Property valuations are a key part of the mortgage process, and this is even more pertinent in those cases where a property is being refurbished or undergoing extensive renovation.
Valuations help to provide insights into the project’s financial viability, and that means they can influence lending decisions, insurance, and future marketability.
As property refurbishments can vary hugely in terms of scale and scope, brokers should ensure they understand the scale of the project being undertaken before they instruct a valuer on a property undergoing refurbishment.
Determining whether the refurbishment is a simple cosmetic refresh, a structural repair, or a more complex renovation involving extensions or conversions will help to determine the complexity of the valuation and the type of specialist knowledge that will be required.
For example, valuing a property undergoing a loft conversion or significant layout changes will require more expertise than a standard redecoration, as cosmetic updates such as painting or decorating will require less work and investment than major structural change.
Having a detailed project plan or scope of works outlining the planned level of refurbishment will also help the valuer understand what the project entails. It will also help to provide a more accurate pre-refurbishment and post-refurbishment valuation that ensures all elements of the project are accounted for.
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It is important that brokers ensure all this information is included from the outset, as without a clear understanding of the amount of work involved, the valuation may either underestimate or overestimate the property’s potential. This could lead to financial challenges and significant delays further down the line.
Market conditions are ‘significant’
Market conditions can also play a significant role in the valuation process, and an understanding of the local property market trends is vital in order for the valuer to accurately predict the post-refurbishment value.
For example, in a rising market, refurbished properties may offer significant uplift potential compared to in a declining market, where substantial investments may not yield the desired and preferred returns.
Understanding the local market, future trends and any property developments is also an important consideration. This is particularly true when it comes to high-end finishes and energy-efficient upgrades as well as any infrastructure developments, such as new transport links or the creation of new shopping centres, that could help to drive up demand and property prices.
Being on top of local demand is an important part of the broker’s role, as this information can help to inform the valuer and ensure the valuation is aligned with market expectations. This is especially true when it comes to comparing previous sales, and, where possible, brokers should assist valuers by providing relevant comparisons, particularly those that have undergone similar refurbishments and were sold recently within the same area.
Obviously, there will be situations where this may not be possible, particularly for those more unique and niche refurbishments. However, it is always worth looking at comparable properties in nearby locations or with similar characteristics in terms of size and layout to help the valuer gain some understanding of the scale and type of project being undertaken.
Refurbishment does involve ‘some degree of risk’
As with all aspects of property development, taking on a refurbishment project entails some degree of risk and some projects can experience unforeseen delays, escalating costs, or even complications with planning permission or building regulations.
All these factors can significantly impact both the timeline and final cost of the refurbishment and, potentially, even the property’s eventual value. To help the valuer stay on top of these developments and factor these risks into their assessment, brokers should highlight any potential risks to the valuer and ensure their client has a full and detailed financial plan.
Instructing a valuation on a refurbishment is something that requires careful planning, foresight, and market knowledge. Brokers that understand the scope and scale of a property refurbishment, as well as recent market trends and risks, will be better placed to choose the right valuer for the job.
Not only will this ensure that the valuation process is both thorough and accurate, it can also help to ensure better decision-making and increase the likelihood of a successful outcome and refurbishment project for the client.
