Posts Tagged ‘Valuation Report’

If you have ever had a UK mortgage you will know that often, but not always, you get a copy of a Valuation Report. This report is NOT a survey and never has been. So, what is the status of the Valuation and can you rely upon it?

Let us start with the definition of Value? An assessment of what the general marketplace would bring forward and offer for the purchase of a home. It assumes certain things – that reasonable marketing has already been completed and reflects the state of the market prior to valuation.

Unless the basis needs to be different for a specific stated reason then the general valuation methodology is as follows:-

Analysis the market for similar homes – similar in terms of location, size, construction, accommodation, materials and design plus condition. Rippling out from an epicentre (the location of the home) you then look for nearest match actual sales or the asking prices of homes not sold but are on the market and available to buy. Furthermore, an analysis must be made of  selling prices of similar homes that have sold over the last six months or so. When all this has been done then the data is used to assess the subject home making allowances, both negative and positive, for each material difference.

This comparison method is an imprecise science. Indeed I would describe residential valuations as an art and not a science. When politics, Bank protectionism and potential rogue factors such as Valuer age and brought into the equation it is not at all surprising that the very large majority of UK residents remain confused over what is a survey, what is a valuation and what do I need if I am buying.

Some of the below listed factors can be both helpful or troublesome in any individual case as often we need to be protected from our ignorance. However, I for one believe that the Valuation Industry has fallen well short of educating the public on what a simple Valuation is.

So where does confusion set in?

(1) It is not a survey. No home Valuation can be termed a survey. A Survey is a detailed assessment of the risks affecting, and the condition of a home based upon a reasonably comprehensive inspection of all the component parts of the structure.

(2) No bid from a special purchaser can be reflected as this would be a special case and not general market value.

(3) It assumes that both seller and potential buyer act knowledgeably and prudently. However, this is not my own experience of over 35 years of acting for sellers and buyers.

(4) Special rules can apply. For example – if the home to be valued is brand new it is nowadays determined that the loan worth of a new home is based upon its value as if the home was second-hand (not new). It is the same principal as buying a car – in theory once purchased the car is not new and is instantly worth less.

(5) Many Developers (selling brand new homes) provide incentives for you to buy their products. Discounted this month! Cash-Back deals! Carpets and Curtains included this month! No mortgage payments for a year! No Fees purchase! You know the sort of thing. The Valuer must have knowledge of such matters and ignore the time limited benefit of such incentives. This means a possible down-valuation of the property is about to land on your doorstep. This is standard UK Home Valuation policy and procedure.

(6) Another theoretical problem is that the Loan Valuer is valuing for loan purposes: he is not valuing for YOU. This may seem rather a strange thing to say but if I bought a home and asked a Valuer his opinion of “value to me” he would ask me why I am buying. I might say that the home is next door to my parents house and it has special value to me. In this example I might be prepared to pay a premium, something extra to market value. Such a definition would be termed “special value to me” and is not market value.

(7) Market trend analysis problems. A Loan Valuation is prepared by a Valuer acting for a Loan Company assessing the worth of the property for loan purposes. If the Loan Company knows, fact or perception it does not matter, that values are about to fall, then Employer instructions to that Valuer would be to be cautious: perhaps even to down-value most cases in order to ensure customers do not go into negative-equity and perhaps be at risk of defaulting on the mortgage. By this method the Bank is protecting itself from its customers and such business methods are a potent resource it is armoury. These market and company pressures can get out of balance. The worldwide credit-crunch showed us the power of perception and protectionism by Banks and Finance Houses. The customer always came second to Bank profits.

(8) In theory you could get differing opinions of value, based on the same assessment methods (see later comments), depending on whether your Valuer is a Mortgage Company Valuer or your own employed Valuer (as well as whether your home is brand new or second-hand).

Indeed such Loan Company policies can, collectively, actually influence market value. Lets assume you own a non-standard home form with very few similar houses like it. The demand for your home may be quite restricted if loan finance is in short supply. All it would take is for the Loan Companies to come together and agree to not lend above, say 50 per cent of valuation, or if your Flat is over the lower five storeys in a block, if your home is constructed in a certain way, etc….

These types of thing have happened in the past. Financial Regulators have failed to stem the tide of Bank Power and must accept some element of blame for the consequence – Credit Crunch.

Summary? What do we need to remember in this less-than-transparent world?

