TECHNICAL BULLETIN For Residential Surveyors
RESIDENTIAL INVESTMENT PROPERTY
The perilous world of residential valuation and surveying Page 05
WHAT MAKES GOOD RATIONALE FOR UNDERTAKING A RESIDENTIAL VALUATION INSPECTION? PART 2
Follow up article on good valuation rationale Page
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ESCALATING GROUND RENTS
The new risk area for residential valuers Page
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STRUCTURALLY INSULATED PANELS What the SIP are they? Page
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CONTENTS 03
THE TECHNICAL BULLETIN
WELCOME TO THE TECHNICAL BULLETIN
FOR RESIDENTIAL SURVEYORS
Welcome to the Technical Bulletin for Residential Surveyors. This Bulletin is designed for residential practitioners who are members of RICS and/or the SAVA Scheme.
Opinion – Why NIMBYs have reasons to be fearful
Produced jointly by BlueBox partners and SAVA, here you will find technical articles, updates on convention changes and best practices. We hope you will find this useful in your day-to-day work and we welcome any feedback you may have and suggestions for future publications.
RESIDENTIAL INVESTMENT PROPERTY
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The perilous world of residential valuation and surveying 08
WHAT MAKES GOOD RATIONALE FOR UNDERTAKING A RESIDENTIAL VALUATION INSPECTION PART 2
CONTACT SAVA Head office: SAVA, National Energy Centre, Davy Avenue, Milton Keynes MK5 8NA Telephone number: 01908 672787 Email: bulletins@nesltd.co.uk Web: www.sava.co.uk
Follow up article on good valuation rationale
CONTACT BLUEBOX Head office: c/o SAVA, National Energy Centre, Davy Avenue, Milton Keynes MK5 8NA Telephone number: 01908 442105 | 07989 406168 Email: chris.rispin@blueboxpartners.com Web: www.blueboxpartners.com
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ESCALATING GROUND RENTS
The new risk area for residential valuers
CPD
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CPD is a commitment by members to continually update their skills and knowledge in order to remain professionally competent. The Technical Bulletin is worth 60 minutes of CPD and can be recorded as such. More CPD can be found on the SAVA website.
STRUCTURALLY INSULATED PANELS
What the SIP are they? 22
ASBESTOS CONTAINING MATERIALS IN RESIDENTIAL PROPERTIES
SAVA is wholly owned by National Energy Services Ltd. (NES) While every effort has been taken to ensure the accuracy of all content in this publication, NES and BlueBox partners take no responsibility for any errors or omissions in the content and the views expressed in this publication are not necessarily those of NES or BlueBox partners. Neither NES nor BlueBox partners can accept any liability for any loss or damage suffered as a result of the content or opinions expressed. All rights in this publication, including full copyright or publishing right, content and design are jointly owned by NES and BlueBox partners, except where otherwise described.
How to avoid potential costly errors and omissions
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WELCOME TO THE TECHNICAL BULLETIN Opinion – Why NIMBYs have reasons to be fearful CHRIS RISPIN MANAGING DIRECTOR, BLUEBOX PARTNERS
They could hardly be described as “a blot on the landscape”, but they were developed centuries ago, when Planning as we know it was non-existent. The locals might complain about the traffic on the busy through road, but then how would the sightseers be aware of their beauty but for that main road dissecting the villages.
The Government recently published a White Paper on Housing, which made some very good points about key housing issues and the clear need to increase supply. However the supply of land is inelastic unless the land is to be reclaimed from the sea, undevelopable flood plains, brownfield sites or released from the green belt. Most of these options come at a significant financial cost making the last one, releasing development land from the green belt, appear like an easy option. However, it is not so easy when there are NIMBYs (Not in my back yard) who care about the green belt and don’t want development to scar what was once a beautiful view. But based on past experience NIMBYs have got good reason to be fearful, particularly when more recent developments are considered. Housing can be a thing of beauty and enhance the green belt, look at the Cotswold villages such as Bibury or Broadway.
Milton Keynes, which is celebrating its 50th birthday, is very different. To anyone walking or cycling the Redways it is well known that the green belt is alive and well within the urban area. However, the drive for increased supply in housing has produced some high density featureless developments that lack the imagination or generic growth of say the Cotswold village and have in some cases become the urban ghetto that the NIMBYs have good reason to fear. So rather than take a good space and develop it as a thing of beauty, that will attract buyers or renters for good. Homes 03
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If a building is beyond economic repair then why insist that the new building should stand in exactly the same footprint and replicate a design that was for a different era. It is nothing more than common sense to allow a degree of flexibility in such developments to take full advantage of the space available and create something that is more appealing than the eyesore it replaced. So, as the Government and their advisers contemplate not only the shortage of Housing and the Planning requirements that dovetail into the housing requirements, then apply a bit of common sense to reduce levels of bureaucracy and deal with the obstacles that are created through standardisation.
are often crammed on to infill sites that lack amenity, such as a garden and adequate parking space. They tend to lack sustainable value and even though some are well designed with feature windows and fashionable interiors, their view is one of the neighbouring roof, a gable wall or a street littered with parked cars.
There are of course limits - another building that is celebrating its 40 years since construction is the Pompidou Centre in Paris. A building that was designed to have its interior facing outwards, so it looks to some rather like a Meccano set.
