Everything you need to know about VALUATIONS.
Everything you need to know about VALUATIONS.
This article is all about valuations. Now if you have got to the point in your property career where you have had a property valuation then that is really great, because by the valuation stage, it means that you are getting really serious about the deal.
If you are working in the property space, then you will at some point face a valuation. He only exception to not have a valuation done is if you are buying entirely with equity debt or your won cash. Apart from that you are nearly guaranteed to come across valuations which is why it is important that you what they are, how they work and how to get the best out of the valuation that you are part of.
What is a valuation?
A valuation is an activity that takes place at the property to establish the value of the property and it is conducted by a RICS valuer. RICS stand for royal institute of chartered surveyors and what happens is they will come out to and have a meeting on your site, take a look at the property and ascertain the value. Now something to mention is that you will have valuations, hen you are buying a property, when you are selling a property and potentially when you are doing the works. This is something called a drawdown valuation. This is where you demonstrate the works that you have done and they are acknowledged, which will often lead to the banks giving you the next part of the money.
The important thing to remember about valuations is that they are a snapshot of the property at that point of time in that market on that particular day. With this in mind, it is important that the valuer is seeing the true reflection of the property, in its best light.
Valuations are something that you want to take quite seriously because by doing so you can reduce the number of hurdles that you will face. For example, if you have arranged a purchase of a property and your bank is lending you 75% of the value and the valuer tells you that its not actually worth what you have agreed to pay then this leads to problems. But as mentioned previously problems like this can be eliminated as part of your due diligence process.
What happens during a valuation?
• Your valuer visit your property and they take a look around
• They then go away and do their own research.
• Finally, they will provide you with a report that explains what your property is worth.
Now depending on what stage you are at in your property, the valuation is likely to be instructed by the bank on your behalf or you will instruct it on the banks behalf depending exactly of how your bank works.
If you are looking at buying a property, the bank will instruct a valuation. Now, depending on what bank you are working with its either going to be an internal valuer that they work with or they will potentially provide you with a panel, which is a list of valuers that you can choose from. Ultimately, you will be footing the bill, so it is your responsibility to choose which valuer you should go with. Bear in mind that going with the cheapest isn’t always the best way to go.
For example, let’s say that you are doing a development in Leeds, and you are given the option for a valuer from London. Its unlikely that they are really going to understand that particular market in Leeds.
One of the first things that you should look for when choosing a valuer is somebody who is from the local area. Another top tip when it comes to deciding which valuer would be the best fit for you, make sure that you looking into their company, their scale and see what it is that they rally specialise in and do. Every valuer will have a different speciality so it is important that you look into and try and find out what there’s is because this could help you get a bet
Something that I have mentioned previously is that when the valuation takes place, it is a snapshot of that property at that particular time, so It could be good practice for you to make sure your property is in the best possible condition that it truly can be.
For example, let’s say you are mortgaging a buy to let property and you currently have tenants in the building, and you walk in and there is rubbish everywhere and it is not tidy. Then this is not a good snapshot that you want to be showing your valuer. Make sure that ahead of the valuation that you have actively made the property look its ultimate best.
Now it really can depend on what you are buying to how you prepare for the valuation. It may be that you are buying a development project and in this case the property will not be looking its best. But in particular if you are going to be looking at buy to let mortgages, refinances or even drawdowns then you must ensure that your sites look good on the day of the valuation.
The next important thing to mention is that when it comes to the day of the valuation, make sure that your are welcoming, kind and friendly because I think that many people have this fear around valuations and valuers which often impacts how they approach the valuation. At the end of the day, the valuer is just a person who is there to do their job, so be confident and comfortable around them. Remember by the time that the valuer has come to look at the site, you have already agreed the price of the property, the bank has already agreed the price of the property and the potential seller has also agreed the price of the property. All the valuer is there to do is to make sure that it all stacks up based on what has already been agreed.
Another top tip to mention is that these valuers are great people to talk and connect with because they have great sites into the industry. They know all sorts about what is going on in your area, so they are really great people to engage with. personally, on e of my favourite things to talk about with valuers is private instruction. If we are talking to them about this and future business then you are putting forward that you are looking to build a long-term relationship with them, which could help and ensure that they are favouring your valuation.
Another important thing to mention when it comes to the day of the valuation is making sure that you are prepared. Now I don’t just mean the property hear, I mean being prepared with information, because it just may be that the particular valuer who has come to your property is particularly business and may accept information from you. Why not be prepared with some sold prices already available in your area that stack up as comparables for your property, then they may just be interested in seeing them. By doing this, you are controlling exactly what valuations you are providing.
For example, lets say you are looking at a rental model, why not turn up in advance with what your rental yield is going to be, how much it will be generating a month, what your running costs are and who the buying entity is . By putting together and having all of this information prepared you will be making the valuers job a little bit easier. I am always talking about adding value and by doing little things like this, you are going to be adding value to the valuer. This will help you to ensure you are setting your relationship of with the best possible start that you can.
Ultimately during the valuations, it is a good idea to try and get the valuers phone number. You never know when you might need them in the future, or you might need to chase them for a report during this stage, you will actually be engaging them. Remember you are a paying client; this means that they are more incentivised to listen to you and work with you.
How much do valuations cost?
When it comes to the cost factor, valuations can be anything from a few hundred pounds to ten thousands of pounds. It generally relates to the value of the property. the reason that it relates to the value of the property and how the cost can get driven up is because valuers have to have an indemnity policy in place that enables them to value.
So, if they value something at X amount, and everything went horribly wrong, then they are ultimately responsible for that repossession journey and they have got to ensure that they have valued it correctly. Its for this reason that they have these indemnity policies in place.
For example, if they are valuing something that is worth multi millions of pounds, the indemnity policy will be more expensive. in conclusion there isn’t a hard and fast for what a valuation will cost you.
Another quick top tip when it comes to valuations is making sure that you are working with the right kind of valuation. This is something that is particularly relevant in the HMO space. So, if you are looking for a HMO valuation that is based around its commercial value rather than its bricks and mortar value, it might be that the banks have instructed the wrong type of valuer.
This is something that I have come across many times. In this space you would need a commercial valuation, meaning that you need a commercial valuer attend the site. This is important because in this case a residential valuer would simple be unable to offer you the type of valuation that you needed. So double check before the point of valuation that you have the right valuer assigned for your needs.
Something to remember about valuations is that it is the valuers obligation to report back to the banks if they think anything is untoward.