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Valuations are a part of mortgage life whether you are a vendor, purchaser, estate agent or lender. For most having a property valued is a relatively straightforward process, until something unusual is noticed or suspected.

There are a few key areas to consider when looking at valuations, these are;

• The different types of valuations available
• The needs of lenders and borrowers
• The effect of property defects on lending
• The various warranties, guarantees and insurance available

In this guide, we will walk through the process and look at each area mentioned and discuss how each part of the valuation process flows.

There are six types of valuation available. Whilst we tend to refer to all reports in this area as valuations not all provide an actual value of the property. The choice of the report is dependent on who requires it and the purpose it is needed. Each is listed below with a summary before we delve into the detail of each in the next parts of the guide.

Basic Valuation
For most mortgage applicants the basic valuation will be the only option required. This is arranged for and often paid by the lender as part of a mortgage package. It may be non-disclosed in that only the lender is permitted to view it or it can be referred to as disclosed meaning it can be shared with the borrower. As the name implies, it is basic.

Condition Report
This is requested by the purchaser of the property, it does not actually offer a valuation but instead, as the name suggests, provides an indication of the condition of the key parts of the property, normally using a traffic light system to indicate the condition.

HomeBuyer Report
As the name suggests this report is requested by the person purchasing the property. It is similar to the basic valuation a lender will obtain. It will highlight any areas of concern and offer a view on the valuation.

Home Report (Scotland only)
In Scotland, the process is that anyone selling a house must have a home report. Rather than every interested party carrying out their own valuation, the home report is made available to everyone and can be relied upon without the need to instruct another. Although lenders may choose to carry out their own at their own cost.

Building Survey
A building survey does not offer a valuation of the property, instead, the surveyor will look at every aspect of the building in detail to determine whether there are any concerns the purchaser should be aware of. In the majority of cases, there is a known issue or something that has been discovered in one of the other reports above that requires more detail.

Desktop or Drive-By Valuation
A desktop valuation is for lenders rather than borrowers. In the case of a Desktop valuation, an electronic system uses market data and algorithms to determine the likely value of a property. No physical inspection of the property is ever carried out.

For a drive-by, it is exactly that, someone will visit the property but simply give a view based on what they see without going inside the property or necessarily seeing behind it.

These are generally only used where an existing mortgage is being renewed or a further advance is being considered.

Basic Valuation

A basic valuation as it is referred to is the most common when someone applies for a mortgage to purchase a new property or refinance one already owned. There is often confusion around this type of valuation, mostly as the person applying for the mortgage never usually gets to see it.

It is important to appreciate that the basic valuation report is for the lender to obtain comfort that the property is suitable security for the mortgage they are considering, it is not for the home buyer.

Most Banks and Building Societies will use a panel of valuers across the country to complete the report. Some have in-house valuers but that is becoming less common.

The contract for a basic valuation is made between the lender and valuer. These reports are often referred to as non-disclosed, which means that the report is only available to be viewed by the lender, the borrower cannot see it. Some can be disclosed to the borrower, however, it is at the discretion of the lender.

Even though the borrower cannot see the report it is possible they will have to pay for it. Some lenders will offer a package where the cost of the report is included so it is always worth checking into that.

What the basic valuation covers

As the name suggests, it is basic. A valuer will visit the property to carry out a physical inspection of the property and it is likely to take no longer than 30 minutes. What is inspected will be limited to what the valuer can access. If for example there is a part of the property that would require a ladder to inspect the valuer will note that he/she was not able to inspect it.

Interior

The valuer will walk around the property, take measurements and inspect what can be seen, nothing will be moved in order to see behind items, and ßneither will floor coverings be lifted to inspect underneath. The valuer is looking for obvious defects that can are easily seen. If a loft ladder is available the valuer may carry out what is referred to as a ‘head and shoulders’ inspection. That is literally he/she will go far enough up the ladder to see the loft without actually going up into it.

Exterior

Again, very much a visual inspection of what can be seen. The valuer will walk around the property looking for defects that can be seen without having to disturb items.

The report

The report will contain details of the inspection, and any defects will be highlighted. If any areas of concern have been identified then action will be suggested. The report will provide the value of the property which is normally based on evidence from comparable property sales in the area. It is also likely that they will provide a reinstatement figure to ensure the property is adequately insured.

Further reports

If the report identifies any areas of concern that require further investigation the valuer may suggest a building survey is carried out to understand more about the concerns they have. This will need to be paid by the borrower although the vendor may contribute. If a building survey is carried out it will need to be referred back to the original valuer to determine whether they need to revise any element of the report including the valuation figure.

There are other reports that could be required, they are referred to as specialist reports. This could mean arranging for a structural engineer to look at the property or an investigation into whether the property sits above a coal mine that could lead to subsidence.

Retention

The valuer may suggest the property will only be valued at a certain amount once essential repairs are carried out. They may state on the report that some money should be held back by the lender until the purchaser has moved into the property and carried out the work noted on the report. Once complete the lender will release the amount of money held.

