Read our guide to the factors considered by lenders when valuing a property?
What is a lender’s valuation?
A lender’s valuation is an assessment of a property’s value carried out by a lending institution before approving a mortgage or loan. It helps determine the property’s worth as collateral for the loan, ensuring that the lending risk is minimized and the loan amount is appropriate based on valuation.
There are many reasons you might need a valuation of a commercial property, especially when selling or buying or releasing existing capital to create funds for further investment.
When assessing the value of a property, for the purposes of a commercial mortgage, mortgage lenders consider a number of factors, which help them determine the risk associated with lending money and influence the terms of the loan.
Before you start your commercial mortgage application, here are a number of types of valuation of a property or a piece of land lenders will use and it is worth understanding them. In this guide we have included some of the most common:
Market Value
Market value, Bricks and Mortar or Buildings Valuations are the most common type of property valuations. They are commonplace if the property is a normal single (C3) dwelling and are based on what price a property would fetch in the open market. They take into account various factors such as location, size, age, and condition of the property when compared to similar examples.
MV-1 Specifically for a commercial business, this valuation also takes into consideration the fixtures and fittings if the business is a going concern and what the annual yield of the property would be – typically it is used for HMO properties with 7 or more bedrooms, Multi-Unit Blocks and commercial property, which may be higher than a bricks and mortar market valuation.
Residual Value
Residual value is the value of a property or a piece of land after all of the costs associated with its development or refurbishment have been deducted.
Gross Development Value (GDV)
GDV is the estimated value of a property development project upon its completion. It is calculated by taking into account the total revenue generated by the project, including the sale of all or any units that have been developed.
90 Day Value – also 180 day value
The 90 Day Value is the estimated value of a property that has to sell within 90 days. Typically, this can significantly decrease the value of a property by up to 25% of the MV1 figure to ensure a quicker sale. Meanwhile, the 180 day value is more lenient and usually matches the MV1 valuation as most properties sell within 180 days (six months) of being listed. The exception to this are unique or large assets, which could be down valued on this basis as they can often take over a year to sell in some cases.
Open Market Value
Open Market Value is similar to market value, but it takes into account any conditions or restrictions that may affect the sale of the property, such as a long lease or a shared ownership arrangement.
Vacant Possession Value
Vacant Possession Value is the value of a property if it were vacant and available for immediate occupation. This type of value is often used in cases where a property is subject to a tenancy agreement, as it takes into account any restrictions on occupancy or use of the property.