Loan Security Valuation

Question 1

What types of property are valued for secured lending purposes?

Answer 1

Owner Occupied
Property that is or will be held as an investment
Property that is fully equipped as a trading entity and valued with regard to trading potential
Property subject to development or refurbishment

Question 2

The VPGA deals with which four matters in the context of secured lending?

Answer 2

• Taking instructions and disclosures
• Independence, objectivity and conflicts of interest
• Basis of value & special assumptions
• Reporting and disclosures

Question 3

What does VPGA regard as conflict?

Answer 3

Any previous, current or anticipated involvement with the prospective borrower must be disclosed to the lender.

Previous involvement is usually described as being with the past two years.

Question 4

What should the valuer do?

Answer 4

It is clearly stated that it is for the valuer to decide if to accept an instruction and must have regard to the RICS Rules of Conduct

If the instruction is accepted where material involvement has been disclosed, the valuer may be required to justify the decision to the RICS

Question 5

Example of potential conflict

Answer 5

• Having a longstanding relationship with prospective borrower
• When the valuer will gain a fee from intro’ing the transaction to the lender
• If there is a financial interest property holding prospective borrower

Question 6

What circumstances arise in valuations for secured lending where special assumptions may be appropriate?

Answer 6

• planning consent has been granted for the development of property
• there has been a physical change to the property such as new construction or refurbishment
• a new letting on given terms, or settlement of a rent review at a specific rent has been completed
• there is a special purchaser which include the borrower
• a constraint preventing property to be bought
• a new economic or environmental designation has taken effect

Question 7

What are the important considerations for secured lending valuations

Answer 7

• the property’s location, condition and quality
• whether there is any demand/supply in the area for your specific property
• what the current market conditions in the area are like
• how much income is derived from the property
• are the tenants reliable
• is there potential and demand for alternative use
• is there disrepair, or any harmful and deleterious materials
• what is the environmental or economic designation
• are there any environmental issues such as flood risk potential or historic contamination
• what are the past, current and future trends and economic volatility in the local market
• the current marketability of the interest and where it is likely to be sustainable over a loan
• details of any significant comparable transactions relied upon and the relevance of these transactions