The benefit of a ‘Red Book’ Valuation

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by Joel Lea, Senior Underwriter at Bath & West Finance.

As a principal lender, we appreciate the necessity of carrying out a RICS ‘Red Book’ Valuation to help us assess the financial risk of a property – whether housing, commercial or semi-commercial properties, or land – being offered as security.

I was asking Peter Miller FRICS at Ashwick Surveyors Limited about his thoughts on the need for a ‘Red Book’ Valuation and he describes an important factor of any valuation – objectivity. He explains “this inevitably means that the valuer must detach him or herself from all personal circumstances of the borrower and indeed, other than in exceptional circumstances, from all lending criteria”.

These standards which ensure the quality of assessment mean that these valuations are ideal to use in decision making by having clarity that can be referred to and understood in the future. The valuation will be fully researched, and the figures supported by comparable evidence. In this way, the valuation figure can be justified and supported by the evidence backed valuation report. This is highlighted by Peter “almost every value carries a measure of uncertainty and this will vary enormously with the type, location and nature of the property to be considered”.

Peter also highlighted to me the importance of having local knowledge of the surrounding area of the security be offered by adding “this illustrates the absolute necessity for the lender to appoint only valuers with suitable background and experience. I venture to suggest that it is virtually impossible for a valuer without many years of specialist local knowledge to arrive at an accurate Opinion of Value”.

It is important to recognise that as a lender taking on the risk, we are asking the valuer to provide us with their opinion of the market value of the property to safeguard ourselves both from any loss that may be incurred by lending too much against an individual property, and price the associated risk accordingly. This is support by Peter “headline figure must represent the amount at which the property would sell or re-sell (let or re-let in the case of Market Rental) as at the valuation date and in accordance with the RICS definitions. Clearly, in arriving at the appropriate figure the valuer will take account of all known circumstances which would affect the price obtainable”.

Understandably, sometimes there is a confusion between the use of ‘Valuation’ and ‘Market Appraisal’ and these shouldn’t be used interchangeably. As a lender, a ‘Red Book’ Valuation is paramount to allowing us to make the appropriate risk-based decisions when it comes to lending against a given security. It does not just protect a given lender, but ultimately protects the client against any negative leverage leading to overexposure of a given investment.

Below is an example of a development that Bath & West have supported to allow our client to meet their objectives.

Joel Lea

Bath & West Finance
Senior Underwriter


Development, Andover

Our client had planning permission for a part demolition and change of use on an existing building to a medical surgery and pharmacy as well as a development of 8 x 3-bed residential properties with amenity space and parking. They needed funding for the part demolition and residential development.

We were able to offer them a loan for £1,693,300 taking a part change on the title where the residential units were to be built. To meet the client’s requirements, we provided an initial drawdown of £125,000 and further drawdowns in line with their costing schedule throughout the build phase.

Loan: £1,693,300
Value: £2,800,000
GDV: 61%

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