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Post by shyinvestor on Aug 5, 2017 14:53:46 GMT
This knotty subject has probably been aired elsewhere but I would like to mention it regarding Lendy. At the moment a particular loan has caught my eye, PBL123. This loan has a value attributed to it of £1,785,000 but it is advertised for a forthcoming auction with an estimate of £1,300,000. It did not reach its reserve price in a previous auction.
Was this property significantly overvalued by the agent? Is this a real change in the value since last year?
In general, how can investors be sure that properties have been valued correctly?
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ozboy
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Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on Aug 5, 2017 15:22:16 GMT
You're still a V naughty boy Elliott! And obviously I agree with you Dude, but we all know Football Association will happen until there's appropriate Legislation/Regulaion and some of these shysters swing. It's so blatant that they'll overvalue by multiples of £100K even when there's readily available comparables which show a vastly lower "Value".
Personally, I refuse to invest with any Platform who indulges in this con, and they know who they are, because they're willing participants in the scam.
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hazellend
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Post by hazellend on Aug 5, 2017 17:37:26 GMT
why is it not just normal for the VR to be commisioned by the lender rather than the borrower?
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Post by mrclondon on Aug 5, 2017 18:21:42 GMT
This knotty subject has probably been aired elsewhere but I would like to mention it regarding Lendy. At the moment a particular loan has caught my eye, PBL123. This loan has a value attributed to it of £1,785,000 but it is advertised for a forthcoming auction with an estimate of £1,300,000. It did not reach its reserve price in a previous auction. Was this property significantly overvalued by the agent? Is this a real change in the value since last year? In general, how can investors be sure that properties have been valued correctly? The valuation of one off properties is not easy, and will to an extent be swayed by the personal taste of the individual valuer. However, looking at my notes from last year I felt this was probably slightly over valued. It is c. 325 sqm so has been valued at £5500 / sqm with a 10% reduction for quick sale. Para 16.5 states "The external space is however limited and this may deter some families in addition to which the proximity of Park Road may also be a deterrent." The comparables (VR section 16.3 & 16.4) vary from c. £4000 / sqm for the 2 largest properties, to one at £4400 / sqm and the remainder £5500 to £5800 / sqm. Valuing solely on sqm / sqft is not reliable and fails to take into account issues like minimal grounds (not good at this price range) and the fact that there are limited people even in the SE that can afford £1.5m+ properties. Valuing this one at £5500 / sqm in line with the bulk of the comparables given the lack of grounds seemed to me to be a tad optimistic, but the valuer may not enjoy gardening ! I worked on £5000 / sqm = £1,625,000 as a more realistic OMV (71% LTV), and then knocked 20% off to achieve a quick sale = £1,300,000 (which is the value you are reporting as the current auction estimate, and equates to £4000 / sqm) The loan value of £1,160,250 was 90% LTV of my worse case estimate so even with recovery fees I felt a full recovery would be possible so I was in. (Although I sold on the SM at some point to switch to something else on the platform). Although I don't shout it too loudly on here, I'm as much a sceptic on valuation reports as ozboy . However, this VR doesn't seem to me to be that far adrift of reality given the subjective nature of the game, but a 10% reduction for quick sale is too low although that may be a fixed value for this firm of surveyors. The key here is a valuation report is a subjective opinion of one person on one particular day. It is up to each lender to study the report, and in conjunction with additional internet research to form their own view of a worse case value for the asset in a fire sale situation.
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registerme
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Post by registerme on Aug 6, 2017 1:14:47 GMT
The key here is a valuation report is a subjective opinion of one person on one particular day. It is up to each lender to study the report, and in conjunction with additional internet research to form their own view of a worse case value for the asset in a fire sale situation. It's rare that I disagree with mrclondon (who looks at things in a way that is much more detailed than me), however on this occasion I do. In my opinion the key here is that valuation reports, who provides them, who pays for them, and the purposes they are put to, are not well aligned. It is this that, some day, will result in some kind of regulatory response.
