How to choose the right valuation partner
When you’re securing finance for your next investment or development, you need a good commercial property valuer to kick-start your project.
The right valuer can provide essential initial guidance on your potential valuation amount, reducing the risk of any surprises when you get to the bank. The valuation report is a key external document when it comes to mortgage lending, so you want to feel confident in your valuer’s expertise.
Risky business
One of the biggest risks for any development is time. With only a small handful of valuers trusted by lenders to deliver accurate reports, you need to allow sufficient valuation time to keep your development milestones on track. If your valuation report is later than expected, it can put everything else under pressure.
The other risk is financial: if a valuer arrives at an amount materially different from your expectations. This can have a significant impact on your capacity to raise debt capital.
In the current market, we see this risk most prevalent in residential development valuations – we have recently had a number of parties come to us who have experienced a shortfall in financing and need higher leverage to offset against lower than feasibility site value.
The simple answer is you’ll need to access more equity; however, stretch senior or mezzanine loans may be appropriate, depending on your project.
Being mindful
Bank scrutiny of valuation reports increased considerably post-GFC, with all the major banks now using internal valuation experts to review reports. What’s more, with professional indemnity insurance becoming harder and more expensive for valuation firms to attain, there have been recent examples of valuation firms subject to litigation when lenders seek to recover losses on impaired loans.
The valuation report is ultimately for the benefit of the lender so you need to carefully consider the firm, the individual valuer, and whether the report is valid. It’s also important to respect the fact that the final report instruction will come from the lender – it’s not about shopping for a ‘right’ result.
Working with your valuer
Stamford is privileged to have strong working relationships with a range of valuers who have specific market sector expertise and standing in capital markets.
The more organised you can be with presenting your development project information, the better. We typically prepare a due diligence room for the valuer with:
Details around developer experience
Project approvals
Feasibility
Sales and marketing (including a full and detailed sales schedule and copies of exchanged contracts)
QS advice
Builder background
Construction contract
We have found that the greater quality information that the valuer receives, the more likely they are to write an accurate report – which is ultimately the goal.
What to look for in your valuer
Market area and asset class expertise – no second-guessing.
Their standing with banks and other lenders – you want them to have a trustworthy reputation.
Reliability to deliver a timely valuation report – you don’t want to miss that settlement date.
We certainly recommend using valuers, and see this as a key part of managing the finance procurement process.
If you’re in the early stages of a new project, we’d be happy to help you find the best valuer for the job – please get in touch.
