Loan Security Red Book Flashcards
When undertaking a loan security valuation, what parts of the Red Book would you have view on?
VPGA 2 and VPGA 10 of UK National Supplement.
What areas does VPGA 2 cover?
- Conflict of interest checks
- Taking instructions
- Basis of value
- Assumptions and special assumptions
- Reporting and disclosures
Under VPGA 2, what must you include in your ToE for LSV?
Disclose any previous involvement within the last 24 months in ToE.
Disclose any anticipated future involvement too.
What are examples of previous/future involvement under VPGA 2?
- Long-standing professional relationship
- Introducing transaction for which a fee is payable to the valuer or firm
- Has a financial interest in the asset or in the borrower
- Is acting for the owner of the property or asset in a related transaction.
- Is acting (or has acted) for the borrower on the purchase of the property or asset
Can you value a property that your agency team has sold?
Under RICS Professional Statement: Conflicts of Interest - UK Commercial Property Market Investment Agency (2017).
You can be both the agent for the seller and the valuer for the lender/purchaser - however, must be disclosed and agreed in writing.
What do you do if the borrower won’t disclose the lender?
If the party
does not know, or is unwilling to disclose, the identity of the intended lender, it will need
to be stated in the ToE that the valuation may not be acceptable to a
lender.
This may be because some lenders do not accept that a valuation procured by
a borrower or an agent is sufficiently independent, or because the particular lender has
specific reporting requirements
What basis of value is commonly used in LSV?
MV
What is mark to model valuation approach?
Assets that must be “Marked-to-model” either don’t have a regular market that provides accurate pricing, or have valuations that rely on a complex set of reference variables and timeframes.
This creates a situation in which guesswork and assumptions must be used to assign value to an asset, which makes the asset riskier.
What is mark to market valuation approach?
“Mark-to-market” is a way of valuing assets based on how much they could sell for under current market conditions
How do you agree special assumptions?
In writing in the ToE
Examples of common special assumptions in LSV?
- planning consent has been granted
2. planning has been satisfactorily developed
Under VPGA 2, what must you state if you have made a special assumption?
Special assumption value must be accompanied with a comment on any material difference between the reported value with and without the special assumption.
What additional things do you need to report on for LSV?
- Disclosure of involvements
- Valuation methodology
- If recently transacted, the extent to which that has been accepted as Market Value.
- Comment on environmental consideration
- Comment on suitability for loan security purposes.
- Factors which could affect price.
What would you look at for environmental factors?
Flood risk EPC Current and Historic use Contamination Invasive species
What are sustainability factors and why are they becoming more important to lenders?
VPGA 8 - Valuation of Real Property Interests
in a valuation context sustainability encompasses a wide range of physical, social, environmental and economic factors that can affect value and of which valuers should be aware.
As commercial markets in particular become more sensitised to sustainability matters, so they may begin to complement traditional value drivers, both in terms of occupier preferences and in terms of purchaser behaviour.