Development doesn’t need to be standardised, that is the last thing you find in an attractive development. It also does not need to prolong the mistakes or the design requirements of the past in the name of conservation. There are many rural barns, which were featureless monstrosities designed to store grain, maintained that way for housing in the name of conservation and therefore continuing to present an oblong shape with a pitched roof. Yet with a bit of imagination feature windows could have been developed to take full advantage of rural views and other features applied to relieve the boredom of the old shape and build in that variety.
It would obviously not appeal to the residents of Bibury and nor should it, but in its context it has an appeal to some and no doubt the debate will go on for at least another 40 years, which is exactly what good art should do. Not dissimilar to the debate as to whether the Mona Lisa is smiling, smirking or just the look of someone thinking “just get on with it I have the washing up to do!” It is not suggested that new developments create a work of art that is controversial, it is suggested that new homes can be developed in such a way that they enhance the surrounding landscape and allow the residents to enjoy it to the full with a bit of imagination and flexibility, whether in the green belt, brown field sites or wherever.
WE LIKE...
The new flood resilient demonstration home on the BRE Innovation Park at Watford. Adapted to be resistant to flooding from water up to 600mm (2 feet) deep, it is also resilient to the effects of being flooded beyond that, as it is designed to dry out quickly and be suitable to move back into in a very short time after a flood incident. Although there was no major flooding last winter, flooding is a huge financial and personal cost for insureres who had to pay out approximately £1.3 billion for claims following the storms of winter 2015-16. As a result a new concept of ‘flood resilience’ is emerging – using products, materials and techniques to minimise costs and disruption after flooding events. The BRE Flood Resilient Repair Home demonstates alternative products that will not be affected by subsequent flooding; products that are resilient. It also shows how simple measures such as placing electrical outlets higher up walls and using doors and windows with flood resisting seals can help minimise damage. It demonstrates alternative materials such as waterproof insulation and render, water resistant kitchen cupboards etc. And, if water does get in, an automatic ‘sump pump’ connected to drains in the floor quickly gets it out of the house again. More information can be seen on the BRE Website https://www.bre.co.uk/floodhouse
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RESIDENTIAL INVESTMENT PROPERTY The perilous world of residential valuation and surveying CHRIS RISPIN MANAGING DIRECTOR, BLUEBOX PARTNERS
“Buy to Let” (BTL) became the in-phrase of the dinner party scene in the early 21st century. Possibly because the old terminology of a “residential letting” was tarnished with such matters as Regulated Tenancies, the Housing Acts and Rent Control. This new phenomenon was not shackled as there was a new tenancy regime principally of Assured Shorthold Tenancies (AST) that could command a market rent and the Landlord could get possession easily at the end of a 6 month tenancy. Therefore the Lenders felt they could lend on these in the same way as any other owner occupied property. However, a key element has not changed and that is the Housing Acts and a host of other regulatory measures which were discussed at a recent BlueBox/SAVA conference. At least one delegate sat up and took notice as he fed back: “This was the most informative conference that I have ever attended.” So we thought we should share some of the key points to highlight the need to be aware of the Housing Legislation and Regulation in connection with this growing area of tenure and therefore try and reduce the perils of undertaking residential valuations and surveys.
Categorisation for Residential letting
A stimulus for the current debate is that the RICS has recently produced a Guidance Note entitled – The Valuation of buy to let and HMO properties. This will be seen as the definitive document against which a valuation will be measured if it is contested in the future, so it is a “must read”. A good point is that the categories of BTL as defined in the Red Book remain the same:
Category 1. Single unit let to a single household let on an AST Category 2. A single residential unit let on a single AST but to individuals on a sharing basis up to a maximum of 4 individuals Category 3. Licensable houses in multi occupation and multi units held on a separate title It is important to note that both category 2 and 3 could be Houses in Multiple Occupation (HMO) and given the nature of such lettings it is to these that most of the Regulation and Legislation applies.
Legislative and Regulatory Matters – The Housing Health and Safety Rating System
All rented property must meet a legal standard and this was most recently defined in the Housing Act 2004, but did you know there is a plethora of other legislation and regulation that governs lettings? Its far too great to cover in one article but a signpost would be as follows – Property Management regulations, Building safety measures, water supply and drainage provisions, gas and electricity safety regulations, waste disposal, fire safety, duties on occupiers and landlords, Local Authority specific requirements in respect of room sizes and overcrowding. As a letting agent or a valuer you need to be aware of what measures need to be in place, otherwise the property may not be capable of being let and this could have an impact upon the valuation. Get it wrong and this could lead to a civil action, but as failure to ensure the property meets 05
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TECHNICAL BULLETIN safety standards could lead to a criminal prosecution and this may be more significant for Agents.
• Falls on the level
In the days of residential lettings the legislation related to whether the property was “fit for human habitation”. This has been replaced by the Housing Health and Safety Rating System (HHSRS) and a Local Authority has to take action if a property is subject to what is defined as a Category 1 Hazard, table 1 below sets out the hazards.
• Damp and mould
The definitions of Hazard category are related to a risk assessment of the property. So a healthy able single occupant in a property with a steep stairs and no handrail, would not be at as great a risk as a family with young children or an elderly person with a disability. However, the legislation does not just apply to occupiers, but also visitors so the assessment has to be fairly holistic.
• Electrical
• Falls on stairs • Excess cold • Falls between levels • Entry by intruders • Scalds and burns • Food safety
These hazards apply to any property that is let and the breadth of the areas listed shows what needs to be considered when inspecting a rental property.
