14) VALUATIONS AND SURVEYS Flashcards
Why are valuations done by lender and what kind of valuations are available?
Lender requires valuations to get reassurance regarding value of the prop they lending on and the soundness of the prop, in reln to be of suff value to repay the mortg loan
BASIC VALUATION - * contract betn lender and valuer * to assess security and reinstatement value
CONDN REPORT - *commissioned by borrower *traffic lt sys indi condn of prop
*no valuation included
HOMEBUYER REPORT - *commissioned by borrower *ltd in scope *includes valuation and reinstatement value
BUILDING SURVEY - *commissioned by borrower *detailed inspection - shd uncover most problems
What does a basic valuation involve?
Basic valuation is a must by bldg societies, but not by other lenders, even though most carry out one. By professional indep or employee of lender. It involves superficial inspection of
__Interior - by walking ard the prop, noting room sizes and appearance
__Exterior - Looks for obvious defects
-_Comparison - valuer completes valuation by comparing similar prop and calcu reinstatement costs for insu purposes
Lender decides based on this valuation,
- whether to lend at all
- the size of the advance
- the percentage advance (loan-to-value ratio) that should be made available
- insurance value (which is usually lower than the market value)
- the recommended conditions of the advance
What are the typical contents of a valuation report?
Applicant has few rights - contract betn lender and valuer, altho applnt pays valuation fee
Details of prop to be mortgaged
When built, dimensions with sketch,
floor area approx, tenure (term unexpired for leasehold),
valuation for mort purposes and insurance purposes, evidence of subsidence, heave or landslip affecting property or immediate neighbourhood, repairs - essential, minor and major, if recommendation for specialist report, recommendation for undertaking for retention, reinspection,
narrative report on property in valuer’s own words, disclaimer stressing ltd nature of valuation based on superficial inspection, other detailed comments
Can a valuer be sued ?
Can be sued by lender or borrower - if valuation errs by more than 5-10% above/below true value. Claim for negligence is likely to succeed in two circumstances
- _the disclaimer was insufficiently prominent
- _the borrowers were inexperienced – this would typically apply to first-time buyers or those of modest means buying a home
BTL business borrowers/investors shd be experienced enough to understand ltd nature of a valuation report and depend upon their own inspection if they have concerns.
What actions valuer can recommend to a lender?
ACCEPTANCE - prop adeq secu for loan and no problems
REJECTION - prop not suitable and mortg shd be declined
CONDNL RECOMM FOR ACCEPTANCE - prop is good secu but work needs done and undertaking to repair/alterations recommended
LOWER VALUATION - value of prop < purchase price,,,3 outcomes
__purchaser reduces offer to vendor
__purchaser continues on agreed price, funding shortfall met with personal resources
__purchase/sale falls through
What are the reports that a buyer can commission? (Advisers must not recommend a specific type of survey )
the Condition Report;
the HomeBuyer Report; and
the Building Survey
Condn Report - Traffic light sys - contract betn buyer and surveyor - Condn Rep (RICS Survey Level1
- checks basic condon, but not value the prop.- designed for new, conventional prop in reasonable condn - for people w ltd budgets and focuses on
- *the construction and condition of the property;
- *issues that are serious or need urgent attention;
- *issues that require further investigation to prevent further damage;
- *issues that may be dangerous;
- *advice for the buyers’ solicitors with a summary of the key risks associated with purchasing the property – planning, guarantees, building controls, etc
What are the traffic light ratings for Condition Report?
Red - serious defects/problems needing urgent repair, replacement or further investigation
Amber - not considered serious defects that need to be repaired or replaced, but not considered serious and action is not urgent
Green - No apparent defects/repairs reqd
What is a Homebuyer report?
(It is a RICS level 2 survey)
Home Report in Scotland containing
-Single survey - detailed info on condn and value of prop
–Energy Report - Energy efficiency rating and environmental impact due to CO2 emissions
–Property questionnaire - info for buyers, solicitors and surveyors
Between basic valuan and a Building Survey…contract betn applicant and surveyor.
2 versions -
1—Homebuyer Report (Survey and valuation) —- identifies relatively obvious, visible problems. Visual inspection of services (gas, elec, sewers etc), but not safety aspects or specialist tests.
Applicant cannot blame if serious problems arise, but major visible defects will be identified.
Also included professional mkt valuation, insurance reinstatement figure, problems/defects affecting value(dry, wet rot, damp issue, problems relating to roof space, beams etc if it is accessible, and defects in pointing), advice on repairs, maint,
and also info abt location its local environ and energy efficiency
REPORT PRESENTED IN TRAFFIC LIGHT SYSTEM
2—HomeBuyer Report (Survey) same as above but without valuan and reinstatement costs
What is a Building Survey?
is a structural survey (RICS level 3) - thorough and complete by professional surveyor, engr/architect- defects will be discovered, if not applicant can accuse of negligence of duty.
Includes all elements of Homebuyer and Condition reports plus investigation of state of elec sys, drains and alos inves of causes of problems identified. Floor (under carpets), roof space. Will include valuation on request wh may not be accepted by lender.
Some property defects that may affect lending decision
Common problems are
1. Subsidence and 2. Heave
Structural movt either due to poor construction or subsidence, surveyor identifies if defect is longstanding and non-progressive (will not normally affect lending decision) or recent and progressive (may affect lending decision)
Other defects could be untreated woodworm, severe damp, previous removal of chimney breasts, extensions not conforming to bldg regulations and replacement of traditional roof concrete
List varies from lender to lender.
Difference betn undertakings and retentions
Undertakings - Agreement a buyer will undertake to complete specific remedial work within a specific prd of possession of prop - work not vital but will bring prop to an expected average level. Lender may/may not check, but borrower in breach of mortg condns if not fulfilled
Retentions are repairs more serious and extensive, and lender does not release the entire fund before completion of repairs. Lender will almost always inspect before releasing retained funds. eg roof repairs, extensive dry/wet rot etc
What are New-build guarantee schemes?
(NHBC - National House Building Council) provides warranties and insurance protection for new homes in the UK
Schemes to provide buyers of new properties with protection against defects in early years. Guarantee scheme began in 1965 and relaunched in 1988 as Buildmark.
NHBC Buildmark
To join, builders must satisfy certain quality standards and confirm build has been built to NHBC Building Code stds, must allow NHBC to inspect and monitor stds.
Buildmark scheme protects against defects and damage in first 2 years for builder’s failure to meet NHBC stds. First 10 years, also provides insurance to cover full costs of damage over the MCV (minimum claim value), for major defects in building, claim through builder and if not satisfied arbitrate through NHBC. If value below MCV, buyer must bear cost.
Also covers buyer’s losses from exch of contract to completion if they lose their depo or has to pay due to builder’s insolvency/fraud.
PREMIER GUARANTEE - UK home warranty provider set up for developers working on new bldg complexes and conversions, ulti cover by a syndicate at Lloyd’s of London.
Provides ‘defects insu’ in the first 2 yrs and other 8 yrs ‘strl insu prd’. Built to NHBC stds
LABC NEW HOME WARRANTY - is a strl/latent defects warranty to builders of speculatively built residential housing, social housing and completed prop.
Has three periods of cover - bldg prd, defects insu prd and the strl insu prd
Shd be blt to NHBC Code std
(LABC = Local Authority Building Control0
Consumer Code for Home Builders
consumers should
- -be treated fairly
- -know what service levels to expect from builders
- -be given reliable info
- -know how to make a complaint if they are dissatisfied
