Bridging Introducer: Valuation issues are here to stay
Issues with a valuation report, firm or surveyor, are not at all new. They are frequently discussed in meetings, round-tables, expos and over pints. But why do we still pull our hair out over them and what can be done to appease the frustrated client?
It is very easy to blame a surveyor when they are unable to value your land/scheme/property at the figure that you and the lender require for the deal to work. Perhaps we, the broker, should carry out more research into the scheme. Focussing on a pound per square foot value is a reasonable barometer for the local area, but there are a number of factors that affect this figure. A busy road, proximity to local authority housing, a south facing garden are all basic points that will affect the value but we can overlook these and others. Instead we blame the surveyor for not thinking commercially or for being overly cautious to protect their PI cover.
Of course, our quick fire blame does not mean that we are always wrong. I have seen reports with valuation figures that simply do not make sense. I have also seen reports that are utterly stupid. One such report stated that the location of the house we were funding was not well serviced amenity wise and transport and access links were limited. This house was two miles away from the M25, under a mile from the train station and had a newly built Waitrose a mile away. As you can imagine, the client and I were not impressed with the report or the implications the ‘poor’ location had on the market value. This was an extreme case, but it demonstrates that mistakes are made and incompetence can be real and costly.
Speaking to brokers and lenders alike there is a general acceptance that, when dealing with a purchase, the valuation will come in at or just under the purchase price. No matter how well you can demonstrate and support a higher value, it shows that something is only as valuable as someone else is willing to pay for it.
Based on this belief that seems more fact with each and every report I see, why are the valuation reports necessary? I understand PI cover and the need for someone to go after financially if the property sells for say, £1m under the GDV value. Is this a fair fall-back position though, given that the lender is unlikely to be geared so highly that the surveyor got the valuation figure so wrong that it could bankrupt the lender? Let’s not forget that the majority of deals also have a Personal Guarantee from the borrower also.
Given the security and recourse the lenders position is incredibly strong it would appear. Without digressing too much, although the valuation is a pre-requisite it can often appear to be little more than a guide to lending rather than an all singing all dancing report that tells the lender exactly how much the land/house/unit is worth or will be worth.
Truth be told, and although you can probably feel my frustration in the previous paragraph, I do understand the need and benefit of these reports. The surveyors have spent a long time qualifying and I have built up a lot of good relationships with a handful in the industry.
I would even go as far as to say that some are friends. In my opinion the key, like in life generally, is to manage expectations and justify results. There is nothing more infuriating than being on site with the surveyor who is extremely positive and tells you and or the client that he can’t see an issue with the assumed value. Allowing you to progress confidently, only for the valuer to down value considerably for no apparent reason. Obviously there are points that crop up when the report is being finalised, perhaps Japanese Knotweed has been present or possibly bats. However, not being well serviced when you are a five minute walk from a major supermarket is not acceptable.
In summary valuation reports can be frustrating, but they are necessary and we must accept that. What we can do as brokers is manage the clients expectations by doing our own research prior to the valuation inspection and make sure that we build a rapport with the surveying firm. For me, being able to have a frank conversation with the surveyor is very important and I am glad that I have built decent relationships with some of the best in the industry.
They do not always tell me what I want to hear, but at least they justify and back up their figures and findings. Communication is key and until the main lenders that we work with do away with valuation reports (which will never happen) one of my big focusses will remain on managing relationships with the key valuation firms in the market. Without them, we will not get any deals done.