Topic 14: Valuations and surveys Flashcards
What is a basic valuation?
A relatively superficial assessment of the security offered by a property for mortgage purposes. It also calculates the reinstatement (insurance) value. Although often paid for by the borrower, the contract is between the lender and the valuer, and the borrower has few rights and little recourse if the assessment is inaccurate or misleading.
What is a Desktop valuation?
A valuation carried out from the valuer’s office, with no physical inspection of the property.
What is a Reinstatement value?
The estimated cost of rebuilding the property if it was destroyed by an insured event. As the land is already owned, the reinstatement value of the building will be lower than the market value.
What is the Royal Institution of Chartered Surveyors (RICS)?
A professional body for qualifications and standards in land, property, infrastructure and construction.
What is a RICS Home Survey Level 1 Report?
Commissioned by the buyer, it is designed for newer properties and looks at the condition of the property, identifies any serious defects and highlights any risks and potential legal issues. It does not contain a valuation or reinstatement value, and does not involve a detailed inspection of the property.
What is a RICS Home Survey Level 2 (Survey and valuation) report?
Commissioned by the buyer, it includes all the elements of the RICS Home Survey Level 1 Report, more general information about the property and the environment, advice on repairs and ongoing maintenance, a market valuation and reinstatement value.
What is a RICS Home Survey Level 2 Report (survey only)?
Commissioned by the buyer, it provides the same information as the RICS Home Survey Level 2 (survey and valuation) Report but without a valuation or reinstatement value.
What is a RICS Home Survey Level 3 Report?
Commissioned by the buyer, this involves a detailed inspection of the property structure, electrical system and drains by a qualified surveyor and a valuation if requested. The nature of the inspection means that the buyer will have a much higher chance of recompense if problems that should have been identified appear later.
What is Subsidence?
Land below the building drops unevenly, causing the building to shift. Most common in buildings on clay soil, and caused by tree roots drying out the soil, leaking drains or pipes, and settlement after excavation.
What is a Heave?
The opposite of subsidence, where underground forces cause the land to rise unevenly. Usually caused by tree removal, clay soil expanding when wet or a chemical reaction in the soil.
What is an Undertaking?
A requirement from the lender that a relatively minor problem with the property must be remedied within a specified timeframe after completion. No funds are held back.
What is Retention?
Some of the agreed mortgage funds are held back by the lender at completion until specified remedial work has been carried out. Usually applies to more serious problems such as roof repairs or serious rot.
What is a New-build guarantee scheme?
Insurance-backed schemes designed to provide buyers of new or professionally converted properties with protection against defects. Typically, all defects caused by the builder failing to meet required standards are covered for the first two years if the builder fails to correct them, and then major defects are covered for a further eight years by the insurance element.
What is the valuation report?
The valuation report forms the basis of the lending decision and will influence the following:
- whether to lend at all;
- the size of the advance;
- the percentage advance (loan‑to‑value ratio) that should be made available;
- reinstatement value (which is usually lower than the market value);
- the recommended conditions of the advance.
CAN ADVISERS RECOMMEND A SPECIFIC TYPE OF SURVEY?
Advisers must not recommend a specific type of survey (such
as a RICS Home Survey Level 2 Report). For instance, if the adviser specifically recommends a RICS Home Survey Level
2 Report and something later comes to light that would have been picked up by a RICS Home Survey Level 3 Report the
adviser may be subject to a claim. However, if the surveyor misses something that should have been covered by the RICS Home Survey Level 2 Report, the adviser will not be liable.
