Valuations based on planning consent and big ideas

Is it really that tricky for you to guess ... ?!

Well, I like to keep my hand in 

Let's not start the "tiptoe around the ID" game please.  So far nobody has offered a response to the original poster's question:  "How do people feel IN GENERAL TERMS about valuations based on planning consents, etc?".

Surely the professional who carries out the valuation. Belongs to a trade body. And it is in his / her interest to abide by these rules.

But surely there has to be an element of guess work in valuing a building plot. 

We can choose to accept or ignore any valuation.

In general terms

1) If the deal being offered does not have a specific full planning approval I would not bet any money at these returns.  If I wanted to get into this sort of business I would expect 20-25% returns and while I've done work like that I wouldn't want to do stuff like that on the information this site offers.  Risky property development based on possible planning permissions is a special deal in property.
2) If a property deal has any flood issues I would not touch the deal, I can see the writing on the wall and floods are going to be a big risk.
3) If a deal takes a long time to close out then again don't touch it, why, when there are so many good deals would you want to leave money idle waiting for the lazy lawyers?  I think it is high time that a few portals began sacking borrowers who waste our time and cash.  Yes AC, FC, FS I'm talking about you.  Lazy lawyers need sacking, end of.

You see, I don't think the issue is that you should be struggling to choose a deal to accept, you should be choosing which deals to discard.   Throughout P2P I discard more than 70% of the opportunities just because the deals look poor.  My watch words are "if in doubt, don't".

Finally, I have no interest in yet another useless sheet, I don't trust portal staff to read the information provided and carry it across, I regularly see comments in the conclusion that just don't reflect what is in the detail.  How often do we see errors in valuation, LTV, flood warning etc etc. Just taking the detail and making up a sheet and filling it with errors does not take us anywhere. 

What I do value, is the comments on this forum, even after I have read the details I always come on here to see what others think and it gets me to scurry back and check which of us is right.  I suspect a link to p2pindependentforum would be more valuable than a new form.

Lending before planning permission is granted based on a valuer's speculation of what the property might be worth if PP is granted is rather risky.  IMHO the interest rate SS are offering to their investors isn't enough to cover that risk.  I've been involved in loans in this situation via other P2P platforms, and the result all depends on the planning decision.  If it is positive, all is well.  If it is negative, there are big problems, and the loan can drag on for a long time while either trying to sell the property or resubmitting the planning application.  Loss of accrued interest and possibly capital, is likely.

There are two variations on the 'with planning permission granted' scenario...

• Bridging Loan:  The borrower needs the loan to finance the purchase of the property and carry out the detailed design of the project, and once thay have that they will approach lenders -- which could include SS -- for a Development loan. 
  

• Development Loan:  The borrower needs the loan to finance the construction/renovation works.

In the Bridging scenario, the security of the loan depends on the valuation of the pre-development property with planning permission.  The valuer doesn't have to know exactly how much the works will cost and what the finished property will be worth, only that the project is feasible and that there are developers around who'd be willing to take it on at the price at which it is valued.  If the valuation is reasonably correct, the lenders ought to be able to get out at the end of the loan without a significant loss.

Development loans are very different.  Their viability depends on good estimates of the cost of the required works and the value of the end results.  Since the amount of the loan generally exceeds the value of the property in its starting state, it's generally necessary to advance the loan in stages in order to keep the LTV at a reasonable level.  This usually means having a Monitoring Surveyor visit the project regularly to assess the value of the work done and authorise the next advance of the loan.  If everything goes according to plan, the value of the project stays well ahead of the money advanced and everyone is happy.  Where these loans come unstuck is if the project works hit snags and the actual cost exceeds the estimates.  The worst case probably is when the developer cannot complete the project and the lender is left trying to sell a part-finished project.  In that situation, it seems quite likely that the Monitoring Surveyor's valuation is unlikely to be shared by any new developer as they will have their own opinion of the best way to finish the project and that may involve the undoing of some of the previous developer's work.  There's also the possibility that the finished project can't be sold for the expected price, but at least in that situation there is a saleable product.

Disclaimer:  I'm no expert in these matters -- my experience comes from investing in these situations.  So I'm not sure there's any value in the above comments, except, perhaps, to help clarify my own thinking.  It does make me appreciate those platforms who maintain a PF to take some of the pain that comes when things don't go according to plan.  Recourse to borrowers' other assets can help a bit as well, but I worry that by the time a project goes pear-shaped a lot of a borrower's assets may have been used up.