Cold
Falls
Fire
Hot Surfaces
Damp / Mould
Carbon Monoxide
Radiation
Electrical
Noise
Lead
Asbestos
Intruders
Crowding / Space
Explosions
Domestic Hygiene
Food Safety
Personal Hygiene
Sanitation / Drainage
Contaminated Water
Structural Failure
Inadequate Lighting
Uncombusted Fuel Gas
Entrapment
Poor Ergonomics
Table 1 – note there are not 29 hazards listed as some of the hazards such as falls are subdivided
As with any risk assessment, consideration is given to the likelihood of an occurrence. So what is the risk over the next 12 months, could it result in harm to a vulnerable member of society? Then the risk has to be related to probability. It is a 3-day course to learn how to do one of these and it will take about 2 hours on a fairly typical family home to undertake the assessment. It’s not something you can incorporate into a mortgage valuation without extra fee. What a valuer can do is identify potential hazards that are likely to result in a high level category of risk and then make them an essential repair or if in doubt ask for a specialist assessment in the same way as for an ongoing movement crack. The irony is, that in some cases the cost of doing something could be minor, such as installing a handrail to a stairs or bath. However, without such a simple measure and if there is an accident that results in injury or worse than the consequences could be significant.
The Lenders imposed view
Dampness is clearly a hazard to health that could prevent a property being let and may be expensive to resolve. This means there could be a void period which will reduce the income necessary to pay the mortgage.
Therefore the annual rent required for this level of loan is £39,875pa or £3,325pcm
The risk associated with investing in property becomes apparent where the Landlord requires a mortgage. The Prudential Regulation Authority has imposed stress testing which will inevitably constrain the value of the loan that a lender can make. Lenders have to currently assume a minimum increase in interest rates of 2%, so in the following example: A 2 bed, 2 bath flat in Battersea • Value £1,020,000 • Rent £2,800pcm (£33,600pa) • Borrowing requirement £500,000 (less than 50%LTV) • Interest rate 3.5% with stress test 5.5% • Interest Coverage Ratio (ICR) 145%
On the current rental levels the maximum loan is £433,000 result
Common hazards were listed (in no particular order) as: • Fire
The Landlord needs to find another 13% for the deposit 06
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TECHNICAL BULLETIN Whether the lender assessment is a reasonable way of looking at an investment is questionable. The ICR is a fairly blunt way of assessing rental cover and seems to take no account of whether the property requires more or less maintenance or has other forms of additional cost. It is particularly vulnerable to voids especially if the repairs are significant as the ICR does not allow for long term lack of rent. Given this methodology the valuer needs to ensure the client is aware of matters that could destabilise such an approach. It does however, highlight the importance of assessing the rental value correctly. It adds another dimension to assessing the yield applicable to capitalising the value and perhaps if this was done more frequently it would avoid this sort of workaround.
Approved Documents, but this obviously varies depending on the height from the ground level. Be aware of inner rooms. One where an exit is only possible through another room as this may prevent them from being classed as a habitable room. It is also important to consider where the exit route takes you as escaping into a back garden with high fences will only be acceptable if the area is as deep as the house is high. Finally detection and warning provisions are changing or have changed recently with some areas requiring sprinkler systems. Upgrading a current system can also apply if someone is building an extension, so allow for additional costs.
At least this use of an ICR reflects the difference between a property investment and a pure financial investment such as shares.
Full consideration of these areas together with worked examples will feature in another article.
The Guidance Note focusses quite significantly on the Lender approach to valuations and this is because the ability to source a loan. It can have such an impact upon the value whether the valuation is for loan purposes or not. The production of an Inheritance Tax valuation has to refer to a market value dominated by sales subject to a mortgage.
Energy Efficiency
We recently featured an article on the new requirements to deal with energy efficiency rating and the Minimum Energy Efficiency Standards (MEES), these are particularly significant for properties that are let and we would refer you to that article {Technical Bulletin, Issue 25}
Houses in Multiple Occupation (HMOs)
Any Surveyor contemplating undertaking a HMO valuation has to be aware of the sections covered in the Guidance. As that signposts many areas that need to be considered beyond the relatively simple single occupancy letting. The approach to be adopted here demands a separate article, this article is not intended to cover the specifics in this one, other than to say all the points mentioned also apply to HMOs, but more so.
Conclusion
This article merely signposts some of the considerations in undertaking a valuation on a property that is to be let as an investment, hopefully it will signify that a higher standard of performance is required from the valuer. The importance of this being that now the Standard is in the public domain then the valuer has to comply or risk penalty in some form of other. So a bit of guidance on what needs to be done:
Fire Safety
There have been many examples recently of tragic consequences resulting from a fire in the home. It is not surprising that fire prevention and means of escape, feature highly in the Regulatory framework governing residential lettings. The taller the property then the more stringent the requirements. However, as many of the measures are concealed it is often difficult for the inspecting surveyor to detect whether the full extent of measures have been undertaken. Although the safety aspects have additional significance to let property, so potential buyers for owner occupation should not be deprived of understanding the consequences of fire risk as well.
• The terms of the work need to be clear and agreed
with the client, which may involve some education for the client as to why the assessment of the property differs from a normal owner occupied purchase.
• The research and collection of information needs to
be more thorough and those experienced in this sort of work use more complex site notes.
• Although many properties that are let trade by
reference to comparable capital values, the “knowledgeable and prudent” buyer would be expected to consider that return on investment and assess it by references to risk.
