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Determining the value of a property is a critical factor when a real estate investor is considering to list it for sale, avail of real estate financing, purchase property insurance and other purposes. But almost always, any property investor seeks to know the purchase or the asking price of a property, and this is where real estate valuation comes in. Here, Mario Volpi of Prestige Real Estate discusses the useful applications of property valuation, the practices that a property valuer has to comply with, and why it is important to hire a property valuer instead of relying on a real estate agent when making a financial decision.
Property valuation and its applications
Property valuation is the process required by a bank when lending to a borrower for mortgage purposes. The bank requests the subject property to be valued by a reputable valuer, normally a chartered surveyor, to ascertain its true market price before deciding exactly how much it will lend to the borrower based on this valuation. The loan to value (LTV) ratio was altered at the beginning of this year and currently stands at 75% LTV for expats and 80% LTV for Emiratis. Any second or subsequent loans are capped at 60% and 65%, respectively. The property valuation price is the figure used rather than the selling price on any memorandum of understanding to calculate the amount to be lent. Should there be a down valuation from the selling price, then the borrower will face a shortfall in his approved loan. Most firms of chartered surveyors will value the property by their own means in terms of their experiences and comparables, but will also definitely contact real estate agents requesting details of sales of similar properties sold at that time which they will use as comparable evidence in their research to finally come up with a justifiable valuation price.
Property valuer vs. real estate agent
A property valuer has a specific task and should hold the job title of a chartered surveyor who has studied for this respected qualification. The surveyor has a duty of care and has to justify his property valuation based on his experience, knowledge and research in reaching the specific valuation of the property at that time. The valuer will work for a firm of chartered surveyors who will also have liability insurance that would protect himself/ the company against any miscalculations or inaccurate valuations. Whilst real estate agents do know about property prices, they do not have such liability insurance, and the prices they give should be quoted only as a market guide not as a true reflection of a proper property valuation. The chartered surveyor or firm is not only qualified to do this job but is also registered by the banks to carry out this type of work. They are also called upon to give evidence in times of litigation and arbitration to prove a valuation, among other things.
Laws and standards covering real estate valuation in UAE
A chartered surveyor has to abide by strict laws and guidelines covering real estate valuation, and this is one of the primary reasons banks choose surveyors to value property for mortgage purposes rather than real estate agents. A chartered surveyor is amongst the most highly qualified and regulated professionals in the real estate industry. He has to adhere to the highest professional standards and best practice guidelines.
Since March of this year, any Royal Institution of Chartered Surveyors (RICS) member undertaking real estate valuation in the UAE must be enrolled in the Valuer Registration Scheme (VRS). The UAE is the first country in the Middle East to introduce this specific scheme. This initiative has been set up and widely welcomed to discourage non regulated and underqualified valuers, and to reduce the exposure of banks and the public to various risks, much like the RERA initiative that compels all property brokers who wish to undertake real estate services to pass the required exams and be properly registered. The ultimate aim of the surveyor registration scheme is to ensure the highest level of professional valuation services are offered by its members here in the UAE.
Valuer registration requirements by Dubai Land Department:
• Should have no less than 2 years valuation experience (for UAE nationals) or 5 years for all others.
• Valuation experience can be in any country in the world. However, UAE experience is preferred and recommended (for a minimum of 6 months). Valuers having less than 6 months UAE experience are liable for further checks.
• Valuers should be free from (criminal) convictions of any kind (through the police certificate of good conduct).
Source: Ellen Joyce Soriano, Special to Freehold