• A Valuation is not a survey.
• Some Valuations will assume things different to your own circumstances.
• Loan Company Valuation policies may adversely affect the Valuation by hamstringing the Valuer.
• Never assume that because a Bank will lend to you that the property must be in good condition.
• Where a valuation variation/discretion may be exercised nearly every time that discretion will not be in your favour (it will be in favour of the Banks).

One final thought . A scenario has been highlighted to me by various hits upon my own website (worried buyers or home owners) and by my experiences with preparing Expert Witness reports for Court work. The average age of a residential Valuer is very high in some countries. I do not know the statistic but would guess that it is around the 58 to 60 years old level in England. This means that many residential Valuers are nearing retirement age. As such, it is alleged, they do not want to adversely affect their pension or employment status-quo. This, allegedly translates to over-cautious valuations, often very significantly below market sustainable values therefore limiting the loan available to you and damaging the demand for that type of property.

Just to complicate matters further the UK Valuation industry is about to let loose a new form of Valuer – somebody who analyses market data and says that the value could be between X and Y. Plus, some loan valuations are to be produced by automated means, a further extension of market data analysis rather than an assessment based upon a human actually inspecting a property. These matters will further confuse us as we come out of the current UK General Election and Economic downturn but I will not analyse these matters here (another day, another article and another Valuation!).

Is it worth surveying a brand new home?

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I complete many surveys for Building Companies; Part Exchange cases mainly. Often I am asked by a home owner “Should I have a survey on a brand new home? Would it be worth it?”.

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This is one of the hardest questions to answer. Yes? No? Maybe?

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The way I handle such a question is to first ask why they are asking – often a clue develops in that conversation. Others handle this differently and I so-called SNAGGING REPORTS that say that a door is non-compliant due to some obscure Regulation breach and that it has a small scratch by one hinge etc….

Has a solicitor advised a report? Has what I have been doing in their own/current second-hand (old) home frightened them into action? Have they been watching too much TV? Have they had a Lender Valuation report copy and something has upset them?

Often potential purchasers see the Environmental Report and are frighten so much that they google Surveyors and ring to get free advice on that report – this is common.

Sometimes purchasers see something closeby to their new home, eg: an electrical sub-station, and ask if they could get cancer if they moved in – I am not joking!

Sometimes purchasers see that the local sub-soils are predominantly of shrinkable clay and ask me to complete a full Building Survey (on a new home) to ensure them that subsidence is not affecting their potential purchase.

I suppose that what drives many of these types of comment is the fact that purchasers often feel out of their depth: they need and seek re-assurance and asking for the most expensive form of survey fulfills that inner need.

In some cases they ask for a full building survey but when I ask if they also require a market valuation they say “no – I have had a Lenders Report and they say the price is ok”, or they say “I don’t need a Rebuild Cost Assessment because I have insured it for the purchase price”! Rational?

So, how do I answer this question – Is a new home survey really worth it?

First – discover why they are asking. What drives the request? MOTIVATION?

Second – ask what type of home it is and where it is; what is its value? QUALITY? SCALE?

Third – ask at what stage of construction is it at? PRACTICALITIES?

My answer then falls into place.

If it is part built then I report that to ensure a good build-quality they could employ me to check, weekly, during the remaining build-period and to then snag and de-snag the final structure. Obviously this is expensive but would deliver the best build quality and finish possible.

I often refer to the fact that defects often need time to manifest themselves: a missing internal door lintel may not show any distress until months or even years later. A survey after snagging would probably not reveal that problem or risk. This is not negligence.

Is performance of a snagging list the best form of survey? I have seen “specialist contractor” snagging reports and they stagger me. They have merit but are usually filled up with comments such as “the top edge of the bedroom door is not finished in accordance with the British Internal Joinery Association Code of Practice No XYZ/123 and the fire-stop is 1mm too narrow to door head corner area etc….

The surveyor may be right in making such comments but the effect of his/her remarks is generally inconsequential in terms of reduced/increased fire risks. The fact is that if you buy a new car, it is not perfect and it will de-value immediately. The same is true of housing.

We are rapidly becoming American’ised and expect perfection and he-who-shouts-loudest often can succeed in getting works done because of such snagging reports. The “reasonableness test” of whether something not right is actually “wrong” is a moving target depending on circumstances:-

Referring to a part of the building element –

• Does it fulfill its designed performance?
• Has it been installed/built correctly?
• Will it be liable to age more rapidly?
• Does it look reasonable?
• Is it safe?
• Can it be repaired without disproportionate cost?
• Does the problem affect value or saleability? Etc…….