Knowing the core principles as set out in the Approved Documents to the Building Regulations are a good starting point. Check up on “protected routes” as examples are given in those documents. Fire resistant doors are key together with appropriately constructed walls and ceilings. But noting that the fire doors not having a self-closing device is no longer an indicator in most cases as they are not necessarily required, so it is important to check whether a door is in fact properly constructed for the conditions.
• An investment valuation is the recognised method
for many of these cases and recommended as one approach in the RICS Guidance.
• In your report ensure that you advise the client of the
specific issues that impact up on value for a property subject to a letting and identify risks that may be pertinent for such an investment.
Adequate escape through windows is a tangible measure that can be assessed based on the guidance in the 07
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WHAT MAKES GOOD RATIONALE FOR UNDERTAKING A RESIDENTIAL VALUATION PART 2 Follow up article on good valuation rationale GILES SMITH CHIEF SURVEYOR & TECHNICAL DIRECTOR, SDL SURVEYING
When I was a lad, our maths teacher used to tell us that we could get up to ninety percent of an exam mark for showing the correct working out, with the actual right answer at the end being worth a mere ten percent of the total.
depends on the selection of good quality comparables, the quality of your analysis adjustments, and the quality of your thought process and reasoning in arriving at your valuation figure, recorded as your justification.
Being the sort of disturbed kid who eventually grew up to be a surveyor, I decided to test this out. In my next monthly maths test, I produced perfect calculations, deliberately entered wrong final answers, and sat back to await my cleverly-contrived A grade. Unfortunately, our maths teacher could sum up idiots just as well as complex numbers, so he gave me a big round zero... For ‘lack of effort’.
Well, plus ca change. The technology may have advanced into the realms of science fiction, but the old principles are really the same – a human being with specialist knowledge making very specific and intricate assessments of relative attributes to arrive at a valuation. All that’s changed is the availability of data and the expectation that we will use it in detail, and then record it in a manner that shows we understand it.
Imagine my surprise many years later hearing a judge summing up in a negligence trial and basically peddling the same philosophy. The valuation figure was obviously disputed and there was no rationale (‘workings out’) in the Valuer’s site notes. The Judge was scathing about both the Valuer and the supporting expert when they were unable to satisfy him from the witness box of exactly how much the scant comparables were really ‘better’ or ‘worse’ than the subject property. In fact, the toe-curling embarrassment of hearing property professionals being unable to back up their own opinions in detail was something I didn’t ever want to hear again, and converted me firmly to the merits of Valuers laying out their thought processes right from the outset in clear, detailed site notes.
To start with, the selection of good quality comparables is key. In a world of identical three bed semis, valuation becomes somewhat easier, but the more unique the subject property, the more searching and thinking we have to do. I don’t believe we need to explain here in great detail that a flat is an unsuitable comparable for a detached house, but when a house sits in a road of bungalows, we need to be clear we should consider widening the net to find other similar houses in other streets, so we can compare housing apples with housing apples. Selected comparables should therefore match the characteristics of the subject property as closely as possible, within the constraints of available market evidence and geographic location. Ideally they should not differ significantly from the subject in material respects, particularly in terms of type, age, and bedroom numbers. They should also (for estate properties or areas of urban development) be at least in the same locality and ideally
So how should we go about the modern day fusion of art and science? In simple terms, the quality of your valuations critically 08
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TECHNICAL BULLETIN within a few streets of the subject property, or in a comparable value area close by. Of course, simply seeking only comparable evidence which supports the figure advised for the subject is not acceptable – all the relevant market evidence should be considered.
based on the surveyor’s experience or opinion, might be used. The following are the most usual points of difference where adjustment might be needed: • Property type
If closely matching comparables are not available, then the subsequent analysis and adjustment of the factors of difference of those comparables which are considered is particularly important to relate them to the subject. Generally, where there are more than say three or four areas of material difference, a comparable may be of limited use and alternatives should be sought.
• Property age • Overall size, extensions, bedroom numbers (ensure
compared floor areas are all on the same basis i.e. GEA or GIA, and net of integral garages)
• Property internal features including ensuites, utility,
study, cellar, internal layout
A comparables matrix should then be completed fully and legibly, to be acceptable as a data record and provide defence to any subsequent claim.
• Garden/grounds, including outbuildings/facilities e.g.
pool, tennis court, stabling, workshop/studio
• Condition and state of modernisation; quality of
building/specification
So far, so standard, I hear you say – but it is at this stage that I believe a little more effort is required.
