Having a property professionally valued and surveyed is probably the most important part of the buying process yet many buyers see it as an imposition and an extra cost where a mortgage is involved. Part of their thinking is because lenders commission the Valuation Report, instruct the Valuer and only use Valuers on their preferred panel. Perhaps this seems logical, but it is the applicant who pays the Valuer’s fee, which they see as required by the lender not themselves.
There is often a serious disconnect in how the two parties view the valuation process yet it serves both interests well. After all, why would a buyer not want to know they were paying a fair price for the property with the added bonus of a surveyor looking at its condition and the potential existence of defects not easily detectable by the naked eye? The reason is cost, and although scale fees apply, some mortgage applicants at both ends of the scale feel it is a fee they would like to avoid. This is not so with a lender, as Valuation Reports are usually mandatory. But the good news is there is a solution-lenders could pay for the report! After all, in the economies of scale and looking at the life of a mortgage and the significant profit a 25-year mortgage produces, the upfront Valuation Fee is small beer and a PR opportunity for the lender and the borrower to get off on the right foot.
A detailed and professional Valuation Report is just as important to the buyer as the lender. Buying a property is probably the biggest financial commitment we make in our lives and the importance of getting it right cannot be overstated. After all, there are many horror stories of new owners finding defects shortly after taking possession, and in the current real estate market it is very important to buy smart to avoid the potential risk of properties going down in value. Barbados has never experienced a downturn in the property market until recent times, but anyone who feels their property is worth more than it did five years ago is more likely expressing a personal opinion rather than fact. In general terms properties have dropped in value, but only when you engage a Valuation Specialist will you have the professional opinion that makes a specific assessment as a specific time.
Many mortgage applicants ask their lender who will value the property and this is an interesting question. In mature mortgage markets a lender’s Valuation Panel is determined by internationally recognized qualifications, Codes of Conduct and adequate Professional Indemnity insurance. These are the standard benchmarks that bring integrity and professionalism to the table and protect everyone. For example, an RICS (Royal Institute of Chartered Surveyors) qualification has international status with over 100,000 qualified professionals worldwide in their ranks. Barbados has 45 RICS qualified professionals, but local lenders still set their own criteria without divulging too much to the customers about their status, so a lot of faith is placed on their choice. That may not be in the best interests of the customer who is entitled to know who is doing the valuation, their qualifications and their professional indemnity cover. Lenders should also have a brochure that lists the Valuation Panel and some basic details of the firms on it. They should also give a choice to the customer, something that is virtually unheard of in local lending.
We live in an era where transparency is much more important than in the past and businesses are obliged to set high standards of professionalism and ethics. This is a grey area that could easily be improved if all lenders were obliged to adhere to some basic standards. That can only be good for the customer as well as the lender.
Indeed, why not go further and oblige all selling agents to offer a Buyer’s Guide with each property listed for sale? This would be another constructive step towards adding more integrity to the buying process.
Clarence Hiles is a Director in Caribbean Mortgage Services and can be contacted at Clarence@caribbeanmortgages.com