Loan Security Valuation

Question 1

What section of the Red Book provides guidance on Loan Security Valuation?

Answer 1

VPGA 2

Question 1

Types of Loan Security conflicts?

Answer 1

• Long standing professional relationship with the borrower or owner of the property
• introducing the transaction to the lender for which a fee is payable
• has a financial interest in the asset or borrower
• acting for the owner of the property in a related transaction
• is acting (or has acted) for the borrower on the purchase of the property
• acting on the diposal of the completed development
• recently acted in a market transaction involving the property
• providing development consultancy advise.

Question 2

What difference is there between Loan Sec ToE’s and standard ToE’s?

Answer 2

1. Disclosure of any previous involvement with the property or borrower and any potential future involvement.
2. If valuation undertaken for the borrower/broker and identity of the lender is unknown, state in terms that the valuation may not be suitable for all lenders.

Question 3

How is VPGA 2 set out/what does it include?

Answer 3

1. Reiterates Independence and objectivity.
2. Conflicts of Interest.
3. Taking instructions and disclosures.
4. Bases of Value and Special Assumptions
5. Reporting & Disclosures

Question 4

Give examples of key information required within a Loan Security report?

Answer 4

1. SWOT Analysis
2. Recommendation for secured lending
3. Marketability of the property
4. Potential occupier demand
5. Environmental issues (E.g. Flood risk, contamination)
6. Any recent transactions or provisionally agreed price of the property/land.

Question 5

What section of the UK National Supplement covers secured lending valuations?

Answer 5

UK VPGA 10

Question 6

What important info does UK VPGA 10 provide/sets out?

Answer 6

-panel agreements must be relevant to each instruction and regularly reviewed.

• reports must be solely addressed to the lender (no third party reliance unless stated)
• Valuers need to recognise the limits of their expertise in terms of certain areas of due diligence and should restrict comments to observations of facts.

Question 7

What are the advantages of a SWOT analysis?

Answer 7

• Simple framework to use/ understand.
• Facilitates understanding of strengths and weaknesses.
• Encourages strategic thinking.
• Flexible.

Question 8

What are the disadvantages of SWOT analysis?

Answer 8

• Sometimes oversimplify - focus on key items.
• Pace of change makes it difficult to assess.
• Some data based on assumptions.

Question 9

What are the different sources of risk to lenders?

Answer 9

• Environmental
• Tenure
• Lease terms
• Covenant strength
• Market conditions

Question 10

What do lenders usually look for in a valuation report?

Answer 10

• Lend on MV subject to occupational lease (providing good covenant/ unexpired term/ good spec)
• Use VP if lender is uncertain on covenant strength/ worried may default