How do you know what an asset is worth?
Property advice for brokers and introducers
Securing finance often depends on using property as security, and the valuation of that property asset is crucial. Most banks will get an independent valuation from their approved panel of valuers. Brokers and business introducers supporting their clients’ secured lending deals have an ideal opportunity to help them consider their estimated valuation. Getting this as close to the independent valuation can make all the difference for a speedy and successful outcome.
‘The level of loan will generally be geared on a loan to value (LTV) basis which, before the official valuation, is often based on the estimate provided’, says James Thompson, who is head of London valuation and consultancy at property agency Knight Frank. It’s therefore important to help the client to understand the broad range of factors that can affect a valuation.
It’s also worth considering that a lending valuation may be different from the purchase price. Borrowers should appreciate that the value of what the property or business is worth to them, is not necessarily the same value that will appear in a valuation undertaken for a bank for loan security purposes.
So, what are some of the most important things to keep in mind? Realism is one, according to James. Brokers and business introducers can help clients to understand the broad range of factors that can affect a valuation.
A key way to get the right LTV upfront is for the broker to be aware of any facts, and relevant issues that could be uncovered in the formal evaluation right from the start.
James explains that there are a number of factors that could influence the eventual valuation. For example, 'if there is a redevelopment happening next door, or if there are environmental issues associated with the property, such as a history of flooding. Or perhaps, the property has recently been on the market at a lower figure than the estimate provided'.
‘Apart from extensive analysis and collation of sales evidence, we’ll undertake environmental enquiries, look at planning issues, and – to an extent – we’ll look at neighbouring properties when we provide a valuation to a bank’, explains James. ‘Some of these things may not necessarily influence the valuation of the property, but they could affect its marketability’.
Issues surrounding leaseholds and tenancies can also trip up an application. James says banks will often have lending criteria related to the remaining lease term, so once again, brokers and business introducers need to be sure of the facts. For example, ‘If the lease has 50 years remaining, but an extension has already been applied for, has it actually been settled? If not, the existing security for the bank is the shorter lease, not the suggested longer one’.
Tenancies can also affect a valuation, so it’s important to be crystal clear on the details. For example, a client may say there are 6 months left on a tenancy agreement, but later it may be discovered that there are extension option clauses built into the contract.
The longer it takes for an owner to get into the property, the more of an impact it can have on the valuation – especially if it’s perceived to be an occupied property.
If all of these things are known in advance, before we get in to value, it will ultimately make for a smoother application and a speedier decision for the client’, advises James.
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