Loan Security Valuation Flashcards
Which part of the Red Book provides specific guidance on LSV?
VPGA 2 and VPGA 10 of the UK Red Book Global Supplement
What are the most common examples of when a loan security valuation will be sought?
a) Property that is or will be owner occupied
b) property that is or will be an investment
c) property that is or will be fully equipped as a trading entity and is valued with regard to trading potential
d) property that is or will be the subject of development or refurbishment
What matters does VPGA2 discuss?
- Taking instructions and disclosures
- independence, objectivity and COI
- Basis of value, special assumptions
- Reporting/ disclosures
Which requirements are of special importance for secured lending?
Independence, Objectivity and declaration of personal interests.
What are the additional COI criteria for valuation for secured lending?
Valuer must confirm they have no previous, current or anticipated involvement with the borrower, or prospective borrower, the asset to be valued or any other party connected with the transaction for which the lending is required.
What are the timescales for previous involvement under VPGA2?
Anything within the period 24 months preceding the date of instruction or date of agreement of TOE (whichever is earlier)
What if you as the valuer have had a form of previous involvement with the borrower or asset?
This must be disclosed to the lender prior to the acceptance of the instruction.
What if you are likely to have future involvement?
This must also be disclosed to the lender prior to the acceptance of the instruction.
What situations may constitute a conflict of interest?
- Long standing professional relationship with the borrower or the owner of the property or asset.
- Is introducing the transaction to the lender of the borrower, to which a fee is payable to the lender or firm
- has a financial interest in either the asset or 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
- Is retained to act in the letting or disposal of the completed development of the asset
- Has recently acting in a market transaction involving the property or asset
- Is providing development consultancy ln the subject property or asset.
Can the valuer still accept the instruction even if there is previous/ current or anticipated involvement with the asset or borrower?
If the valuer considers that any involvement creates an unavoidable conflict with their duty to the potential client, the instruction should be declined.
If a valuer notes that there has been previous involvement, but they do not think it will affect their ability to provide unbiased advice, how should they proceed?
If the client also agrees, then arrangements should be made to manage the instruction and those arrangements should be made in writing, included in the TOE and referred to in the report.
When might a valuer have to justify their decision to take on an instruction to the RICS?
Where a material involvement has been disclosed. If a satisfactory justification is not provided, the RICS may have to take disciplinary measures.
What if the valuation is commissioned by someone who is not the lender, i.e. the borrower?
It will need to be stated in the Terms of Engagement that valuation may not be acceptable to a lender as some lenders have specific reporting requirements.
What should the valuer do if there have been any recent transactions on the property?
Enquire on the agreed or provisionally agreed price / further nquiris into extent of marketing / assess whether there were any incentives offered
What is the bases of value commonly adopted for LSV?
Market Value