• Particular features and appearance e.g. fine views,
well-screened plot, high levels of insulation (likely to become more relevant with MEES), mooring rights, Listed status
Subject to RICS Guidance on use of comparables, whilst firms generally and quite rightly follow the processes both they and insurers feel most comfortable with, there is a growing movement to analyse each comparable in depth using lump sum or percentage adjustments (rather than relatively vague terms such as ‘better’ or ‘worse’) in order to compare effectively. The major concern usually expressed about this approach is that it seems ‘too forensic’. Surely if the lump sum or percentage adjustments are not based on precise market analysis, someone will hold us to account later, won’t they? Well, yes and no. It is true that the adjustments must be founded in reality. In the previous article, Chris Rispin wrote about gathering local data to determine attributes and value differences, but matrix adjustments are ultimately just a way of recording a process that Valuers have been doing in their heads for generations. An experienced Valuer will probably know how much more a semi is worth than a mid terrace in his location without really thinking about it, (although other plus and minus points may require some deeper thought); the less experienced Valuer will, as ever, need to learn their patch by reference to property websites and sales data. So the only thing that has changed with a so-called ‘forensic’ approach is that we are now writing the data down in detail, and showing our thought process. For the majority of factors (e.g. house type, number of bedrooms, floor area, known or assessed condition, value location, setting and changes in market values over time from the comparable sale date, particularly in a falling market), a percentage adjustment of the comparable sale price based on the surveyor’s experience is often the most suitable way of reflecting differences. An appropriate adjustment should be made in percentage terms for each of the points of difference, both + and -, based on the surveyor’s experience, recorded individually for each point. For some differences, e.g. with different areas of land or self-contained annexes, or utility rooms and small extensions, a capital figure adjustment, again
• Value location – properties just one or two streets
away can be of significantly different values (the location on one particular side of a road may be more valuable)
• Proximity to adverse factors or uses e.g. motorways,
rail tracks, known flooding area
• Proximity to, or location in, value-adding local factors/
areas e.g. school catchment area, rail/tube station, lower council tax area, good broadband speed location
• Market changes since date of sale (and possibly
changes in value between agreed and completion sale dates in a fluctuating market)
• State of the market • Special sale factors e.g. quick sale needed for
emigration, relative purchasing, repossession sale, sitting tenant, and probate sale. A bidding war between two buyers can inflate a price.
Some points of difference may be too minor on their own to be value-significant, but cumulatively may warrant an adjustment. Therefore local knowledge, or a source of it, is invaluable in knowing if particular factors are relevant, and what adjustments to apply for all relevant factors. After similarly analysing all the comparables in a matrix, the results may yield reasonable adjusted comparable value range which will either support the sale price/estimated value of the subject or not. (If it does not support the subject value or if the range of adjusted values is wide, then reconsider the analysis of each of the comparables to ensure the adjustments made are reasonable. Then reconsider whether, in the light of the analysed comparable evidence, the purchase price or estimated value does reasonably reflect the current market value after all.) It is clearly inappropriate to record individual adjustments 09
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TECHNICAL BULLETIN that are inconsistent or just plain daft; a consistent approach must be adopted. However, a difference of one or two percentage points per attribute from the scientific reality is not going to make a huge difference in an adjustment exercise when an adjusted comparable range is being derived at the end. The point is that the Valuer is engaging in a methodology that can be clearly reviewed at a later date, and most importantly, is following a thought process leading to a valuation figure which is hopefully robust and verifiable via a behaviour that avoids getting it wrong to start with.
Of course, the mechanics of adjustment are not the end point of a valuation process; a concluding justification is required. This is a critically important part of the valuation exercise, where after analysing the comparables, a detailed note should be recorded of the reasoning why the valuation figure submitted was decided on, and with sufficient explanation where the valuation differs from the agreed price or estimated value. Clear demonstration of the ‘thought process’ is required, and is effectively the ‘summing up’ of your efforts which leaves no doubt of your competence.
Consider the following example of an adjustment matrix;
The detailed written justification for the valuation should include a ranking for each of the comparables considered, with a note of the importance the surveyor attached to them in deciding on the valuation figure. The justification should typically include (but is not limited to): • A statement of the adjusted comparables range • A comment on how the Purchase Price/Estimated
Value relates to that range and, if outside it, the implications for the valuation figure.
• An explained ranking of the comparables. • All other relevant factors which the surveyor had
regard to in arriving at the valuation.
• A record of the decided valuation figure.
It should also include when appropriate, as examples: • A comment and explanation where the Adjusted
Comparables Range is considered wider than would normally be acceptable.
• Explanation where any ‘less than ideal’ value-
significant comparable factors have been considered – typical examples: significant differences in age, type, size, value location; sales over six months old; ‘for sale’ comps used of necessity.
The value-relative attributes have been given a percentage adjustment, including kerb appeal. Note the floor areas have not been adjusted by simple proportion since an allowance has been made in percentage terms to reflect the three storey accommodation in some comparables. An allowance of minus 5% has been recorded for new build premium.
• Explanation where the valuation differs from the PP/EV • Where a ‘restricted marketing period’ valuation is
requested, adequate explanation and reasoning for the reported figure.
RICS has previously told Valuers that; • The justification should be a reasoned argument that
An adjusted comparables range of £2.6 to £2.8 million is thereby derived. This indicates a valuation very much below the estimated value of £3.4 million.
leads to the conclusion of the valuation itself.
• The Valuer’s justification should be part of the site
notes and show the reasoning behind the valuation, demonstrating the relative merits of the subject property compared to the comparables.
This example is interesting because it is derived from the comparables used in the case of Blemain Finance Ltd v E.Surv Ltd [2012] EWHC 3654 (TCC) (20 December 2012), and the summing up of The Honourable Mr Justice Coulson at a true value of £2.8 million. You are at liberty to read the full judgment elsewhere, but the simple application of the matrix adjustment process to the Valuer’s own comparables would have instantly put him on alert that the applicants’ £3.4 million estimate was wrong. In other words, this process could have saved a very significant claim.
• The justification should also include comment on the
general tone of the market and the context of the valuation in the market so that it reflects a balance of the evidence.
• The justification could also record the opinions of
other professionals whose views are trusted and have been obtained.
