Property Valuation Guidelines

Each lender lends against different values which is not always declared by the lender and our guide below talk about some of the common areas.

We pride our selves on understanding the methodology that our lenders are asking the surveyors to the apply to the valuation reports.

Commercial Valuation

Open Market Value:

  • The valuation of the property sold on the open market in a reasonable time frame.
  • For investment when let to a strong tenant(s) a premium is added for the length of lease without break and the quality of tenant i.e. Tesco on 15 year lease.
  • For multi let units the surveyor will look at the blended average age of the remaining lease lengths, the quality of the tenants and how much each tenant accounts for the rent to determine any premium above the vacant possession value.
  • The value will be based on similar investments on a yield basis and the sales value pounds per square foot.

Vacant Possession Value:

  • The value of the property vacant.
  • Surveyors will value against the comparable market rent on a yield basis and sold comparable on a pound per square foot basis.
  • The value may be further reduced if there are any incentives required to let the property together with how long it would take to let to a new tenant. 

Residential Valuation

Market Value:

  • The value of the property in the open market with no time restrictions to sell the property.
  • The value will be based on similar unit sales nearby and rental comparable for buy to let.
  • New homes often have a premium which some lenders won’t use. 

Investment Value:  

  • The investment value is based on similar units sold as investments on a yield basis (the annual rent divided by a percentage according to comparable investment properties). 
  • This is typically used for blocks of flats, multiple properties on one title and C4 sue generis HMOs.
  • Some lenders will request the surveyor considers a discount for sale to a investor when lending on these types of investments.
  • Small C3 HMOs and C4 HMOs in an article 4 area can be considered on the investment value. To be considered as investments they property needs to have been materially been converted into an investment i.e. it would cost considerable funds to convert back to a house and ideally have investments sales comparable nearby to support that there is investor demand. 

Trading Business

Open Market Value (MV1):

  • This is the value of the property sold in the open market with the benefit of at least 3 years trading accounts and together with any good will associated with the brand. 

Open Market Value Closed (MV2):

  • This is the value of the property sold in the open market however the business has been closed or there are no available accounts.
  • The surveyor will work off projections and what they believe to be the fair maintainable trade levels.
  • This type of survey is typically used buy an existing business buying another trading property where they have experience of owning and managing similar assets i.e. a hotel etc.  

Vacant Possession/Closed Value (MV3):

  • The value of the property closed with no trading accounts. 

Development Finance

Residual Land Value (RLV):

  • This is the value of the land that a developer would pay for the site.
  • This is usually based on all costs including finance costs where the profit typically exceeds 20% and down to 15% on large developments.
  • For smaller sites the value is often worked back to a profit value in preference to a specific percentage. 

Residual Value (RV):

  • This is the same as the above however used for part completed schemes.
  • The surveyor will including the costs spend to date deducting the cost to finish with the value based on the expected profit that a developer would expect to make if sold at this stage.

Gross Development Value (GDV):

  • The value of the units sold on an open market basis at practical completion together with the value of the freehold. 

Other Lending Factors

Lenders will often ask that the above values are also considered with the below. 

90 Day Value:

  • This is commonly known as the forced sale value and often the auction price.
  • Most lenders don’t lend off this figure it’s considered a worst case. 

180 Day Value:

This is the value of the property sold within 6 months.

  • You would not expect a difference in the open market value on a straight forward properties which have a good demand for sale however we often see a difference on large or high value residential houses, complex properties, unusual property and property outside (20 miles) of major towns/cities. 

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