compounds to seal movement-joints, flooring compounds, window seals and electrical capacitors (including in many fluorescent lights). PCBs are often found is fascade joints, around window and door frames, hidden underneath door thresholds, balcony junction seals, floor finishes/tiles, seals within double glazing units.

Surveyors would typically need to use gloves, protective glasses, breathing–filters etc… and any tools used to expose risk areas/element would have to be cleaned with acetone.

Early surveys revealed that PCBs had contaminated other materials in close contact and remedial works would be more extensive than at first expected.

The decontamination works have a legal deadline phased until 2013.

IN ENGLAND WE HAVE SIMILAR BUILDINGS AND SIMILAR PROBLEMS BUT WE HAVE NOT TAKEN SUCH STRINGENT ACTIONS AS IN SWEDEN.
However, we do take Health & Safety seriously and the following regulate PCBs

• The Health & Safety at Work etc Act 1974
• The Control of Substances Hazardous to Health Regulations 1994
• The Environmental Protection Act 1990

So: how can a House Surveyor help you identify and reduce these risks?

Let me be blunt – a Surveyor undertaking an ordinary home inspection, even a full Building Survey, will not be completing the degree of forensic inspection required to report meaningfully on such issues. PCB building inspections are a very specialist area of expertise, similar to Asbestos or Lead Paint Surveying, and should be arranged as an extra precautionary measure in advance of your property transactions.

In respect of identifying lead paint this is not as easy as you would first think.  Approximately 70% of UK Buildings pre-date 1970 – abt 18.5 million homes and thousands of public, school and workplace buildings – and many will have had lead-based-paint systems at sometime in their history. The problem is that if where all paint has been stripped away much of the lead will have migrated into the sub-strate (often timber) awaiting later dispersal.

In respect of asbestos PROinspect remind you that although some asbestos-containing-materials (ACMs) are “obvious” to visual means of inspection most ACMs are embedded or screened from viewing. This means that detection is a hit-and-miss affair.

Like a lot of surveying, it is the experience of the Surveyor that is the key factor. Don’t expect a Loan Valuer to identify such problems, don’t expect most House Surveyors to identify such issues. Chose your Experts wisely and after due diligence – TALK TO ACTUAL SURVEYORS (not an intermediatory or secretary) TO GET ADVICE.

Regards from Stuart Parrett at PROinspect

And finally …….

1. Knight Frank research suggests 2010 will see house prices, nationally, fall 2%.
2. Planning Application for 800 ECO Homes at Newport, IOW, has been submitted. All heating will be supplied by a Biomass centre.
3. The UK is currently producing enough electricity from wind power to serve 2.3m homes.