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TECHNICAL BULLETIN • The use of comparable evidence that simply
I appreciate that some would be horrified at the thought of providing this level of detail for each and every valuation. The good news is that the content need only be proportionate. A slack market with little activity should be mentioned in the summary, but if there are three excellent identical comparables to back up your figure, then the justification text can be trimmed to suit. However, there must always be a justification, no matter how direct the comparable evidence and no matter how confident you are in your figure. A proper justification is an integral part of the modern valuation process, and your insurers and the courts expect to see it, to say nothing of your client and their auditors.
substantiates the purchase price but which varies dramatically from the balance of the evidence in the wider market is to be avoided.
Consider the following justification provided for a valuation undertaken in the summer of 2016;
The subject property is a semi detached house of average size and condition. It includes an average plot and separate garage. The comps comprise two houses of similar age and type and a further comp of older style. All are in close proximity to the subject but C 1 / 2 in particular are on the same estate as the subject. I have provided a comprehensive write up of each comp, how it relates to the subject, why I have made adjustments and the meristem of the data that was available. This information is given under each comparable’s individual note section on the matrix. As such, this information is critical to my analysis and MUST be reviewed in line with the justification to fully appreciate my thought process.
Now that I’m no longer a lad, I have occasionally been asked by young Valuers answering their first contentious post valuation query or complaint whether I think any legal implications of their responses should be considered first. I normally reply that residential valuation is not supposed to be a process of self-protection for its own sake... after all there is always a client who expects the very best of advice, not the very worst of a caveated process to mask a lack of knowledge. All that aside however, I often then go on to say that if they really do want to consider the legal implications of their valuation work, then the time to do it is before they submit the figure.
The range is small (within appx 5% of the decided valuation) and this gives me confidence that the chosen value is reasonable for this property and that the comparables are suitable. All comparables sourced for this valuation are located within around ¼ of the subject property. Following the referendum held on 23 June 2016 concerning the UKs membership of the EU, a decision was taken to exit. We are now in a period of significant uncertainty in relation to many factors that historically have acted as drivers of the property investment and letting markets. Such circumstances are unprecedented but are expected to result in similar uncertainty in much of the property market. Since the referendum there’s been little or no empirical evidence of market activity upon which to base our opinion(s) of value, resulting in a reduced level of certainty that can be attached to our valuation.
There is always more than one way to conduct the dark art of residential valuation, and even more opinions than methods. But remember, Valuers will continue to be challenged retrospectively, and sometimes unfairly, so in the absence of firm evidence in your defence, barristers will instinctively try very hard to interpret your thought processes as they think they should have been. Why not eliminate vagueness, nail your professionalism to the mast, and write down your analysis, adjustments and justification boldly on your site notes? At the very least, you’re getting your defence in early. Using a behaviour that drives a greater chance of getting the figure right in the first place, which is surely what both we and our clients want?
The market for this type of property in this area has lost momentum and I don’t expect values to change significantly in the near future. How does the chosen value relate to the ACR? Does it follow the comparable ranking? I have not observed satisfactory evidence to be convinced of a market reversal, particularly in an area such as this where demand is typically very strong but the evidence here is pretty compelling in showing the agreed pp for this property is below that which would be expected. Interestingly it was actively marketed for £325,000 yet is being sold for £315,000. This represents less than five percent lower value so fairly negligible.
My maths teacher was right... it’s all about effort.
Having considered the comparable evidence and marketing I have decided to value at the agreed pp of 315,000.
Clearly at the time (not long after the 2016 EU referendum) there was some uncertainty in the market, and the justification is therefore tailored to suit. There is a description of the property, the comparables and their relativity, the adjusted comparable range, and the proximity of the comparables to subject. Critically, the Valuer has identified that market conditions are potentially uncertain, included a ‘Brexit’ clause, and has thoroughly detailed the property market as he sees it at the date of valuation. Whatever the accuracy of the valuation figure, I think you will agree that it would be hard for a barrister to imply that this was not the methodology of a reasonably competent practitioner.
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ESCALATING GROUND RENTS The new risk area for residential valuers KIRSTY SAUNDERS & MATTHEW YUSSUF TALKCPD LTD
Is it a short lease? Is it an H.M.O? No it’s an escalating ground rent! Seemingly, the new buzz phrase in the residential valuation industry! Escalating ground rents appear to be the new risk area for residential valuers.
of the lease; or a leasehold house purchased 20 years ago for £150,000 with a ground rent of £50, now having a ground rent of £32,000. A hidden clause in the lease said the ground rent would increase to “1% of the sale price, or 60% of the rentable value, whichever is higher.”
Whilst escalating ground rents have been around for some time, and it’s not uncommon to see a ground rent rise from for example £25 to £75 or £50 to £100, more recently we have seen cases of rapidly escalating ground rents. These can range, with some formula based linked to retail price index, or perhaps of more concern, where the ground rent increases to a percentage of the market value or rental value of the property, or those which double every 5 or 10 years.
So what does it mean for valuers? Lenders are now asking whether the value will be affected where properties are subject to escalating ground rents. Lenders are understandably very cautious and some are starting to amend their guidance. So what is the impact on value? Recent examples seen include a modern resale flat built in 2006 with a £300pa ground rent doubling every 10 years together with a high service charge. There was no owner occupier market as they just couldn’t afford it but the investor market was still holding up. However, the assessment had to take into account that at the next escalation in 10 years time, the demand would be questionable and an accurate assessment of the impact on value nearly impossible. Answer – not suitable for lending.
