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Post by richardb67 on Aug 2, 2016 11:23:49 GMT
I suppose a value is what someone is prepared to pay and a valuation is a professional expert's guess as to the value. Unless a property is already under offer we all have to rely on the valuation. It's worth remembering that the valuer is given assumptions on which to create the valuation and these can have a significant impact e.g. length of lease, status re planning consents, rental income, business turnover, value of stock. If the valuer is aware of any discrepancies it will hopefully be mentioned in the valuation document but they do sometimes seen to be buried in the detail. However, they are assumptions for a reason and the valuer is giving their opinion given the information provided plus that they can access. In terms of risk, in days gone by I knew someone who ran a business with corporate offices in what is best described as a small stately home. They were approached by a developer who wanted the property but offer was rejected. Shortly afterwards the business had problems and ultimately ended up in administration. The offices were sold in a fire sale for 20% of the earlier offer and it is now a retirement complex. IIRC about 2 years had elapsed during which time the UK had gone into recession and it had become a buyers market. So, yes there are significant risks associated with individual loans which is why everyone seems to agree diversification is important.
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boble
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Post by boble on Aug 2, 2016 11:52:24 GMT
To answer the thread title (or rather not) we don't know, there is both financial and regulatory risk. To answer the OP, on the assumptions therein there would not be a loss of capital, although there might be interest forgone in the event of default due to length of time to realise the security. Whilst I have, some, faith in RICS standard valuations, in at least one case they were not present, and the more fundamental question is, what is a valuation? Is it "the price someone is willing to pay," £1.5 million in the case of PBL20 or a letter from a non RICS, but specialist, valuer some months earlier of £2.4million? If it is the practise of the platform, or any other, to use the latter as a norm, then capital is at risk. I suppose a value is what someone is prepared to pay and a valuation is a professional expert's guess as to the value. Unless a property is already under offer we all have to rely on the valuation. In my OP I should have made it clear that I was ignoring platform risk. I was drawing attention to the surprising (to me) power of the high rate of interest to compensate for any likely level of losses. Indeed so. The valuations are being provided by so called "qualified experts" whose opinions should be based on clear evidence and local knowledge. A seriously incorrect valuation could be argued as negligence. The shortfall would probably need to be greater than 10%. I currently have one valuation claim in litigation and will be commencing another later this year. The outcome of these will provide me with additional knowledge and experience, which I would be happy to share on this forum.
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Jeepers
Member of DD Central
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Post by Jeepers on Aug 2, 2016 12:01:23 GMT
Obviously valuations go up and down which is why we don't lend above 70% LTV. Even selling at a quick fire price this should allow us to recover all (or most of) our capital.
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boble
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Post by boble on Aug 2, 2016 14:43:55 GMT
Obviously valuations go up and down which is why we don't lend above 70% LTV. Even selling at a quick fire price this should allow us to recover all (or most of) our capital. The value of a commercial property investment is determined by a number of factors, including the quality of the covenant (tenant or similar). If a strong covenant fails, unless unit is occupied by covenant of similar standing on similar terms, the value of the investment will fall dramatically.
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Post by chielamangus on Aug 2, 2016 17:28:46 GMT
Your figures are much the same as mine after making allowance for your note 1. If you really don't think that a RICs valuation is worth the paper it's written on maybe you should not be investing here at all. The generally accepted variance in valuation is 15%. It can be greater if one of the valuer's assumption proves wrong, or there is a major property crash or due to fraud. There is an entire multi billion pound industry involving valuers, developers and banks depending on these valuations so I would value them a bit more than the cost of the paper myself. I'm with samford71 on this. I don't accept "the generally accepted variance" and nor do many other people. But one can still invest on SS despite weak valuation evidence if the loan as a whole meets other criteria (one of which, for me, is character!). Your "multi billion pound industry" actually rests on a lot more than a formal valuation which itself is often based on hope and unsubstantiated numbers.
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Post by harvey on Aug 2, 2016 19:58:33 GMT
Your figures are much the same as mine after making allowance for your note 1. If you really don't think that a RICs valuation is worth the paper it's written on maybe you should not be investing here at all. The generally accepted variance in valuation is 15%. It can be greater if one of the valuer's assumption proves wrong, or there is a major property crash or due to fraud. There is an entire multi billion pound industry involving valuers, developers and banks depending on these valuations so I would value them a bit more than the cost of the paper myself. I'm with samford71 on this. I don't accept "the generally accepted variance" and nor do many other people. But one can still invest on SS despite weak valuation evidence if the loan as a whole meets other criteria (one of which, for me, is character!). Your "multi billion pound industry" actually rests on a lot more than a formal valuation which itself is often based on hope and unsubstantiated numbers. I don't see how you can say you do not accept the widely accepted and established in case law variants for valuations. In a nutshell - valuation is an art not an exact science. It relys a lot on professional judgement and interpretation and analysis of available information. If you had a complex site for example with a lot of variables and unknowns you could instruct 5 very competent professional valuers to give you a valuation and you would probably get 5 different figures. Quite probably all of those 5 valuations would be reasonable and proper. A valuation is an opinion of market value or whatever. Unless somebody has made a blatant factual mistake and got his calculations and facts all wrong then it won't be negligent. There's no right or wrong answer within the accepted tolerances and available market conditions and evidence. The only way to know the actual market value is to market the asset and test the market and find out in practice. And even that wont necessarily indicate a valuation was wrong because the date of valuation will not be a different date at some point in the future when the property is sold.
