We were continually receiving reports that did not give any basis for the valuation figures given. Often the condition of the property was not fully explained and the comparables were very poor, i.e. valuation figures based upon other supposedly similar properties that were either not in the same locality, no property sizes were given nor was it clear how long ago they were sold.
How is a lender supposed to compare properties without this vital information? As a result, some valuations were out by as much as 20% to 30%. Where there are lenders who base their lending solely on a valuation report, who are not in a position to know what is missing, this is a real worry – and a threat to that lender’s book.
The problem was that, many of the valuation reports appeared not to be carried out by valuers experienced enough to value the subject property. Either that or they did not have the local knowledge required or appeared unable to complete a residual valuation.
We also found valuations based on comparable properties which may not have any bearing on the particular property we were looking to lend against. The problem is that with a short-term loan, many properties are not in their finished condition as sometimes they need refurbishment or they are in an unusual location.
‘Not worth the paper they were written on’
To confirm whether the valuations were as inaccurate as we believed, we used valuation audit company VAS, to review a sample. As suspected, we discovered many of the valuations we had been provided with were just not the worth the paper they were written on. They either had errors in, were based on generic not specific information, or the assumptions made by the valuer were nowhere near accurate. As a result we now have all of our valuation reports audited.
We also started using VAS Panel for our surveys as they find the most qualified surveyors around the country. They are not just a middle man to instruct a valuation report but are Royal Institute of Chartered Surveyors (RICS) qualified valuers themselves so they audit each valuer on their panel as well as individually auditing each valuation report for inaccuracies.
They will not release a valuation report to us until they are happy that it is factually correct and suitable for purpose. We haven’t seen this service from anyone else. This cuts down the time wasted on valuation reports that are not fit for purpose.
You get what you pay for
To get a qualified surveyor who actually knows the area and goes to look at the property does cost more – and it’s more again to have each of these surveys audited by an independent valuer – but this accuracy is one of the most crucial parts of any due diligence. Arguably it is the most important part to get right – and the bigger the role the valuation report plays in the lending decision, the more important it is to get it right.
Ultimately it may cost more, but this is nothing when compared to the cost of the borrower being unable to repay their loan because the valuation report was so poor it is unusable. The last thing any lender or borrower wants is to find they cannot sell the property for the amount it was valued at.
While under-valuations are a pain, wildly inaccurate or over-valued properties are a downright risk to both lender and borrower.
