What’s that house really worth?

 For most home buyers, selecting a home can be somewhat of a hit and miss affair. Especially when buying a house to live in, much of the decision making is dictated by an emotional response to the home, rather than by rational considerations.
   Fortunately for those requiring a home loan, part of the loan application process involves getting a property valuation done. This provides an impartial assessment of the true value of the property, conducted by a qualified professional. However, even buyers who do not require a home loan may be well served by having a valuation done, if only for their own peace of mind.
   James Andrews of Andrews Key, believes that many people underestimate how important a valuation can be.
   “Many people see the valuation as only a necessary step or roadblock to getting a mortgage, but in reality why would someone want to overpay for a property if the appraiser doesn’t feel the property is worth the price being paid?” he says.
   According to Simon Watson of Charterland, a survey is always advisable when purchasing a property.
   “Where many purchasers make a mistake is in obtaining the survey once a purchase price has been agreed and only for the purposes of satisfying the bank’s lending requirements. Ideally the survey should be obtained before a purchase price is agreed and then any items identified in the report can be used as a negotiating tool in agreeing the actual price,” he says.
   David Groves, director of quantity surveying and property valuation at DDL, also believes that a valuation is far more than a mere requirement.
   “It is essential for mortgage and investment reasons to be sure that you are paying a fair market price for a property,” he says.
   However, valuations should not be limited solely to when they are required for the granting of a mortgage.
   “Property valuation surveys may also be carried out prior to re-negotiating bank mortgage conditions, prior to using the property as security against a loan and prior to renewing property insurance,” says Groves.
   There are three main types of survey that can be undertaken.
   The first and most common of these is a survey for valuation purposes. This is what is required when applying for a home loan, and effectively involves a walk-through by a chartered surveyor and although it is likely to pick up most major concerns, it is not really an in-depth inspection.
   A condition survey is more in depth, providing much more detailed information to the prospective purchaser.
   “It would require the Chartered Surveyor to note all obvious defects apparent from a surface examination of the building, even down to fairly minor items such as areas of paintwork that require touching up. Depending upon the client’s instructions, the Chartered Surveyor may be required to include in his report recommendations as to appropriate remedies to the defects noted and may even be requested to provide an estimated cost for such remedies,” says Watson.
   A building survey is the most comprehensive and most invasive of the three main survey types and includes actions such as “pulling up floor finishes, or penetrating the walling, where the chartered surveyor feels that it is necessary in order to fully investigate a possible defect” according to Watson.
   The process could also include other specialists such as MEP engineers and structural engineers where their specialised knowledge is required.
   “Many homes will look sound to a lay person but a surveyor will check for signs of structural problems which may be identified by settlement cracks,” according to Groves.
   Other common problems that need to be checked will be roof hurricane strapping and bracing, thermal insulation, weather tightness of the roof, condition of windows and doors, condition of mechanical and electrical equipment, pool and cistern water tightness.  
   “A chartered surveyor’s job in undertaking a survey is to identify any apparent defects that may impact the value of a property in the open market,” says Watson
   The results of the survey will also be of great use to a new owner when making a decision on purchasing a property.
   “A new owner will want to know the exact nature and extent of likely repairs before proceeding with purchase,” says Groves.    
   With any property, water damage is one of the main factors to be on the lookout for.
   In Cayman, such water damage can arise from a variety of sources.
   “Ivan damage, mainly from flooding, that has been either not been properly repaired or has been covered up. Water penetration – in roof space; around windows and doors; around/below plumbing fixtures,” says Watson.
   According to Groves, surveyors are also on the lookout for signs of termite infestation, inadequate hurricane strapping and bracing to the roof, settlement cracks due to poor foundations, the possibility of flooding due to low elevation and the condition of cabinets and appliances.
   Should such damage be discovered early enough in the process, it can either be used to drive down the price of the property of the prospective buyer can ask the seller to repair the problems before buying the property.
   “I would suggest that the purchaser gets seller to effect the repairs, because if you underestimate the extent of the damage and consequently the cost of repairs (or your discount on the purchase price), you might still end up paying a lot more than you anticipated before the repairs are completed satisfactorily,” says Watson.
   However, sometimes the survey may indicate that a property is not quite as good a deal as it seems.
   “If anticipated repairs and costs take the overall cost of a house significantly above the realistic market value, then the property is not going to be a good investment,” says Groves.