Valuation and survey procedures - simultaneous processes

Last reviewed 21/07/2011: any recent updates in this colour.

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Types of survey and who commissions them

Before approving a mortgage application, most lenders will commission a report on the value of the property being offered as security for the mortgage. The lender is the client for the purposes of the mortgage valuation, and will select and instruct the valuer who carries it out.

A relatively small number of mortgage applicants (estimated to be between 1% - 2%) decide also, and at the same time, to commission a full building survey of the property which they propose to buy. A larger number (about 15%) opt for a homebuyer's survey and valuation, which is less comprehensive than a full building survey but is designed to give the prospective purchaser a concise report on the general condition of the property, identifying significant defects and repairs needed at the time of the inspection, and a brief description of any factors likely materially to affect its value.

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Asking the lender for a combined survey and valuation

A customer who wishes to commission a survey is of course free to instruct whoever he chooses: customers should not assume, however, that surveyors selected by them will be automatically acceptable to lenders for providing the mortgage valuation. If a customer advises a lender in advance that he wishes to commission a survey, the lender may be able to arrange for its own or an approved valuer/surveyor to contact the customer to see if arrangements may be made for a combined inspection. The combined exercise will almost certainly save time and costs for the customer as only one visit to the property will generally be needed and the lender may be able to offer the customer a competitive composite fee for the processing of the mortgage application and the provision of the survey which the customer requires.

It is important to distinguish between cases where a customer approaches a lender with a request that a particular surveyor be instructed to carry out a survey and mortgage valuation report simultaneously, and cases where a survey has already been carried out for a customer, who then asks the lender to accept a mortgage valuation from the same person. The lender will be able to consider the former case on its merits and, if the surveyor in question meets its criteria, may be willing to instruct him/her to provide the mortgage valuation report. These criteria will include the individual's competence, experience, integrity, the extent and currency of his/her professional indemnity cover and his/her familiarity with the lender's lending policy, documentation, house-style and any particular requirements regarding mortgage valuations. If the lender considers that the chosen surveyor does not meet its criteria, it will have no option but to decline the request.

Some lenders may not be prepared to go to the expense of carrying out checks on surveyors selected by customers, as they already invest considerable time and resources in retaining their own panels of approved surveyors. Accepting work from non-panel valuers/surveyors inevitably increases costs and lenders may therefore wish to make a suitable charge to the customer to reflect this.

Checks on non-panel surveyors will also inevitably mean some delay, which may result in customers losing the properties they wish to buy. Customers should be warned that opting to select their own surveyor may cause a delay and that approval of that valuer/surveyor cannot in any case be guaranteed. The likelihood of delay may be particularly relevant in Scotland, where offers to purchase have to be submitted within a very short timescale.

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Acceptance of pre-completed valuations

Lenders will generally treat all requests to accept mortgage valuations which have already been carried out in conjunction with surveys with extreme caution. Any lender which accepts such valuations risks surrendering control of an important part of the lending process and exposes itself to an increased risk of fraud. The main risk is that an intermediary may either "doctor" a valuation report or exert pressure on the valuer/surveyor concerned to provide an "appropriate" valuation figure. Unless the lender has maintained total control of the process by commissioning the valuation itself, directly from the valuer/surveyor, it cannot be wholly confident that such interference has not taken place.

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Monopolies and Mergers Commission Inquiry into residential mortgage valuations

In 1993 the Monopolies and Mergers Commission (MMC) conducted an Inquiry into the supply of residential mortgage valuations. The Inquiry included consideration of lenders' practices in relation to accepting customers' choice of professionals, and the MMC's final report (dated April 1994), recognised that vetting a customer's chosen surveyor would involve some administrative costs to the lender. Whilst the MMC considered that some individual customers might be disadvantaged by lenders' arrangements it concluded that "The best guarantee that lenders will take a reasonable approach to borrowers' requests lies in active competition in this aspect of the lending market.... Borrowers seriously concerned by the issue and not satisfied by the response from their initial choice of lender have the opportunity to seek a competitive mortgage package from another lender." The report continues "We consider that the benefits that lenders' controls provide for depositors, for borrowers themselves, and for the public interest generally, outweigh the disadvantages that may result for these borrowers."

The decision as to whom to instruct for the purpose of the mortgage valuation therefore remains firmly with the lender. A lender cannot be held responsible if a customer instructs a surveyor without first consulting it, and establishing that the person selected is acceptable for the purpose of providing the mortgage valuation. Lenders can help customers by including advice to this effect in any promotional literature which explains how customers may obtain more detailed reports.

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Valuer/surveyor liability

Valuers/surveyors who carry out a combined valuation and survey will complete the lender's mortgage valuation report form in the normal way and a separate survey report for the customer. The valuer/surveyor is contractually liable to each party separately for any negligent error or omission which results in loss. A lender which employs its own valuers/surveyors will wish to consider whether, under the terms of its general policy and their conditions of employment, it should undertake work for customers which could involve it or its staff valuers/surveyors in liability for negligence.

Before a staff valuer/surveyor undertakes a survey for a customer, the conditions of engagement should be agreed. The Royal Institution of Chartered Surveyors (RICS) strongly advises its members who intend to carry out a building survey to agree with customer, before they carry out the work, the terms on which they are accepting instructions and to confirm these in writing as soon as reasonably practicable. A mortgage valuation report is prepared for lending purposes only and by definition is much less detailed than a building survey report which is completed for the mortgage customer's own purposes or reassurance. It is therefore essential for the valuer/surveyor to be clear from the outset what the customer requires and for the customer to be aware of (a) what information is to be provided to him/her, (b) the cost and (c) the conditions of engagement. The valuer/surveyor should communicate with the customer personally and agree what is to be done and the fee to be charged.