Where escalating ground rents are onerous, this may have an impact on the marketability and/or mortgageability of the property. As a minimum there is resultant increase in the premium payable for a lease extension or freehold purchase where the capitalisation of the ground rent is factored in to the premium, or in more extreme cases the ground rents become so unaffordable that the leaseholders default leading to court proceedings and potential forfeiture of the lease.
Another was a modest ground rent with a 30 year escalation pattern – the ground rent increase was below the rate of inflation and there was no escalation due within the term of the mortgage. Answer – suitable for lending as it was not deemed to impact the security for that lender. What happens in 30 years time? Your guess is as good as anyones!
These are often being seen on new builds or second hand resales where the original purchase date was 2006/2007 and the first review will be due now where the escalation is every ten years. A couple of well documented cases include: a leasehold flat purchased at £169,000 on a 125year lease with ground rent of £250 that was seen to double at 10 yearly intervals for the duration of the term resulting in a ground rent of £512,000 in the final decade
So what does it mean for the future? There is limited guidance at present and valuers will once again be 12
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TECHNICAL BULLETIN metaphorically putting their heads above the parapet… so caution is recommended! Escalating ground rents on houses have had a lot of recent press with the issue due to be discussed in Parliament imminently. It is reported that some senior government officials feel this type of ground rent escalation is unlawful, unethical and serves no purpose other than to put the owner at a disadvantage. The word on the street is legislation is likely.
• Change your standard leasehold caveats to include
But what does this mean for valuers in the interim? The CML handbook states that a lender is to be informed of any increase in the ground rent that may materially affect the value of the property. It has been intimated that where the conveyancing solicitor fails to warn the purchaser, and/or the lender providing a mortgage secured on the property, that those lease terms may adversely affect the value of the leasehold property, they may be negligent. Some prominent industry representatives have however expressed their sympathy for conveyancers and solicitors, noting that without an expertise in valuation, they are often themselves unaware of the full implications, perhaps paving the way for counter claims against the “valuation experts”. There’s a surprise I hear you shout!
• Assess whether the escalation will be in excess of the
the assumption of a fixed ground rent – this will at least ensure that legal advisers are alerted to further investigate
• Assess the demand for owner occupation and
investors including sales comparables in the locality so that you can accurately report in line with individual lender guidelines level of inflation
• Establish the term of the loan and determine if the
escalation will occur within the term
As with all cases, if you are unable to make an accurate assessment and cannot provide a clear rationale to support your valuation... err on the side of caution, take a deep breath and do not provide a valuation! Then await the PVQ. Don’t worry, its nearly summer and there’s another new risk lurking round the corner, soon this will be yesterdays news! For more information on TalkCPD, go to their website: www.talkcpd.com
So what can you do to mitigate your risk? Establish a process for your assessment based on some simple principles:
CAPTION CORNER Limitations of inspection! Please send us your caption suggestions to bulletins@nesltd.co.uk by Sunday 30th July 2017 for a chance to win a prize. The winner will be published in the next bulletin! Do you have a picture for the next edition? Send any photos for consideration to the email address above.
CAPTION CORNER RESULTS No need for a ladder! The winning submission this month is Michael Newport with: “Health and Safety…… not an issue for surveyors our standards are head and shoulders above the rest” Congratulations to Michael, your prize is in the post! Notable mentions include: Stephen George: “Sorry John, we’re going to have to bring the trampoline in from the garden!” Jeffrey Scott: “An apprenticeship can be hard on the back!”
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STRUCTURALLY INSULATED PANELS What the SIP are they? PHIL PARNHAM DIRECTOR, BLUEBOX PARTNERS
Do you remember the good old days when residential dwellings were defined as one of two types: traditional or non-traditional. The latter category conjuring up negative images of poorly built post-war technologies and materials. In the 1980s, the construction industry got caught up in the rush to timber-framed construction until the now infamous 1983 ‘World in Action’ documentary identified vapour barrier and fire resistance defects that caused the near collapse of the timber framed sector in England and Wales. Since those times, new types of building systems and technologies have been introduced and this article will review the latest modern method of construction – the structurally insulated panel – and consider how residential practitioners can adopt a balanced approach to assessing this relatively new type of construction.
builders did not adopt MMC. Research carried out by the NHBC Foundation ( h t t p s : / / w w w. n h b c f o u n d a t i o n . o r g / p u b l i c a t i o n s / ) , investigated the potential barriers to these new building methods. In their 2013 publication ‘Building sustainable homes at speed – risks and rewards’, stake holders identified the most significant risks of using fast building methods. The following three concerns were all in the top five: • The changeable requirements of the mortgage
and insurance industries. Many lenders currently lend on MMC dwellings as long as they are covered by a NHBC warranty or its ‘equivalent’. Others do not rule out lending on MMCs and use phrases like ‘considered on a case by case basis’ or they are ‘confirmed as mortgageable by the surveyor’. In other words, the practitioner is left to decide;
The problems posed by modern methods of construction (MMCs)
Towards the end of the last century, a number of government initiatives attempted to modernise the construction industry, resulting in many agencies embracing new materials and techniques (especially in the social housing sector). Collectively called ‘modern methods of construction’ or ‘MMCs’, these never broke through to the mass private housing market despite their starring roles on TV programs like ‘Grand Designs’.
• Concerns about the high cost of maintenance. Many
MMC systems are relatively short-lived making the sourcing of replacement products difficult if problems occur in the future. Insurance companies also want to know the nature of a building’s construction as several charge a premium for modern timber framed properties. Insurance companies specifically warn applicants that inaccurate disclosure of the true nature of the dwelling could invalidate insurance cover if a claim is made.
