Ensuring Valuation Integrity: The Importance of a Curated Panel of Valuers

Any type of mortgage lending requires property to be pledged as security for the loan. All prudent lenders will instruct the services of a valuation firm to provide an independent assessment of market value for the subject property. 

No different to other lenders, Vado Private engages with a curated list of panel valuers. All valuers must comply with the following:

• Be a member of the Australian Property Institute.
• Have Professional Indemnity (PI) insurance (that extends to non-bank and private lenders).
• Have a track record valuing properties within the scope of instructions.

Seldom do we accept valuation reports where:

• The instructing party is not Vado Private; and/or
• The valuer is not on panel.

Why so stringent?

This allows us to maintain the professional integrity of the valuation process and the report. We are relying on the underlying figure and commentary to establish fair market value of the security property. This enables us to better assess and quantify the risk of deploying capital.

Any valuation report adopted by Vado Private is required to be for ‘First Mortgage Purposes.’ This doesn’t mean that a varying purpose would yield a different result. However, it ensures that all parties are operating under the correct assumptions for liability reasons.

Care must be taken when reviewing a valuation report.  

Certain assumptions can largely affect the underlying numbers and risks associated with the property. Factors to consider when reviewing a valuation include:

1. Instructing party. Is the instructing party a lender, broker, landowner or other party?
2. Valuation purpose. There are many reasons why a property will be valued including court proceedings, taxation purposes, transfer (whole or in part), compulsory acquisition, valuing an easement, lending purposes etc.
3. Assumptions. These include development yield, capitalisation rates, IRR, market conditions, proposed rezoning etc.
4. Comparable sales. How do these compare to the subject property (location, land size, improvements etc) and are they superior or inferior?
5. Date of comparable sales. Market conditions can change over the short term so more recent comparable sales are a better indicator of value. Only settled sales evidence can be relied upon.
6. Easement and covenant. These can have a positive or negative influence on the value of the land and should be reflected in any valuation analysis.
7. Goods and Services Tax (GST). This is a tax applies to certain property types. For new developments GST is applicable applies under the general tax rule or margin scheme. Any valuation number needs to be ex-GST.  
8. Contamination. Site contamination can take many forms and is usually quantified in a geotechnical report of ground conditions. Any valuation report should be qualified for contamination and site remediation.

Valuation Methods

Valuers adopt several methods when valuing property. The chosen methodology will depend on the property type and specific instructions. The most common valuation approaches are outlined below:

Direct Comparison

Direct comparison involves comparing other properties (comparable, inferior and superior) that have recently sold. As part of the analysis a valuer will consider factors such as land size, zoning and improvement and location. A direct comparison valuation is the most common method for valuing any property. It is the primary method to value residential property.

Project Related Site Value (Hypothetical Development)

This approach is when adopting the ‘highest and best use’ in a development project. It involves an analysis of project revenues (gross realisation value) against development costs (construction, professional fees, statutory fees, land holding costs and finance charges). The project related site value is the value of the land that would deliver an acceptable return based on the project risk profile and industry benchmarks. A variable in costings is construction which is validated by a Quantity Surveyor. Recent increases in construction costs and finance charges have rendered many projects less feasible, impacting project related site values.

Income Capitalisation Method

This approach is applicable to income generating commercial properties, where the net income earned by the asset is compared to other comparable properties. Based on the income and any leasing covenants, an appropriate ‘capitalisation rate’ is applied to determine the value. This valuation methodology is less relevant when a property is owner occupied or vacant.

An experienced, commercial-minded lender will understand the distinctions between various valuations and apply critical thinking when assessing them.

For assistance

We would love the opportunity to chat to you regarding any scenarios or questions you might have for any of your clients seeking funding. Please contact the Business Development team at Vado Private to discuss any opportunities on the details below, or you can submit a scenario online via our website.