What are the different types of valuation?
Mon, 01 Oct 2007
Valuations for commercial mortgages, bridging loans and property development finance can be undertaken on a number of bases and lenders differ in the types of valuation they require.
The formal definitions are set out in the RICS ‘Red Book’ and are updated from time to time but the key distinctions to remember are:
Bricks and mortar vs business valuation – a bricks and mortar valuation is solely concerned with the value of the property, while a business valuation in addition looks at the value of the trade carried out from the property. If buying a freehold shop therefore you might qualify for a mortgage based simply on say 85% of the value of the property; or you might obtain a loan based on 75% of the value of the business (which is generally the value of the property plus say 2 years worth of the business’s profits). It is therefore worth checking which is likely to give you the better advance and rate.
Existing use vs alternative use – the existing use value is the worth of the property to a user in its current form for its current purpose (for example as factory and offices) while its alternative use value might be as a residential development site. Lenders will in general look at the existing use value unless there are demonstrably advanced plans and an intention to change to the alternative use (which in practice is normally a development value) in which case some bridging lenders will look at this value.
Open market vs restricted or forced sale value – valuations will normally be based on an assumption that the seller would have time to market and sell the property in an orderly way in the open market and so assume a 6 month period. Some lenders may insist on a more restrictive valuation based on an assumption that the property has to be sold swiftly and this type of valuation normally assumes a 90 day period to market the property.
If valuation is an issue in respect of your property please contact us to discuss the position.