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Post by GSV3MIaC on Aug 2, 2016 20:35:52 GMT
/mod hat off
In general I agree that valuation is a rather inexact science (or 'art'), and the only true valuation is what someone will pay (on the day), however a valuation which is significantly higher than what the site was bought for last week, or for what the borrower intends to pay for the site next week, should require some rather robust justification.
In some cases it looks like the valuation was worked back from 'purchase price plus x months interest plus fee'/70%, to get an LTV of 70% (which is a goal number for several reasons). Valuers have been known to ask 'are you buying, selling, going for probate, or insuring' when they are asked to value something, which is slightly concerning. 8>.
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Post by harvey on Aug 2, 2016 20:48:00 GMT
/mod hat off ... Valuers have been known to ask 'are you buying, selling, going for probate, or insuring' when they are asked to value something, which is slightly concerning. 8>. Well, professional valuers are required to state in their reports what the purpose of the valuation is. Pretty sure that's a professional requirement. So I would say it is entirely reasonable for them to ask that question simply so they can set out all the facts in their report about the instruction and comply with their industry standards. However, the purpose of the valuation should not affect the valuation figure because, clearly, market value is market value regardless of whether you are the buyer or seller or in any other position.
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Post by dualinvestor on Aug 3, 2016 6:15:46 GMT
To answer the thread title (or rather not) we don't know, there is both financial and regulatory risk. To answer the OP, on the assumptions therein there would not be a loss of capital, although there might be interest forgone in the event of default due to length of time to realise the security. Whilst I have, some, faith in RICS standard valuations, in at least one case they were not present, and the more fundamental question is, what is a valuation? Is it "the price someone is willing to pay," £1.5 million in the case of PBL20 or a letter from a non RICS, but specialist, valuer some months earlier of £2.4million? If it is the practise of the platform, or any other, to use the latter as a norm, then capital is at risk. I suppose a value is what someone is prepared to pay and a valuation is a professional expert's guess as to the value. Unless a property is already under offer we all have to rely on the valuation. In my OP I should have made it clear that I was ignoring platform risk. I was drawing attention to the surprising (to me) power of the high rate of interest to compensate for any likely level of losses. Agreed but not really relevent, on the front page of the SS web site "By ensuring the maximum Loan to Value of the property is less than 70%", so reverting to the original point what is the value? Is it an outdated report, or the price paid? The difference is quite startling on PBL20, 70% on the former or 114% on the latter. Even worse when looking at current value, the debt of Lendy Ltd is £2.841million, the property is on sale for £1.5million, costs of realisation c.£100,000, now LTV is 200%. Although I had not exercised my mind on the terminology before it would appear from internet research this morning that the generally accepted meaning of the acronym LTV is Loan to Value.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Aug 3, 2016 7:28:04 GMT
Both value and valuation will change over time. An actual sale price will normally be the best measure of value at that moment in time (assuming a reasonable marketing period and an arm's length transaction etc). Any valuation must take into account the previous sale price, as well as the time elapsed since then and any material changes such as new planning permission. When SS talk about value they mean the best measure of value, which will often be a valuation from a professional, because the last sale price was some time ago or there have been material changes. An offer may or may not give an indication of value (I'll give you £1 for your house  ), but the best offer after a reasonable and properly conducted marketing period may be the best measure. |
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Post by chielamangus on Aug 3, 2016 9:58:48 GMT
I don't see how you can say you do not accept the widely accepted and established in case law variants for valuations. I just did! And who says they are widely established? As I recall, some academic study was quoted somewhere (either on this site or in a valuation document) which reported that the variation was much greater than the "widely accepted" variation usually quoted.
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Post by dualinvestor on Aug 3, 2016 10:21:33 GMT
I don't see how you can say you do not accept the widely accepted and established in case law variants for valuations. I just did! And who says they are widely established? As I recall, some academic study was quoted somewhere (either on this site or in a valuation document) which reported that the variation was much greater than the "widely accepted" variation usually quoted. Whilst I agree that professional valuations are not always reliable and have unacceptable levels of variation, they are, in the absence of a willing buyer/willing seller recent sale, effectively only available option. To suggest any other method would be even more unreliable. So if you want to invest in property based loans there is little alternative than to rely on them. However I believe when considering an investment one should decide what an appropriate value is, e.g. Category 1 – A loan for the purpose of purchasing a property the value should be the purchase price and the loan should not exceed 70%, under any circumstances. The purchase price to be supported by a professional valuation. Category 2 – A loan to repay another loan on the property. If the property was purchased within the last 12 months the loan should not exceed the lower of 70% of that purchase price or (70% of) a professional valuation.
Category 3 – A loan for development, as categories 1 and 2 but on the land value only (i.e. not to include development or “hope” value) I am not suggesting that SS or any other platform does or does not follow that reasoning but that it is the way I, as a prudent investor, would assess them, except I would probably take as my starting figure somewhere less than 70%. It is not advice to anyone else and it is certainly not foolproof.
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Post by harvey on Aug 3, 2016 16:53:18 GMT
Couple of links about property valuations / margins of error / tolerances etc: Case Law on permissible margins of error in valuations - LinkLandmark ruling on negligent property valuation case, affecting lenders - Link 2 |
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Post by buttchopf23 on Aug 5, 2016 8:24:35 GMT
Considering the risk, liquidity and return function, where return is pretty good with 12%, and the possibility of instant liquidity or lets assume liquidity in some days depending on sm, conditions, equals: risk must be high
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Post by p2plender on Aug 5, 2016 8:33:29 GMT
Carney's Bazooka may have de-risked things for another 18 months to two years. Party on.
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), but the best offer after a reasonable and properly conducted marketing period may be the best measure.