Condition Report

The condition report is seen as a cost-effective method for the home buyer to understand the general condition of the property and consider what if any work is required either now or in the short term. Where the lender will carry out a basic valuation it is limited in scope to satisfy the lender that the property is suitable security and is valued at the expected level. It does not focus too closely on the condition of items in general.

What the condition report offers

The condition report will look more closely at the overall condition of the property. The main areas of interest are;

• The construction and condition of the property.
• Any areas that will require in the short term to prevent decay or further damage.
• Any areas that are considered serious enough to need work now.
• Any areas that are considered dangerous.

The areas looked at are given a status based on the traffic light system which looks like this;

It is likely that anything identified as Red will have been flagged by a basic valuation and already be known about, the lender will likely state what they want to be done and by when. Usually, before they release mortgage funds or they may hold back some of the money, known as ‘retention’ until the work is completed after you move in.

If the valuer has any concerns such as whether a property has planning permission for an extension, it will be noted in the report but the valuer does so for the home buyer's solicitor to consider, the valuer won’t investigate themselves.

What the condition report does not offer

The report will not provide a valuation figure or a value for reinstatement used for insurance purposes. Where a basic valuation has been carried out, that is relied upon for that detail.

Areas that are hidden or inaccessible will not be looked at. As a result, there may be issues that exist but are not found.

Homebuyer Report

The HomeBuyer report is available in two formats, either a Survey and valuation or jut a survey. A lender may offer this report option or for situations where no lending is required a home buyer will look at this report. The report is sort of a middle ground between the basic valuation and a building survey.

Survey and Valuation

You can expect to find substantially more information in the report than those we have looked at so far. An example of some of the areas that will be commented on.

• The market value of the property.
• A reinstatement value for insurance purposes.
• Some narrative around the local area, travel links, amenities and so on.
• Suggestions for repairs and ongoing maintenance needs.
• Issues or defects that could affect the value of the property.

The valuer will comment in more detail on the property and spend more time reviewing areas that are important, for example, they will check the pointing on the roof, look in the attic space, check the condition of the damp proof course and whether the walls are showing any signs of damp using a meter for that purpose as well as many other checks.

If there is no or limited access, for example, they cannot get into the attic space as it is full then they will not move items to carry out an inspection so issues could be missed.

In general, this is a very thorough valuation intended to capture most if not all of the likely issues in the property.

Survey Only

The survey only option will provide everything above with the exception of a property value and reinstatement cost for insurance purposes.

Building Survey

This type of survey is one that for the most part is only going to be required if there is a known or suspected issue that presents a need for the survey to be carried out. It is an expensive report, however, it will provide the most detailed inspection of the property out of all the reports mentioned in this guide. These days it is referred to as a building survey but many still refer to it as a structural survey.

Where a building survey is required, a mortgage applicant must arrange and pay for it, the lender will not. But you must be sure that whoever is used, will meet the lenders’ suitability requirements.

Why you may need a building survey

As noted it is likely that the need for a building survey has come from the knowledge of a known or suspected issue that warrants the need for one. Most commonly a basic valuation or homebuyer report has been carried out that has identified an issue which then leads to the requirement for a building survey.

You may also find that the age of a property or a particular construction type makes it prudent to carry out a building survey.

What a building survey will include

A building survey is mostly carried out by an engineer, sometimes an architect or even a property valuer if suitably qualified. The inspection of the property will be very detailed and it is unlikely any defect will be missed due to the efforts made during the survey to inspect the property.

The person carrying out the survey will;

• Look closely at the condition of the electrical system.
• Will lift carpets and floorboards if required.
• Move items of furniture where possible to see behind.
• Inspect the Attic space
• Crawl into underfloor spaces where access is available.

Essentially whatever the surveyor can reasonably access will be inspected and commented on.

Where there is something specific that has led to the need for the report, the surveyor can be asked to apply a specific focus to an area and there can be an agreement for them to go beyond their normal inspection process. This may involve more time and work and affect the cost.

Action required

Where there have been issues identified and works recommended the report will detail them. It may be that the report has to be referred back to the original firm that carried out the basic valuation or homebuyer report and they adjust their view on the valuation of the property as a result of the work and required cost to fix the issues identified.

Home Report (Scotland)

Scotland has a different method of property valuation from the rest of the country, many have applauded the move by the Scottish Government, and some are critical, that is not for discussion here though. Every seller in Scotland must have a home report available as soon as their property is available to be viewed.

Ultimately any viewer and indeed lender can rely on that report and do not need to carry out their own valuation. Compare that with other parts of the UK where every interested party will need to have their own valuation carried out. The benefits sound obvious in that a purchaser is not required to carry out a valuation. That does not mean they can’t, the same applies to lenders.

What a Home Report contains

Every home report is identical in structure, it contains 3 parts.

Single Survey

Much like a basic valuation, it provides a property value, reinstatement cost and general information around the condition based on a walkthrough of the property. As with other reports, the valuer will not move items or look in detail for issues.