A case can be made to say that some “defects” do not need to be rectified. All things are in a state of imperfection and so why change them? A reason must exist.

My own approach is one of common-sense: is a repair needed? My thought processes will be influenced by the calibre and quality of the building, its weather exposure and if a problem affects value and saleability. My actions on site should not reflect the whims of my client.

“Do you need a survey” also depends on the reputation of the Developer: if they have a good after-sales regime then you can expect to rely upon that service, as well as the limited cover provided by the NHBC 10 or 15 year insurance policy on the home.

So – is a new home survey worth it? Well, yes. Yes, but the type of inspection(s) or report are open to opinion and that is determined by budgetary constraints and personal attitudes. Some clients say “as detailed as possible so I can screw the builder, please”.

So, I DO FIND IT DIFFICULT TO ANSWER THIS QUESTION. I do not like to see clients pay good fee money for less-than-practical-reports and so a certain definition of terms is always needed so I can define the right survey product for any particular client. Any mis-match of expectations will inevitably result in hassle for all parties concerned.

Once (years ago) a repeat client of mine asked for a “full survey” on a new home: when I began my questioning it transpired that the client had a very inflated opinion of the quality of her purchase and the builders ability to set right all faults. In that particular instance I decided to not quote or act for the client. Ducking out? Perhaps I did, but perhaps somebody else didn’t and I hope the client got what she wanted but, to remain professional, I do not report “to order”.

I consider the above a truly professional stance; others may say differently but I like to think my stance is both modern and appropriate to today. I would like to hear others’ views on this conundrum – got a view?

At the end of the day do you think it is wise to spend a massive sum and not take true, independent opinion on whether faults or defects exist? Talk to me BEFORE you let anybody else convince  you otherwise. Stuart Parrett +44 (0)1489 896 174 or use the CONTACT FORM above.

1- Do I need a Surveyor?

BUYING – Chances are that the home you are buying is OK. What if it isn’t? Do you carry the risk? Would the value of the house be lower with significant defects? We would be insured against serious matters, wouldn’t we?

Is the message becoming clear? Why accept risk when you don’t have to? Any defect, minor or serious, is not an insurable peril if it existed when you bought your home (Insurers call these matters “pre-existing-defects”).

Also remember – don’t be fooled into thinking that just because your Loan Company have advanced a large sum means that the premises are free of defects. A Valuation Report IS NOT A SURVEY and in an increasing number of cases such Valuations are produced without inspecting the premises.

So – do you need a Surveyor? The answer is a resounding YES, you do.

SELLING – Increasingly the wise home owner, but only those who can afford this benefit as it is not essential, is choosing to commission a Seller Survey. This is something new but it can be relied upon by Loan Companies and Purchasers (either could sue the Surveyor even though the report was commissioned and paid for by the seller).

Why would a Seller want such a survey? To prove there is nothing wrong or to say, yes we do have condition issues but the report quantifies them and are Asking Price has been set accordingly (thus limiting the negotiation time and angles that otherwise cut in later in the disposal transaction period).

IMPROVING – Thinking of having Conservatory or new windows or a loft conversion? STOP and THINK.

Will that money actually add value to your home? Not all improvements add value. Do you need a Valuers opinion?

If you have just had such works completed do you realise that you may have forgotten something else? You have just created additional costs should your home have to be rebuilt for whatever reason. Did you increase the sum of money that represents the ceiling sum within your Buildings Insurance policy? Do you know how to calculate the rebuild cost of your home?

Surveyors/Valuers are needed at almost any stage of any project to do with housing.

QU – What factors combine to increase the risk of defects at residential properties?

ANS – Age: certain forms of construction: the degree of DIY completed: the type of sub-soil the home is built on (clays being the worst): is the home under threat from flooding?: lack of past maintenance: certain ages of home have certain defects “built in”: the quality of alterations and extensions: weather exposure: the list be long………..

QU – I can do what a Surveyor does; it’s easy. Why bother with using a Surveyor?

