Valuation - renovation project so known deficiencies

kerpoo

Valuation question please (looking for educated opinions as I know it's impossible to say for certain)

Short version: we're buying a major renovation project (not our first) with a mortgage of 75% LTV - house is 1900s with 1960s 'improvements' - it has been unoccupied, has damp, and some cracks in render; not unexpectedly the valuation has come back as nil requesting timber & damp report and structural survey.

The house is priced to reflect that it needs updating and remediation, whilst reflecting the fact that it's in a sought after location with sea views - our offer was 10% under asking. Two previous sales have fallen through - presumably due to concerns about the damp/cracks (we've seen the previous damp report). Nearby house in similar condition but much smaller sold for more than the price we've offered.

My question is - when the valuation is carried out will the 'starting value' of the house be what it would be worth in good nick and then discounted to take into consideration remediation etc, or start at what we're paying and then further discounted?

It may seem like a silly question, but we have a decent idea of the costs involved in terms of remediating the damp, and a range depending on the nature of the movement (given what we've seen, the age of the house, ground, speaking to local surveyor we're not massively worried). So really trying to second guess the valuation if we're not in 'worse case' in terms of movement. We've been in a similar position before, but valuation was fine, just recommended works but no retention.

Slithery

It will be based on the value of the property in it's current state.

canaldumidi

By 'valuation' I asume you mean the mortgage lender's valuation, rather than what you yourself should consider the value to be?

kerpoo said:

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My question is - when the valuation is carried out will the 'starting value' of the house be what it would be worth in good nick and then discounted to take into consideration remediation etc, or start at what we're paying and then further discounted?

....

Well assuming the lender does provide a valuation following the surveys (they may not - they may decline to lend), they will not 'start at what we're paying and then further discounted'. Nor will they probably use a  "'starting value' of the house be what it would be worth in good nick and then discounted to take into consideration remediation', though the value in good nick might enter into the valuer's equation.

The lender's main concern (and hence that of the valuer they appoint) will be how much they could easily offload the property for in its current condition eg if they repossessed.

kerpoo

Thanks - yes I should have said mortgage valuation. And thanks - makes sense - in essence a risk-based valuation if they had to sell immediately. And agree, they could definitely decide not to lend - I suppose that's the risk you take when you buy a project but aren't a cash buyer.

It just struck me that I'd never asked as to how they come up with a valuation.

kerpoo

And yes we have our own 'valuation' based on what we think it will be worth following the work, minus cost to carry out the works, and allowing a margin for risk. This isn't a buy and flip project for us but we're accountants so still needs to add up

Thrugelmir

kerpoo said:

It just struck me that I'd never asked as to how they come up with a valuation.

Might be that a residential mortgage isn't the correct form of finance for your project.