Energy Report

This is a view on the energy efficiency of the property and its environmental impact.

Property Questionnaire

The seller will complete this, it provides information for the buyer, lender, solicitor and the valuer as it is completed prior to inspection. The seller must complete it honestly, any intent to deceive can result in action against them although whether there is value in that is another subject.

Essentially the report contains sufficient information for the lender and home buyer to rely upon without the need for more reports.

What if?

What if the lender is not comfortable or even the home buyer that suggests another report is required? Not an issue, there is a requirement on every seller to provide a home report, and there is no requirement on a lender or home buyer to rely on it.

Having said that, if a lender wants a new report it has to be at their cost unless there is a good reason not to rely on the home report. Similarly, if the home buyer would prefer a more detailed report then it is up to them to instruct it and pay the cost.

Desktop or Drive-By Valuation

Desktop or drive-by valuations are only used in certain circumstances. They will never be relied upon to reliably value a property being purchased, especially where there is a lender involved. So what is it used for and how accurate is it?

Desktop Valuation

A desktop is a valuation that is all about data and algorithms. A well-known service is called Hometrack, they refer to their service as providing an AVM, Automated Valuation Model.

Simply put the way they work is to gather as many data points as possible about as many properties they can across the country. Sale prices, square footage, number of bedrooms and many more.

If there is enough data available that matches the property you need to value then it can provide a fairly reliable valuation without ever seeing inside. Of course, it requires a degree of trust, if the property has been ruined inside then the valuation won’t hold up.

Drive-By Valuation

These are very simple in that an agent/valuer will simply drive by the property, confirming the condition as far as they can see. There is a view that if it is well kept outside, it will be the same inside. Again the agent/valuer will not attempt to see inside the property, they rely on nothing more than a visual inspection of what they can see.

What are they used for?

Both are used by lenders when an existing homeowner that has lending with them has either come to the end of their current mortgage term and wants a new term or they are looking for a further advance. It is often enough for a lender when they already have the property as security to simply want verification that nothing appears to have changed. A desktop or Drive-by can provide that confirmation without the need for a physical inspection requiring access to the property.

Each lender's rules vary. It is likely they will use these options where the client is not borrowing any more than is outstanding today or any further advance request does to take the loan to value above a certain level. If it does they will likely want a basic valuation carried out instead.

New Build Guarantee Schemes

An important area to cover as part of valuations is new build guarantee schemes, these are important for a few reasons. Firstly a home buyer wants to know their new house is free of defects and if any develop they have a claim. Every new build property comes with a guarantee if it does not then questions need to be asked.

National Housebuilding Council (NHBC)

Probably the most recognised name associated with new build properties is NHBC. They are not a house builder as some think. They issue what is called the NHBC Buildmark certificate to new homes. They provide cover to around 70% of all new homes in the UK.

The Buildmark certificate states that any property which has one is protected against any defects or damage for the first two years as a result of the builder not meeting the standards set by NHBC. Then for the subsequent eight years after that, the homeowner is protected against defects in the building.

There are minimum and maximum claim limits, any defect that costs less than the minimum level has to be paid by the homeowner.

In all cases the homeowner must claim against the builder in the first instance, if an agreement cannot be reached on remedial work then NHBC will arbitrate and cover the cost of work required where the builder fails to do so.

NHBC also provide cover from the point a home buyer exchanges contracts to the point of completion should the home buyer lose their deposit as a result of fraud on the part of the builder or if they were to become insolvent.

NHBC only issues the buildmark certificate to developments that follow their standards on house building.

Other guarantee providers

There are many more providers of guarantees, the most common are;

• Premier Guarantee
• LABC New Home Warranty

Both offer largely similar coverage. You cannot choose a guarantee provider, the builder will use whichever they want, prefer or get the best deal from.

Why are guarantees important in relation to valuations?

As the property is a new build, things can go wrong, with older properties any issues will have become apparent through the passage of time. Valuers cannot be certain the property will not have hidden defects so any valuer will also stipulate that their view on the property value will be based in part, on the property having a guarantee should any defects be discovered, especially within the first couple of years.

RICS

RICS for short the Royal Institution of Chartered Surveyors is the body that sets the standards for all Surveyors to follow. For those in the industry, the term ‘red book’ refers to the publication that details these standards. It is important to note that in the event of a complaint there is only so much RICS can help with.

From their own site, they state the following.

• What they can help with
• Failure to utilise a complaints handling procedure
• Failure to disclose a conflict of interest
• Misuse of clients' money
• Failure to answer Correspondence
• Working with an undisclosed criminal offence

What they cannot help with

• Complaints against anyone surveyor who is not an RICS member
• They cannot pay compensation
• Cannot determine whether a firm has acted negligently
• They will not get involved in court action against a member

So basically they are an industry body that sets industry standards and tries to ensure they are maintained by all members but have limited or no ability to assist if you need to make a claim against a surveyor for negligence, I will come on to that next.