U4: T14 - VALUATIONS AND SURVEYS

Question 1

Which type of survey is most likely to be suitable for the following buyers?

a) Cheryl and Dave, who are buying a semi‐detached property dating from the early 20th century in south‐east London?

b) Katya, who is buying a three‐year‐old house on a new development in Peterborough?

c) Dan and Greg, who are buying a thatched cottage in Dorset that is more than 200 years old.

d) Iqbal, who is buying his first home, a 12‐year‐old starter home, and is on a tight budget.

As an adviser, should you recommend a particular survey to any of these buyers?

Answer 1

A) It would be prudent for Cheryl and Dave to invest in a RICS Home Survey Level 3 Report (Building Survey) or a RICS Home Survey Level 2 Report (HomeBuyer Report): their property is quite old and is potentially built on London clay, hence there might be structural issues.

B) Katya’s house is probably still covered by a new‐build guarantee; if this is the case, she could opt for a basic valuation.

c) Dan and Greg’s cottage is old and of non‐standard construction – a RICS Home Survey Level 3 Report (Building Survey) would be a sensible option.

D) Iqbal’s house is relatively new but is probably no longer covered by a guarantee scheme – as he is on a tight budget he could opt for a basic valuation or a RICS Home Survey Level 1 Report (Condition Report).

An adviser should not recommend any particular survey to a customer, as they might be held liable if the property is later found to have defects that a different type of survey might have uncovered.

Question 2

A basic valuation is for the benefit of the lender and is paid for by the lender. True or false?

Answer 2

False: a basic valuation is for the benefit of the lender but it is usually paid for by the borrower.

Question 3

Which form of inspection gives the borrower the highest level of protection against negligence from the person carrying out the inspection?

a) Valuation.
b) RICS Home Survey Level 3.
c) RICS Home Survey Level 2.
d) RICS Home Survey Level 1.

Answer 3

b) RICS Home Survey Level 3 Report.

Question 4

Lenders generally require valuers to specify both the value for lending purposes and the reinstatement value of a property. True or false?

Answer 4

True: the insurance value is often different from both the value for lending purposes and the selling price.

Question 5

Which of the following would be included in both a RICS Home Survey Level 1 and 2 Report?

a) A valuation.
b) Issues that need urgent attention.
c) Advice on how to deal with remedial work.
d) A report on the property’s energy efficiency.

Answer 5

b) Issues that need urgent attention.

Question 6

A RICS Home Survey Level 2 Report is expected to report on the existence and condition of a damp proof course. True or false?

Answer 6

True: the RICS Home Survey Level 2 Report will also report on the state of beams, rafters, etc, and any sign of dry or wet rot, etc.

Question 7

A lender will not proceed with a mortgage application if a survey report indicates that a property has suffered long‐ standing structural movement. True or false?

Answer 7

False: it would depend on whether the movement was progressive. Historical structural movement is not necessarily a reason for not proceeding.

Question 8

A survey shows significant work is required on a property’s roof. The lender is likely to:

a) require an undertaking.
b) impose a retention.
c) insist on additional buildings insurance.
d) require a warranty.

Answer 8

b) The lender is likely to impose a retention if structural repairs are required.

Question 9

Karen has applied for a mortgage on a property which, although structurally sound, is in need of external and internal redecoration. What action is the lender most likely to take?

a) Impose a retention.
b) Refuse to lend.
c) Reduce the mortgage offered.
d) Require an undertaking from Karen.

Answer 9

d) The lender is most likely to require an undertaking from Karen.

Question 10

All new houses have a guarantee of either 10 or 15 years against major defects. True or false?

Answer 10

False: this guarantee exists only if the builder is covered by the NHBC or a similar insurance‐backed scheme.

Question 11

Ben bought a newly built house four years ago and it is covered by the Buildmark scheme. It now requires structural repair as a result of a defect in the construction materials.

Ben is entitled to:
a) require the builder to make good the property.
b) claim under the Buildmark insurance scheme for the full cost of the repair.
c) claim under the Buildmark insurance scheme if the cost of the work is above the minimum claim value.
d) claim a percentage of the repair costs because the cover reduces for each year he has occupied the property.

Answer 11

c) Ben is entitled to claim under the Buildmark insurance scheme if the cost of the work is above the minimum claim value. The builder is only held directly responsible for making repairs within the first two years.

Question 12

A basic valuation report does not include the nominal house valuation. True or false?

Answer 12

True.

It assesses the security and reinstatement value

Question 13

A basic valuation report is a contract between the borrower and valuer. True or false?

