Loan Security Valuation (Submission) Flashcards
What is a conflict of interest?
A situation in which an individual’s ability to act in one role is, could be, or is seen to be impaired or otherwise influenced by their involvement in another role or relationship.
You mention here that you followed VPGA 2 in carrying out loan security valuations, what does that state or include?
- Dealing with conflicts of interest
- Reporting procedures
Is there anywhere else where guidance can be found on loan security?
UK supplement
Can you talk me through some of those reporting procedures in VPGA 2?
As well as the minimum requirements of a valuation report:
- Must report if the property is suitable for mortgage purposes
- Any circumstances which the valuer is aware of that could affect price
- Comment on any environmental considerations
- Disclosure of any COI identified or arrangements agreed
- Where a special assumption has been used - any material difference between the report value with and without the special assumption
When carrying out a loan security valuation, what might differ from a normal red book valuation?
- Must report if the property is suitable for mortgage purposes
- Any circumstances which the valuer is aware of that could affect price
- Comment on any environmental considerations
- Disclosure of any COI identified or arrangements agreed
- Where a special assumption has been used - any material difference between the report value with and without the special assumption
Can you talk me through the different types of debt finance?
- Unsecured business loans
- Secured business loans
- Mezzanine finance (senior debt and equity)
- Overdrafts
- Bridging loan
What is debt financing?
Debt financing involves borrowing money from a lender, to inject funds into your business.
Wilbraham Mansions - explain to what a special assumption is?
Assuming something to be true and accepted as fact even though it is not true
Why is it important to check for a conflict of interest before accepting an instruction?
- It’s important to check to ensure fairness, objectivity, and to maintain integrity and to remain impartial
- Ensure that you are upholding RICS ROC and Bribery Act 2010
CHECK
How would you ensure the provision of high-quality valuations?
- By strictly adhering to the standards and guidelines outlined in the ‘Red Book’
- Keeping updated with market conditions
- Undertaking continued professional development
- Conducting thorough property inspections
- Remaining impartial and honest throughout
CHECK
Why is it important for lenders to receive high-quality valuations?
High-quality valuations are important for lenders as they provide a reliable basis for lending decisions and they help lenders identify potential risks.
How would you help lenders make an informed decision about the security of the loan provided?
- Ensure that you state whether the property is suitable for loan purposes
- Outline the strengths and weaknesses of the property
- Detail the market commentary
- Explain the valuation approach adopted + reasoning
- Explain any circumstances of which the valuer is aware could affect price
What is the current Bank of England base rate?
5.25%
In your example of Wilbraham Mansions, why did the Bank ask you for a valuation with a restricted marketing period?
They Bank wanted to understand the value of the property, if their client defaults of repayments. Then the bank would need to sell the property quickly.
In reference to VPGA 2 ‘Valuation of Interests in Secured Lending’, how do you ensure adherence to this application in your valuation?
- Ensure I carry out thorough conflict of interest checks
- Ensure that I include the minimum requirements of the Red Book valuation report but also ensure that include additional information required for a secured lending report e.g. ensure that I inform the client of the suitability of the property for mortgage purposes
Wilbraham Mansions - What was the assumption made during the valuation?
- Assuming full and immediate vacant possession
Wilbraham Mansions - What were the strengths and weakness of the property?
Strengths:
- Located within the sought after central London area of Chelsea/Belgravia border
-Situated within an attractive mansion block, with a resident
porter and lift access
- Good bedroom to bathroom ratio (3:3)
- Finished to a good specification inclusive of high quality kitchen and bathroom fittings
Weaknesses:
- The flat is situated on the less sought after first floor
- No access to additional amenities
Wilbraham Mansions - What was the special assumption made during the valuation?
The special assumption was that the property needed to be valued with a restricted marketing period of 3 months
Wilbraham Mansions - How did you prepare the Terms of Engagement for this valuation?
I prepared it line with VPS 1
Can you talk me through the Wilbraham Mansions valuation?
Checked competence, independence (no conflicts of interests), terms of engagement
Purpose: Loan security
Basis of value: Market Value
Desktop & Statutory Due Diligence checks before inspection
Inspected & measured
Searched, verified, collated comparable evidence & spoke with local agents
Adjusted comps
Reported on Value
Advised client on the Market Value of the property with and without the assumptions and special assumptions
CHECK WITH SERENA
Wilbraham Mansions - How did you establish the Market Value with and without the special assumption?
- I established the Market value of the subject property without the special assumption through comparable evidence and discussions with agents
- For the establishing the market value with the special assumption, I adopted discount of 10% of the Market Value without the special assumption.
- I came to the discount of 10% after having made discussions with a variety of agents about the value of a property alike the subject if it had to be sold in a restricted marketing period of 3 months.
How would you advise a client if a property was subject to a statutory tenancy?
- Value the property with FVP
- Deduct 25%-30% (which is based upon market norms)
Eaton Terrace - What are the main characteristics of a Georgian property?
- Sash windows
- Strong symmetry to the building, as well as the window and door placement
- Balanced interior layout
- Hip roofs, sometimes with dormers
- Grand entrances - often embellished with pediments, arches, and columns
- High ceilings, window headers, and crown moulding
Eaton Terrace - How did the property’s listed status impact on your valuation?
- All the comparable were listed too
- Didn’t really impact the valuation as the comparables were also listed
CHECK!!!!