Lack of respect to lenders - again and again

When I was dealing with an estate as an executor it was explained to me that there is basically a market value, what you can expect if you sell an asset on the open market and are prepared to market the asset and wait up to 90 days to achieve that sale.  Probate value is what is accepted for tax purposes and. depending on the asset class, can be 5 - 30% less than the market value.  Insurance value is the value put on items to cover all costs for a total loss and can be up to 20% more than market value.

In all honesty I don't know if RICS professionals are consciously overvaluing properties, something I doubt,  but I do know that when you complete your own DD and find very similar properties in the area that have recently been sold for about 70 - 80% of the value they ascribe to a specific property you have to ask how they justify the value.  This is crucially important when you're looking at properties where the LTV is 70%.

I have noticed that often the people making the valuation aren't exactly "local" and if someone tells them that a 3 bed house sells for a specific sum in an area they may not spend time researching to establish the facts about a specific road.  After all the price of a property can be significantly different depending on the school catchment area - same style of property but 2 roads apart.

I'm not trying to make excuses but valuing something isn't an exact science and it can be easily influenced by others if it's not in an area that's local to you . 

Well said OG. However in reality valuations can be very much wider than the categories mentioned above. One additional and unmentioned valuation can be "auction". Typically auction valuations are significantly lower that what may be termed as average under the 90 day sale rule. Recently I saw two property's locally sell at auction for about 50% of other similar properties in the area. The mark down in both cases was due to condition and location.

So if a loan goes mummery's up and then goes to auction don't be surprised if it does not make 70% of the original RICS valuation. This is something that should be taken into consideration when doing DD. The Whitehaven and Powerboat could turn out to be very good examples of what might happen eventually. In the Powerboat case this may well be why FS are reluctant to foreclose on that loan.

Great advice on this forum about inflated property values etc - I wonder if part of the problem is that the property market is very different to say jewellery which can be easily valued.

If a building project fails to complete then taking it on is not like repossessing a sports car; there are all sorts of problems to do with insurance, outstanding suppliers and artisans will need paying before returning to site etc etc and a lot of developers won't even  take the work on without a massive discount to the "book value". Sadly I don't work at the top end of the market but the house partially finished in North Yorkshire strikes me as vastly (at least £2m ?) overvalued compared to the original figure - would love a second opinion from somebody who deals in this end of the market. I don't actually like the house but the finish seems superb and running out of money at this late stage is about the worse thing that can happen to a developer...also like the tip about avoiding hotels!

It smacks of desperation, this "ideal world syndrome" is used constantly to our detriment. The other way around would be the borrower selling their asset for more than they thought it was worth and saying, "Dear borrowers, I made 20% more from the asset than I thought I would and that was all down to you people helping me achieve this, therefore I am going to pay 50% of this excess profit back to you as a thank you for your support", do you think this would ever happen? Well it happens the other way around without any choice being afforded to us!

In an ideal world the asset is worth X, the borrower will honour the contract they signed for repayments, a buyer will be found quickly if the asset needs to be sold, the borrowers is honest, the valuer is honest, the facilitator is honest, etc etc etc. But most importantly (from their perspective) in an ideal world the lender will and accept every excuse under the sun, trick in the book and should/will ultimately feel grateful if they escape a loan unscathed. Just like if you lend somebody money in the pub and have to ask for it back because the borrower has reneged, you often become the enemy, the parasite. Yet you were the only person willing to lend that person money in the first place. This is what is happening now to us, we are being treated as parasites in my opinion, "what do you expect for 12% interest?". I expect the rules to be followed and the information provided to be accurate! Many of us are investing thousands of pounds on nothing more than what seems to be wishful thinking, we shouldn't have to learn this the hard way. The facilitator are making money by carrying out due diligence and managing the contract, yet this is being mismanaged horrendously. I'm tired of excuses, I want my money back as agreed, after all I provided it - as agreed!

In an ideal world we as the lender/funder of these transactions would be treated with the same respect that the borrowers and facilitators are (or more respect even), but we are not despite being the people that shoulder the risk. I believe valuations are inflated to increase profits for the facilitator and to attract business in a competitive market, or the facilitator is ridiculously incompetent - otherwise they would nip any problem in the bud, the second a borrower fails to fulfill their obligations the asset is no longer theirs. Defenders of this will exclaim "we all know the risks and it can't work like that", but we also were told the rules of the game, these rules are constantly bent or broken to accommodate the people that are reneging on their contractual obligations. If a borrower breaks their commitment it means they can't be trusted, they are not in control - therefore anything they say moving forward is to be considered untrustworthy, however the opposite occurs due to desperation and fear - fear that the truth of the inflated asset value and incompetence is made public! So we have the borrower scurrying to avoid recourse, the facilitator scurrying to avoid recourse and meanwhile us lenders are left attempting to figure out what the hell is going on and when we will get our money back from people who are desperately trying to hide the truth or avoid it at the very least.

I don't care if property isn't the same as a clock or painting. If the money isn't repaid after 180 days somebody is violating the agreement, the asset should be seized immediately and sold. If it can't be sold because there were lies told then the facilitator of those lies should compensate the people that fulfilled their end of the bargain (us), and if the fault lies with the borrower for misleading the facilitators then they should deal with that between them through litigation, nothing to do with us, that isn't what we signed up for. We put the money up, we want our money back as agreed. The LTV 70% rule is meant to protect us, not to be abused. We are not banks providing overdrafts, but we are treated worse than banks because we have no recourse or choice.

In summary I can't wait to be out, it all seems very crooked, whether by design or incompetence it is us the lenders that are suffering. If their business model is flawed that is not our fault, we shouldn't be on the hook or strung along like this. I appreciate there are often extenuating circumstances, sorry that shouldn't be my problem, too many crooks have used the same excuses before and we do not have the opportunity/responsibility to meet and befriend the borrowers - they are numbers on a spreadsheet and should be seen as nothing more, exactly how we are viewed to them. There is no honour anymore, no decency and certainly no appreciation for the people that enable this business to happen, we are treated with such disdain at every step of this journey it makes me sick. I'm annoyed that  I invested so much of my hard earned money on people and facilitators with such little appreciation or decency. Enough with the lies and excuses, act with ruthless efficiency and it will soon get rid of the chaff and maybe lenders will trust more. There is a short window to do the right thing, it might be expensive for the facilitator short term, but by procrastinating they are compounding the problems. Do they not realise that every crook in the land is now looking at how softly they tread and how easy it is to obfuscate and ultimately con people like us out of our money - niceness is seen as weakness and it's easy to be nice with other peoples hard earned money at stake?!

IIRC FS don't respond terribly well to these sort of questions when asked directly by e-mail ,so I think the chances of that happening on the forum are quite remote.