Answer 13

False.

It is a contract between the lender and the valuer.

Question 14

RICS Home Survey Level 1 Report is commissioned by the lender. True or false?

Answer 14

False.

It is commissioned by the borrower

Question 15

RICS Home Survey Level 1 Report contains the valuation of the house. True or false?

Answer 15

False.

No valuation is included a traffic light system is given.

Question 16

RICS Home Survey Level 2 Report is commissioned by the borrower. True or false?

Answer 16

True

Question 17

RICS Home Survey Level 2 Report includes both the valuation and reinstatement value. True or false?

Answer 17

True

Question 18

What 3 elements does a basic valuation involve?

Answer 18

Interior, Exterior and comparison.

Noting major defects but not a close inspection

Question 19

It can be claimed that a valuer was negligent if the valuation is off by what %?

Answer 19

5-10%

Question 20

In what 2 circumstances is a claim for negligence likely to be successful?

Answer 20

1) The disclaimer was insufficiently prominent
2) The borrowers were inexperienced

Question 21

CAN ADVISERS RECOMMEND A SPECIFIC T YPE OF SURVEY?

Answer 21

No.

Advisers must not recommend a specific type of survey

Question 22

Is an EPC carried out during a Homebuyers report?

Answer 22

No.

But the details of the existing EPC are included in the report.

Question 23

In addition to that which is included in a RICS Home Survey Level 1, what else is included in Survey Level 2?

Answer 23

1. Valuation
2. Insurance reinstatement figure
3. List of problems/defects that affect property value
4. Repairs/maintenance advice
5. Location, environment and EPC info

Question 24

Define Subsidence.

Answer 24

Subsidence occurs when land below the building drops unevenly, causing it to shift.

Question 25

Define Heave.

Answer 25

Heave occurs when underground forces cause the land below the property to rise unevenly and put upward pressure on the building’s foundations: the opposite of subsidence.

Question 26

Define undertakings.

Answer 26

A formal agreement that the buyer will undertake specific remedial work within a specific period of time after taking possession of the property.

Question 27

Define a retention.

Answer 27

Repairs required by a retention are more extensive and important than those where an undertaking may be acceptable.

The lender will almost always inspect the work before releasing the retained funds.

Question 28

What scheme protects the quality of new builds?

Answer 28

NHBC Scheme.

The National House Building Council provides warranties and insurance protection for new homes in the UK. It works with the building industry to raise standards and improve protection for consumers.

Question 29

Complete this sentence.

The Buildmark scheme provides protection against defects and damage during the first ____ years, where it is caused by the builder’s failure to meet NHBC standards.

Answer 29

two years

Question 30

The contract for a basic valuation is between the:

A) borrower and the lender.
B) lender and the valuer.
C) borrower and the valuer.

Answer 30

B) lender and the valuer.

The contractual relationship for the basic valuation is between the lender and valuer, although the applicant pays any fee charged for the valuation.

Question 31

If a buy-to-let investor takes legal action for negligence against the valuer that carried out a basic valuation, the claim:

A) may succeed if the disclaimer was insufficiently prominent.
B) may succeed if the borrower was inexperienced.
C) is unlikely to succeed.

Answer 31

C) is unlikely to succeed.

Courts have made it clear that buy-to-let investors and business borrowers should be experienced enough to understand the limited nature of a valuation report and arrange their own inspection if they have any concerns.

Question 32

A basic valuation may make a recommendation to lend on a conditional basis. Such conditions would not include a recommendation to:

A) require a retention.
B) require an undertaking.
C) reduce the mortgage loan to value.

Answer 32

C) reduce the mortgage loan to value.

Reducing the loan to value of a mortgage is not something a valuer would recommend. That part of mortgage underwriting is the lender’s responsibility.

Question 33

Which of the following statements is true of a RICS Survey Level 1 Report?

A) It contains all the information of a basic valuation together with comments on any aspects of the property that are dangerous, in need of attention or that need further investigation.
B) It provides an overall picture of the condition of any property, and can be arranged to include a valuation to satisfy the lender’s requirements.
C) It identifies aspects of the property that are dangerous, in need of attention or that need further investigation, and it provides advice, but it does not include a valuation.

Answer 33

C) It identifies aspects of the property that are dangerous, in need of attention or that need further investigation, and it provides advice, but it does not include a valuation.