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MarkT
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Post by MarkT on Aug 6, 2017 7:49:50 GMT
Maybe RICS are starting to wake up to the fact that they have a problem. Links here and here. |
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GeorgeT
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Post by GeorgeT on Aug 6, 2017 12:36:05 GMT
The key here is a valuation report is a subjective opinion of one person on one particular day. It is up to each lender to study the report, and in conjunction with additional internet research to form their own view of a worse case value for the asset in a fire sale situation. It's rare that I disagree with mrclondon (who looks at things in a way that is much more detailed than me), however on this occasion I do. In my opinion the key here is that valuation reports, who provides them, who pays for them, and the purposes they are put to, are not well aligned. It is this that, some day, will result in some kind of regulatory response. I agree with both of you. I think mrclondon was providing an expert analysis of the subject valuation report and I agree with what he wrote about that specific valuation and his general point that many valuations are to an extent subjective, reliant on the valuer's professional judgement and are an opinion of value on a specific day and subject to the information available to the valuer at that time. I also agree that, to some extent, there is a conflict of interest in that it is the borrower who meets the valuer, furnishes him with "information" and is in a position to be "persuasive" on a face to face basis. Also the borrower will have the valuer's contact details and may well ring him up to try and sugar coat his proposal and achieve a valuation figure at the top end of the range. Whereas the opposite party (the lender) in the transaction relies on that report. (When I use the word "persuasive" I am not implying the exchange of brown envelopes, but merely that the borrower has more direct access to the valuer than the lender. Although of course mortgage fraud involving crooked valuers has occurred in the past). It's a difficult issue to resolve in that these sorts of valuations will always require the valuer to make contact with the borrower, in order to arrange access and usually be escorted around, so the borrower is in a good position to try and influence the outcome. Perhaps a LY representative should also attend valuation inspections to provide some balance, or perhaps LY should employ their own in-house valuer whose job it is to scrutinise and challenge valuations on a desktop, office role basis, using his own expertise. Similar to the way mrclondon looked at it.
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0risk
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Post by 0risk on Aug 6, 2017 12:43:40 GMT
The overvaluation is really scary.
In the previous case of PBL066 and PBL067, they were valued for £1700k, and the sale had a shortfall of £340k when sold. The loan was £1020.
So that means the LTV was £1020/£680 = 150%
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Liz
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Post by Liz on Aug 6, 2017 13:15:26 GMT
The overvaluation is really scary. In the previous case of PBL066 and PBL067, they were valued for £1700k, and the sale had a shortfall of £340k when sold. The loan was £1020. So that means the LTV was £1020/£680 = 150% It is very scary. We all lend at what we think is a comfortable LTV and can turn out to be a scary LTV and resulting in a loss, creating an unfair situation. Someone really needs to start challenging these valuations when they turn out to be completely wrong. There is going to be some big hits on Lendy very soon because of these valuations, it can't be long before Lendy can't afford to bail us out anymore.
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Post by mrclondon on Aug 6, 2017 13:32:13 GMT
The overvaluation is really scary. In the previous case of PBL066 and PBL067, they were valued for £1700k, and the sale had a shortfall of £340k when sold. The loan was £1020. So that means the LTV was £1020/£680 = 150% Residual value valuations of development plots for bridging loans can indeed be scary. Lenders are taking a simple gamble in most cases that the development exactly as described will proceed i.e. development finance will be procured (and if applicable changes to the planning application for the site will be secured). These valuations are almost always based on a MUCH higher building density than has historically been the case for the local area. Someone buying the land from LPA receivers for a land bank / medium term investment purposes is unlikely to pay more than the land would be valued for at more typical building densities. It is unlikely that any buyer would wish to proceed with the exact same development scheme as the previous owner had in mind, thereby rendering the validity of the residual valuation based on the previous development scheme null and void. The combined land size of these two plots in South Wales is 0.56 hectares. If they sold for a combined £680k, then the price paid was c. £1.2m per hectare. Unfortunately the government figures I use for land values are for England only, but looking down the list £1.2m for a hectare of land with residential permission at typical building density doesn't seem vastly out of place. www.gov.uk/government/uploads/system/uploads/attachment_data/file/488041/Land_values_2015.pdf(c.f. the combined loan values equates to £1.8m / hectare and the combined published valuations equate to £3m / hectare.) I very occiasonally lend against residual valuations, but only when I'm reasonably certain the proposed development scheme will proceed. As an example, the current FS Rochester High Street loan is an infill location for which the proposed blocks of flats make perfect sense (to me ! ), there appears to be ready demand for such flats, and I think it will be relatively easy to obtain development finance for this plot. (However the loan is at c. 250% LTV based on what the government figures suggest is the land value, but based on a lower build density) Additional care is needed with residual valuations at the present time as they may include capitalised ground rents which may soon be banned by the government. I think for most retail lenders, bridging loans against development plots should be avoided, as it is close to impossible to determine a worse case value. Residual value valuations are generally the best case value, but there appears to be little alternative. A recent confirmed sale value for the plot helps, but that may still be inflated by the same assumptions as contained in the residual value valuation.
