VALUATION FOR MORTGAGE PURPOSES

Abstract

Real estate mortgages provide an important form of investment for banks, finance companies and other lenders. The investor needs an independent, honest and intelligent opinion of value in order to decide with prudence, the amount to be advanced. Financial institutions lend the savings of investing members and the importance of sound values as a basis for the lending of mortgage funds is obvious. What the market value of a property may be a matter of expert opinion and therefore before deciding how much the institution should lend, a professional valuer is employed for mortgage loans. Hence the valuer must seek the market value of the property whether the client is a buyer, seller or lender and should not purposely reduce it to a 'mortgage value', a term incapable of accurate definition and often regarded as non-existent. The concept of 'one value for all purposes' should prevail in normal circumstances. A valuer will estimate the intrinsic worth of a property based on a thorough study of facts and trends which might affect the property and on the willing buyer/willing seller definition of value in order to determine the market value as at a specific date. A valuer owes a duty of care to any person, whether then identifiable or not, of whom the valuer knows or ought to know that the other party will place reliance on the valuation in a particular transaction. The completed work of a valuer is usually presented in a report which should demonstrate to the financier that the estimate is well supported. There are two factors related to the valuer's report for mortgage purposes: (1) the market value of the property for mortgage purposes (2) advice as to the nature of security and maximum percentage of the valuation which is safe to advance on the property.