The RICS Survey Level 1 Report is a more detailed inspection than a basic valuation, and is intended to identify aspects of the property that are dangerous, in need of attention or that need further investigation. It also provides advice for buyers’ solicitors that summarises the key risks associated with purchasing the property. It does not include a valuation.

Question 34

A significant difference between a RICS Survey Level 1 Report and a RICS Level 2 Survey Report is that only the RICS Level 2 Survey Report includes:

A) an energy efficiency assessment.
B) advice on repairs and maintenance.
C) a traffic-light system to rate each part of the property.

Answer 34

B) advice on repairs and maintenance.

Both reports use a traffic-light system to rate parts of the property. Neither report includes an energy efficiency assessment, although the RICS Level 2 Survey Report will include details from an Energy Performance Certificate if an assessment has been carried out. Unlike the RICS Survey Level 1 Report, the RICS Level 2 Survey Report includes advice on repairs to issues identified and ongoing maintenance.

Question 35

Which of the following statements apply to a RICS Level 3 Home Survey Report? Select all that apply.

A) It can include a valuation on request.
B) It is a contract between the lender and the valuer.
C) It is a more detailed assessment of the key elements of the RICS Survey Level 1 Report and RICS Level 2 Survey Report.
D) It provides the highest level of recourse if defects are not identified.
E) The surveyor will not inspect the electrical system or drainage system.
F) The surveyor will lift carpets and inspect the roof space.

Answer 35

A) It can include a valuation on request.
C) It is a more detailed assessment of the key elements of the RICS Survey Level 1 Report and RICS Level 2 Survey Report.
D) It provides the highest level of recourse if defects are not identified.
F) The surveyor will lift carpets and inspect the roof space.

Question 36

Which of the following is most likely to cause subsidence in a property?

A) Removal of nearby trees.
B) Long-term leakage of pipes.
C) Chemical reactions in the soil.

Answer 36

B) Long-term leakage of pipes.

Removal of nearby trees and chemical reactions in the soil are causes of heave.

Question 37

Jackie has been informed that the property she is hoping to buy has a large patch of wet rot in the living room. The rest of the property appears to be in reasonable condition. Her lender is most likely to:

A) require an undertaking.
B) impose a retention.
C) refuse to lend.

Answer 37

B) impose a retention.

As the rest of the property is sound, a retention is the likely response. An undertaking would be appropriate for less extensive, less serious issues.

Question 38

Which of the following is true once an undertaking has been included as a condition by a mortgage lender?

A) There will always be a time limit for work to be done.
B) Completion will always be checked by an inspection.
C) Funds will be held back until the work has been completed.

Answer 38

A) There will always be a time limit for work to be done.

The lender can check completion in a variety of ways, including phone calls, inspection or confirmation from the owner. A retention is where funds are held back until work has been completed.

Question 39

The NHBC Buildmark scheme provides:

A) ten years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards.
B) two years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards.
C) ten years’ insurance for the full cost of damage caused by major structural defects.

Answer 39

B) two years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards.

The Buildmark scheme provides protection against defects and damage during the first two years, where it is caused by the builder’s failure to meet NHBC standards. For the balance of the first ten years the scheme provides insurance for the full costs of damage over a specified amount, known as the minimum claim value (MCV), caused by major defects in the building’s structure.

Question 40

A basic valuation is for the benefit of the lender and is paid for by the lender. True or false?

Answer 40

False: a basic valuation is for the benefit of the lender but it is paid for by the borrower.

Question 41

Which form of inspection gives the borrower the highest level of protection against negligence from the person carrying out the inspection?

A) RICS Level 3 Home Survey Report.
B) RICS Level 2 Survey Report.
C) RICS Survey Level 1 Report.
D) Valuation.

Answer 41

A) RICS Level 3 Home Survey Report.

Question 42

All new houses have a guarantee of either 10 or 15 years against major defects. True or false?

Answer 42

False: this guarantee exists only if the builder is covered by the NHBC or a similar insurance‑backed scheme.

Question 43

Ben bought a newly built house four years ago and it is covered by the Buildmark scheme. It now requires structural repair as a result of a defect in the construction materials. Ben is entitled to:

A) claim under the Buildmark insurance scheme if the cost of the work is above the minimum claim value.
B) claim a percentage of the repair costs because the cover reduces for each year he has occupied the property.
C) require the builder to make good the property.
D) claim under the Buildmark insurance scheme for the full cost of the repair.

Answer 43

Ben is entitled to claim under the Buildmark insurance scheme if the cost of the work is above the minimum claim value. The builder is only held directly responsible for making repairs within the first two years.