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registerme
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Post by registerme on Aug 7, 2017 11:16:47 GMT
This post by masquedefer is of relevance to this discussion and might be of wider interest.
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dp
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Post by dp on Aug 8, 2017 15:28:45 GMT
Whilst not quite the same. Recent experience of a residential remortgage valuation.
I had slightly over egged my perceived value of the house to nudge into the next LTV, thus reducing my rate.
The RICS approved valuer came out as requested by the mortgage company. He asked to confirmed what I was looking for, and said something along the lines, that's fine, I will add 4 to 5k on the valuation for you, you will have no problems at all. This was before he had even looked around, he didn't appear bothered we were at the top end, if not past it and was with us for about 15minutes. Nice bloke - happy result for us.
I can see how the borrower can swoon the valuer on site if/as required.
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Post by masquedefer on Aug 10, 2017 11:48:45 GMT
I know I keep banging on about this but given the looming scandal on valuation accurasy, Lendy need to must include the following (or similar) in their instruction to valuers: When providing a valuation the Valuer must bear in mind that Lendy lend to borrowers who are unable to obtain loans from larger mainstream lenders (which operate higher loan eligibility criteria). As a consequence, there is a greater risk of a loan default and likelihood that the valuation will be subject to real-world testing via repossession and sale of the secured asset. It is essential that valuations are provided with this in mind and that they err on the conservative side particularly where there is wider valuation bracket due to e.g. lack of information or any assumptions made. Furthermore, the Valuer must not rely on financial information or projections provided solely by the borrower. The Valuer must also appreciate that (s)he is the lender's eyes and ears on the ground and in accordance with the RICS Red Book, (s)he must report on all factors that may impact on the valuation, its reliability and the suitability of the asset for secured lending.
(Explanation - Every valuation has a permissable leeway bracket (typically 10%), a Lendy val should must err towards the lower end of this bracket). ......As an afterthought to my preceeding suggestion, if valuing at lower end of bracket causes professional issues then simply require the valuer to also state the following in their report and Lendy to use this information responsibly. "similar properties in this area have a value range of between £XXXXXXXX and £YYYYYYYYY"
Also, given the high likelihood that DFL projects overrun on time and/or cost. I suggest that on all future DFLs Lendy require from the borrower a verifiable plan of how they will finance any additional interest payments and penalties (due to any project overrun) and/or raise extra capital (due to any cost overrun).I was pleasantly surprised to receive the following in my private message inbox from Registerme: Aug 7, 2017 19:30:50 GMT 1 registerme said:
I thought you'd be interested (gratified / amused?) To know that I pinged a link to your "suggested instructions" thread to MoneyThing.
I just received a reply along the lines of "instructions updated".
So from me, thank you. You've done some good :-).
RM
Thank you RM for achieving something that I couldn't. If Moneything think these are worthwhile suggestions and are actually using them, then surely Lendy must take note too.
Paul64 @ Lendy are you listening?
How about some of you posters sending this to Lendy. Perhaps if enough people shout......
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Post by masquedefer on Aug 10, 2017 12:07:43 GMT
......As an afterthought to my preceeding suggestion, if valuing at lower end of bracket causes professional issues then simply require the valuer to also state the following in their report and Lendy to use this information responsibly.
"similar properties in this area have a value range of between £XXXXXXXX and £YYYYYYYYY".
How about some of you posters forwarding the previous (updated) post to Lendy. Perhaps if enough people shout......
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Post by masquedefer on Aug 10, 2017 12:19:05 GMT
Well I never..................!! I just received this from Paul@ Lendy.
Time will tell............Watch this space.
A big thank you to RegisterMe for achieving this!
Paul
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Hi masquedefer, thanks for your message. I've passed your suggestions to our compliance team, so will let you know in due course. Paul
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