Most Mortgage Valuation Report forms require the surveyor to provide a gross external fl oor area of the property in square metres together with an estimated rebuilding cost for insurance purposes, and this information can also be provided to the client at the end of a Homebuyer Report. The RICS publishes a Guide to Carrying Out Reinstatement Cost Assessments and surveyors are advised to obtain a copy.
161
Rebuilding costs are, of course, quite unrelated to market values. In areas where values are high the rebuilding cost may be a lot lower than market value, especially for mod-ern straightforward buildings. But for older more complex buildings in areas where val-ues are lower the rebuilding cost could be higher than the market value. It is important that buildings are not underinsured because the insurers can average the claim for a partial loss in these circumstances. For example, if a building is only insured for half its actual cost of reinstatement the insurers, having been made aware of this, may only pay out 50% on a claim.
So, the surveyor needs to measure the building to assess its gross external fl oor area including walls using a tape, laser or other means. Usual practice is to round up to the nearest square metre. Then a calculation is made following the RICS Guidance Notes.
The assumption is that the building is totally destroyed and has to be completely rebuilt including foundations, drains and site works so as to have the same size and appearance but complying with Building Regulations applicable at the time of rebuild-ing. If the building is in a Conservation Area or listed as being or Special Architectural Value, then the assumption may be that it is rebuilt not only replicating its appearance but also replicating its construction.
Surveyors need to be fairly cautious, therefore, in agreeing to provide a Reinstatement Cost Assessment on any peculiar or unusual building, or a type of building with which they are normally unfamiliar. In the event of a serious fi re or other loss, if it is discovered that the building was underinsured, the surveyor may be sued for negligence.
‘ Desk Top ’ and ‘ Drive Past ’ Valuation Reports
Since April 2000, the Land Registry records of all property transactions in England and Wales have been available and there are now a number of web sites where you can fi nd out what your neighbours sold their house for. In addition to being a boon for the nosey and curious this has been a very welcome development for mortgage valuers who can now access lots of transaction details by address or postcode from a huge and growing database.
Mortgage lenders have come to the decision that if the property is of fairly standard type in an area where there is lots of sales evidence and if the loan-to-value ratio is reasonable, they do not need a full internal inspection and a detailed report. So the Nationwide form I have reproduced, and other similar forms, may in time become largely redundant and used only in those cases where the property is unusual or the borrowing very high in rela-tion to the value.
So the property could be valued using a computer programme of which there are a number now, growing in sophistication all the time. Or the valuer could be asked to complete a simple valuation report based either upon a desktop assessment or a brief external inspection of the property. The terms and conditions of engagement for such reports set out clearly the limitations of the valuer’s liability.
One of the reasons mortgage lenders have moved away from the more detailed inspec-tions and reports has come about as a consequence of experience during the recession
‘Desk Top ’ and ‘ Drive Past ’ Valuation Reports
Residential Property Mortgage Valuation Report for Nationwide Building Society
Tenure Freehold (0) Leasehold (1) or Feudal (2) Rent – Ground/Chief/Feu
If shared ownership, what % of the property is being purchased?
Other clearance and professional fees excluding VAT except on fees
Yes/No
Are roads / footpaths made / partly made / unmade
Does this property need to be referred due to special insurance risks?
Estimated cost of making up
Name of Builder NHBC / Zurich / Architect / Other
Part Gas (5) / Part Electric (6) / Part Oil Fired (7) / Part Solid Fuel (8) None (0) / Full Gas (1) / Full Electric (2) / Full Oil Fired (3) / Full Solid Fuel (4) Electricity / Gas / Water / Drainage / Other
Roof
Single (1) / Double (2) / Parking Space (3) / None (4) Is the parking space/garage offsite?
Number of Bedrooms Number of Bathrooms (inc. ensuite bath/shower rooms) Number of habitable rooms Type of Property Detached House (01) Semi-Detached (02) Terraced House (03) Detached Bungalow (11)
Converted Flat (33)
163
9. Other Matters that may Materially Affect value (If applicable give more detail in the general remarks below)
Is the property readily resaleable at or about the valuation figure?
Rights of way / Easements / Servitudes / Wayleaves (where apparent on inspection)
Any other important factors?
Amount of Recommended Retention (Minimum retention amount is £1000. This is not an estimate of costs.
The Applicant(s) should obtain detailed estimates before proceeding with the purchase)
Is the property a suitable security for the Society? Yes/No
If Yes, valuation in present condition
Valuation upon completion of any works required under section 7 or 11
If shared ownership, value of share being purchased
Valuer’s Signature
The Society does not guarantee that the purchase price is reasonable.
IMPORTANT NOTICE TO APPLICANT(S)
YOU ARE STRONGLY ADVISED TO OBTAIN A FULLER REPORT ON THE PROPERTY.
This report has been prepared solely for the Society’s purposes. It is not a structural report and is based upon a limited inspection. It may not reveal serious defects and may contain inaccuracies and omissions. It is unlikely to be adequate for a purchaser’s purposes and should not be relied upon.
I certify that I have personally inspected the property and that in making this report I am not contravening Section 13 of the Building Societies Act 1986, or any variation or re-enactment of it.
Yes/No If Yes give details:
10. GENERAL REMARKS (including the general condition of the property)
11. WORKS TO BE CARRIED OUT as condition of mortgage subject to retention below. (Listing should only include work absolutely necessary to protect the society’s security. The amount of advance must be ignored)
12. VALUATION FOR MORTGAGE PURPOSES – (assuming vacant possession unless otherwise stated) Yes/No
Yes/No
Yes/No In the case of flats etc. is proper Yes/No
management / maintenance apparent?
Is the risk of further movement one the Society can accept? (If No decline property) Building works that may have required Planning Permission / Building Regulation approval
Yes/No
Yes/No Has the property ever been affected by structural movement
caused by subsidence, settlement, landslip or heave?
FIG 11.2 A section of plasterboard to a sloping ceiling is removed revealing Kingspan foam insulation panels. Normally, the actual level of insulation above a ceiling cannot be confi rmed in these circumstances because there is no access behind. So, the computer program used to provide an energy rating makes certain assumptions based upon the age of the property and the Building Regulations applicable at the time it was built. This presupposes, of course, that the property is correctly dated and that the builders complied with the Regulations.
in the 1990s when many properties were taken into possession and they lost a lot of money. The fact that a valuer had inspected the house and prepared a fairly detailed report on it did not, in the event, make any diff erence to the loss. Overwhelmingly the loss arose because the borrowers could not aff ord to pay their mortgage and the prop-erty market dropped. So whilst it would obviously be prudent to have some check on the price or valuation – if for no other reason than to pick up frauds – a report with lots of information about the property is largely unnecessary.
Some of the information provided in these reports is used by the mortgage lenders for statistical purposes. For example, both the Nationwide and the Halifax prepare a house price index based upon the data collected from these forms.