My Account
I thought I’d share with you the process for the valuation requirements from many lenders when you are building or renovating your home.
Firstly, to secure the finance for your project, your lender may ask for an ‘as is’ and ‘as if complete’ valuation. This is where valuers assess the existing property’s value ‘as is’ to establish the current market value before the project commences, then based on the plans and specifications of the proposed project, estimate what the market value of the completed project would be ‘as if complete’ on the same day. This provides to the lender an estimate of the total project’s worth to assess the asset for security purposes.
This ‘as if complete’ valuation is important as it assures the viability of the project, and to ensure costs do not exceed the value someone is prepared to pay should the lender need to recover any debt should the borrower default.
It is therefore important to have a good understanding of your project and budget as many elements such as foundations and earthworks can become costly if not properly researched. If using a building company to project manage your build, a progress payment schedule should also be agreed so that the bank and borrower also understand the timing of when payments are made and the amount of work that should be completed when these payments are due – for example, foundations complete, roof on, fully enclosed/locked up and so on.
Depending on the funding arrangements, as these progress payments fall due the lender may ask for progress payment valuations during the project. This report requires the valuer to inspect the work completed, and report to the bank the appropriate value of the work completed to date together with an estimate of the amount required to complete when compared to the original ‘as if complete’ valuation.
It is important to note that a valuer can only include completed work in the progress payment valuation. Deposits on things such as appliances, carpet and flooring, or even materials on site but not ‘fixed’ to the dwelling cannot be included, so careful management of your spending and budgeting is very important to ensure the project’s cash-flow remains viable.
Before final hand-over, the lender may require a Valuer’s Completion Certificate. In this instance, the valuer checks to see that all the elements of the original plans and specifications of the proposed build have been completed and any changes are identified.
This will also include a full measure of the completed dwelling to ensure the size is as per the original plans. In many instances, clients take the opportunity to upgrade various features as the build progresses, which is perfectly acceptable as this is adding to the value of the property; the lender is looking for instances where the final build is of a lesser value than the original proposal.
Please note that a Valuer’s Completion Certificate does not re-value the completed project based on the current market value when finished – and this could be some time since the project began. The Completion Certificate is just a final check against the original ‘as if complete’ valuation. It may be advantageous to consider a re-valuation, especially when additional improvements have been added to the original plans and specifications, or due to the time of the build there has been positive market movement you can take advantage of. In this instance, seek advice from your lender or valuer.
