Unit 4:14 Valuations and Surveys

Question 1

Survey Types

Answer 1

• Basic Valuation: Simple property assessment for lender (no detailed inspection)
• RICS Home Survey Level 1: Basic overview of property condition using “traffic light” system
• RICS Home Survey Level 2: More detailed inspection identifying significant issues
• RICS Home Survey Level 3: Comprehensive structural survey with valuation and repair advice

Question 2

Basic Valuation (Lender Valuation)

Answer 2

• Quick and simple assessment for lender’s security
• Not focused on property condition but on value (quick check of rooms sizes and exterior for obvious defects)
• Works for the lender, not the buyer
• All about making property safe for lender’s money

Question 3

Desktop Valuation:

Answer 3

• Valuer conducts assessment remotely using computer data without visiting property
• Relies on historical data, previous valuations, and local market information
• Limitations include potential to miss crucial details about property condition
• Best suited for standard properties, remortgages, or recently inspected properties
• Quicker and cheaper than physical valuations, but higher risk for unique properties

Question 4

Retention:

Answer 4

• Lender withholds part of the mortgage loan until specific repairs are completed
• Requires evidence that work has been carried out to satisfactory standard
• Common for properties with significant defects identified in valuation
• Protects lender’s security until property meets acceptable condition

Question 5

The Valuation Report:

Answer 5

• Lending Decisions: Determines if lender will approve the mortgage application
• Cash Flow: Indicates how much can be advanced against the property
• Risk Check: Assesses loan-to-value ratio (property value vs. loan amount)
• Insurance Insight: Notes rebuilding cost (typically less than market value)
• Conditions Countdown: Lists any conditions or required repairs for approval

Question 6

Lower Value Dilemma:

Answer 6

• Scenario 1: Buyer negotiates a lower price with seller based on valuation
• Scenario 2: Buyer proceeds at agreed price but uses personal funds to cover shortfall
• Scenario 3: Transaction collapses as buyer cannot proceed with lower valuation

Question 7

RICS Level 1 (Home Survey):

Answer 7

• Visual inspection of property condition
• Uses traffic light system to highlight issues
• No moving furniture or lifting carpets
• Good for newer properties without expected issues
• Basic overview but won’t detect hidden issues
• Cost: £300-£900

Question 8

RICS Level 1 (Home Survey) IN SHORT:

Answer 8

1. General Condition
2. Anything considered Dangerous
3. Anything That Might Need Further Attention
4. Key Risks for Solicitors

Question 9

RICS Level 2 (Home Survey Only):

Answer 9

• More detailed inspection identifying significant issues
• Suited for older homes with likely issues
• No structural investigation or professional valuation
• Best for conventional properties in reasonable condition
• May examine damp, dry rot and internal roof issues (access dependent)
• Energy Performance Certificate (EPC)
• Cost: £400-£1,000 depending on property size

Question 10

RICS Level 2 (Survey & Valuation)

Answer 10

• Detailed inspection plus professional valuation
• Identifies visible problems requiring attention
• Includes market valuation and insurance rebuilding cost
• Medium-level detail without extensive investigations
• Energy Performance Certificate (EPC)
• Good for standard properties in reasonable condition
• May examine damp, dry rot and internal roof issues (access dependent)
• Cost: £400-£1,000 depending on property size

Question 11

RICS Level 3 (Full Structural Survey):

Answer 11

• Comprehensive inspection of all accessible elements
• (including electric, drainage, will life carpets and roof space)
• In-depth analysis of structure and condition by Professional Surveyor
• Detailed advice on repairs, maintenance and defects
• Best for older, unusual properties or planned renovations
• Examines potential problems and future maintenance issues
• Cost: £600-£1,500+ depending on size and complexity
• Most thorough survey available for residential property

Question 12

Major Property Defects:

Answer 12

1. Structural Problems:
   
   • Structural cracks/movement
   • Subsidence issues (ground going down)
   • Heave (ground swelling)
2. Common Significant Defects:
   
   • Untreated woodworm infestation
   • Damp issues causing internal damage
   • Previous chimney breast removal without proper support
   • Unauthorized extensions without building regulations approval
   • Inappropriate roof coverings (concrete replacing traditional materials)
3. Lender Response:
   
   • May impose undertakings or retention on mortgage
   • 3-6 months, lender check up
   • Might require repairs before full funds release
   • Could affect property valuation and mortgage amount

Question 13

New-Build Guarantee Schemes

Answer 13

• NHBC (National House Building Council): Original guarantee scheme operating since 1965
• Provides 10-year warranty coverage for structural defects in new homes
• Preferred by lenders - may require warranty if builder isn’t NHBC registered
• Architect certification requires professional standards and £1m+ insurance cover
• The Consumer Code for Home Builders

Question 14

NHBC

Answer 14

• Provides 10-year structural defect protection for new homes (years 3-10 for major defects)
• Defects in first 2 years on the builder, NHBC will step in if builder doesn’t
• Includes Minimum Claim Value (MCV) - first £2,000 (approx) of repair costs paid by homeowner
• There is also a claims cap
• NHBC handles claims above MCV, organizing repairs for severe damage

Question 15

Subsidence causes

Answer 15

• Soil Type – Clay shrinks when dry,
• Tree Roots – Trees absorb water, causing soil shrinkage.
• Leaks & Drainage – Water leaks weaken or wash away soil
• Mining & Excavation –Underground voids cause sinking.
• Organic Material – Peat or similar materials decompose, reducing soil volume.
• Heavy Construction – Vibrations and digging weaken the ground.
• Groundwater Changes – Water level shifts can cause soil movement

Question 16

Heave causes

Answer 16

• Clay Soil Expansion – Clay absorbs water and swells.
• Tree Removal – Less water absorption causes soil to swell.
• Water Leaks – Excess moisture makes soil expand.
• Frost Heave – Water in soil freezes and expands.
• Underground Changes – Collapsing voids push soil upward.

Question 17

Mortgage Exit Fees

Answer 17

• Deed release fee
• Land Registry charges
• Reasonable proportion of general overheads