ANS – Our standard answer revolves around – anyone can see if the paintwork is peeling, if the roof has a hole in it, if the walls are cracked or not, etc…. But, consider this …… could you recognise the difference between subsidence, settlement and heave? …… could you recognise the difference between wet rot and dry rot and know the implications of that distinction? …… if the roof contours were straight could you still recognise when a roof frame is under serious stress? …… could you diagnose cavity-wall-tie-corrosion problems? …… before you went to the house would you know if it was in a district that suffers from defects such as Mundic, Radon Gas, Black Ash, Subsidence, Flooding and other serious problems?

2-         When do I need a Surveyor?

This is a more tricky question.

Sometimes it all depends on cost – if you are buying a Leasehold home/flat the legal and other researches needed are much more costly in which case it can make sense to commission all those matters first and leave the survey until later in the transaction.

However, in most cases it is wise the consider appointing a private surveyor as soon as possible after having your bid approved by the seller.

Private surveys will focus on the negative about the property and discuss the defects and their effect on saleability and value. Are these matters you would necessarily want your Loan Company to know about? Why then would you consider using the Loan Valuer for a simultaneous private survey? It just doesn’t make any sense.

Always commission a separate Loan Valuation and Private Survey.

In some cases the Loan Company Valuation report or researches will state that signs of a defect were noted or that the home is at high risk of ………… In these cases we would suggest you contact PROinspect immediate and talk through your worries. It is possible we can give you the re-assurance you need to move forward; if we cannot then we should be able to suggest a Survey Product designed to provide exactly what you want OR refer you to another professional who will be able to help you specifically.

Don’t forget your Surveyor after you have moved in. Many times during your occupation you may need a chat before you commit to a course of action that if you get it wrong may later rebound to haunt you —

• I live in an exposed coastal position. Is cavity wall insulation a good idea?
• Will converting the garage into a dining room add value to the home?
• After the snow of New Year 2010 I noticed a bow to my main roof – can you check it out?
• We had XXXXX works completed but are not happy with some elements of the finish and need your opinion?
• We are getting mould and condensation. Can you help us?
• We have had an extension done and now need to increase our Home Insurance to reflect that work. Can you calculate the right sum for us?

And finally…. when you come to selling your home you nowadays have the option to commission a Sellers Survey to prove your homes’ condition. Any buyer can rely on that report and either seller or buyer could sue us if we have got something seriously wrong. In England we are not used to such a Survey Product but in the difficult times we now live in this is something that should be at least considered before you instruct an Estate Agent.

3 – What Survey Product will I need?

1, 2 or 3 or something else?

First of all do completely forget what any other professional adviser has mentioned to you. How many times have we heard customers tell us what “the man in the pub” told them they should ask for.

If you need property advice about surveys who is the right person to take a brief from? Your Solicitor? The Estate Agent? Your Neighbour? NO – tell the Surveyor what your needs are and he/she will recommend the right product that will deliver the re-assurance you need to move forward.

In industry jargon there are only three basic types of property inspection – the higher the number the higher the complexity, fee cost,

• LEVEL 1 Any brief inspection that is not a survey. All Valuations are at this level.
• LEVEL 2 Defined/Limited/Economy surveys or inspections. The most popular forms of Home Surveys are at this level. Included here are Specific Defect Surveys and diagnostic viewings.
• LEVEL 3 These inspections carry the higher fee costs, the surveyor accepts much higher levels of liability to you, the survey products are in much greater details, extras can be added to tailor the final product to your exact needs and budget. Building Surveys and Expert Witness Reports fall into this category.

Level 2 Reports are by far the most popular in the UK and the one Report Product that is head-and-Shoulders above the rest is the Royal Institution of Chartered Surveyors Homebuyer Report (the HBR). It becomes highly important that potential customers discuss their needs direct with a Surveyor BEFORE they issue an instruction. This ensures that the Survey Product obtained is both relevant and focussed to that clients need and budget.

To list a few Level 2 products will make our meaning clearer:-

1. Royal Institution of Chartered Surveyors Homebuyer Report (the HBR).
2. SAVA Home Condition Report
3. SAVA Home Condition Survey
4. PROinspect Landlords Property Report
5. Thermal Imaging diagnostic reports for leakages and condensation
6. Schedule of Condition (usually with a high element of photography)
7. Schedule of Dilapidation.
8. Specific Defect Report.
9. Pre section 35 (CPR) Expert Witness Report.
10. Boundary and/or Contractor dispute opinion Report.