Loan security valuation - Level 3 Flashcards
What are the key points of the RICS Guidance Note Risk, liability and insurance, 1st edition 2021?
Liability caps - RICS recommends regulated firms use liability caps where legally permissible to ensure fair allocation of risk and reward between members and clients
Third party reliance - make clear in the advice that their advice may only be relied upon by the named client
Terms and conditions - 3 terms that should be considered from a risk perspective in the context of every instruction that a surveyor undertakes: scope of work, basis on which the fee will be calculated and the liability cap
PII - ensuring correct PII cover
What section in the Red Book refers to secured lending?
VPGA 2 - Valuations for secured lending
VPGA 10 (UK Supplement)
What factors affect risk for loan security?
Levels of demand
Age and condition of properties
Investment property - tenant covenant strength and rent
Location
Micro and macro-economic conditions
Alternate use value
When might a property not be suitable for secured lending?
Short leasehold interest
High flood risk
High contamination risk
Structural problems
Property is uninhabitable
What does the Red Book VPGA 2 state about conflicts of interest?
Valuers must declare any potential conflicts of interest - personal or professional - to all relevant parties
What 5 broad areas does VPGA 2 cover?
a. Conflict of interest
b. Taking instructions and disclosures
c. Basis of value
d. Special assumptions
e. Reporting and disclosures
What must you include in a secured lending report in accordance with VPGA 2?
a. Disclosure of any previous involvement or any arrangements agreed for avoiding a conflict of interest
b. Comment on suitability as security
c. Whether any deleterious materials have been noted
d. Comment on any flood risks or historic contamination
e. Past, current or future trends and volatility in the local market
What is a liability cap?
A contractual agreement that a client can only make a claim up to the amount agreed, even if the law would otherwise award a greater sum in damages.
How would a lender recover their loan if things go wrong?
Receivers steps in as middleman between creditor and debtor
They facilitate the payment of the loan through sale, collection etc
Chose the best method of debt recovery
How does PII work for secured lending valuations?
What is contained within a secured lending instruction?
Property
Bank
Bank’s Customer
Loan details (LTV - term)
Red book basis
Timescales
Environmental report
Fee
What is a service level agreement (SLA)?
Agreement defining the level of service you are expectant of
Lays out metrics by which service is measured
Includes remedies or penalties should it not be achieved
What does VPGA2 say about dealing with conflicts?
Must disclose any previous involvement within the last 2 years, with borrower or property
Valuer’s decision whether to accept instruction
Should there be a conflict, arrangements to manage this should be made
What does VPGA2 say about reporting procedure?
Valuer must provide in addition to standard valuation procced