The ‘noughties’ slipped by and although the house building industry had successfully incorporated new ‘sub-assemblies’ into conventional building methods (for example, plastic plumbing, prefabricated chimneys and timber ‘I’ beam floor joists to name but a few), major
• Worries about the health implications of low air
impermeable structures. Academic research into the quality of air in tightly sealed dwellings is regularly
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TECHNICAL BULLETIN featured by main stream media. BBC News, the Guardian and the Telegraph are amongst those who have covered the topic over the last twelve months.
However, BOPAS promises much but delivers little of practical benefit. A quick review of their website reveals few the inclusion of few contractors/developers (less than 30) covering a relative small number of housing developments (less than 60 sites across England and Wales). Some of the sites are small and much of the data incomplete. Although it may be early days, the BOPAS initiative falls short of giving valuers universal reassurance.
These factors continue to cast a shadow over new ways of constructing dwellings.
A new assurance scheme
In an effort to provide reassurance to the lending community that modern building techniques can provide a minimum life of 60 years, RICS, Lloyd’s Register and Building LifePlans Ltd (BLP), in consultation with the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) formed the Buildoffsite Property Assurance Scheme or BOPAS for short (http://www.bopas.org/). This Assurance Scheme comprises:
If it’s broke, fix it
Just when the MMC initiative was in danger of becoming a damp squib, two developments have lit the fire under the prefabrication pot. The first, published in October 2016 was the report commissioned by the Construction Leadership Council, at the request of government by quantity surveyor Mark Farmer. Sub titled ‘Modernise or die’, this review of the house construction sector made a number of recommendations including one that calls on the government to promote the use of ‘pre-manufactured solutions’ to house construction through policy measures.
• A durability and maintenance assessment. • A process accreditation. • A web enabled database comprising details of
assessed building methodologies, registered sites and registered/warranted properties
The second was the government’s own white paper published in support of the proposed Housing Bill that promised to fix ‘our broken housing market’. Amongst its proposals is the aim to support and increase the use of ‘modern methods of construction’ as a way of increasing the supply of new housing.
The concept is illustrated in figure one and two. In figure one, the valuer is left to make the lending decision. In figure two, the BOPAS database would provide the necessary assurance of a 60 year life.
Prefabrication is dead, long live prefabrication!
To some extent, the sector had already picked up the baton. For example, Legal and General have set up L&G Homes that aims to do for housing ‘…what Henry Ford did for the modern automotive industry’ by ‘providing precision engineered factory manufactured houses’. They have set up one of the largest modular housing factories in Europe and are currently building support for their ambitious plans within the lending community (https://www.legalandgeneral. com/modular/). They are not on their own. Housing associations are linking with Chinese multinationals and small and medium sized manufacturers are pitching in the self-build markets. These latest developments all have a common thread: the systems are based on modular pods built and finished in the factory and fixed together on site.
Figure One: The current where the lending decision is largely left to the valuer.
Implications for residential practitioners
Whatever our opinion of MMCs, residential practitioners are having to value and assess these newer forms of construction now. Faced with lukewarm attitudes from both lenders and insurers, how can practitioners strike the balance between properly advising clients, protecting our own liability while not standing in the way of innovation and change? The rest of this article will outline an approach first presented at the SAVA BlueBox conference in March 2017.
Structurally Insulated Panels – the new kid on the block
Rather than running through all the different types of ‘modern methods’, I will ‘cut to the car chase’ and focus on identifying and assessing structurally insulated panels (or
Figure Two: The future according to BOPAS. Their database supports the lending decision and provides reassurance to the market.
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TECHNICAL BULLETIN ‘SIPs’ for short) because:
bond between the OSB and the foam core, the strength and stiffness of the whole panel can be affected. In the worst cases, temporary shoring may be required.
• They are at the heart of many of the new modular and
prefabricated systems currently being launched in the market place, and
Once this happens, the repair is complex. Because the OSB skins transfer load to the foundations, simply cutting out the affected board and gluing in another piece is not an option. The matter would have to be reviewed by a structural engineer and the repair could involve disruptive panel removal and replacement or alternatively a repair using conventional load bearing studwork. It is interesting to note that many of the reported failed panels in the USA had the cladding fixed directly to the surface of the SIP itself.
• They are different to most other types of prefabricated
timber frame panels.
Why are SIPs different?
To answer this question, it is important to understand the nature of a SIP and how they differ from the ‘traditional’ timber framed systems. Timber-framed wall panels usually comprise of vertical timber studs, soleplates, headplates and noggins all sandwiched between varieties of boards. The resulting voids are usually thermally insulated in the factory by injecting or placing thermal insulation within the timber framework.
SIPs and ventilated and drained cavities
Due to problems of this type, most SIP manufacturers, trade associations and warranty schemes in the UK require a drained and ventilated cavity between the SIP panel and the cladding. This can range from 20mm cavity for timber cladding, brick slips and thin renders to 50mm for conventional masonry skins. Whatever the type, the cavities should be drained and ventilated by weep holes above all cavity barriers and along the base of the walls. The final barrier against dampness is usually the breather membrane fixed to the surface of the panel.
SIPs on the other hand, consist of two high density facings (typically orientated strand board or OSB) bonded to both sides of a low density, cellular foam core. Often called ‘stressed skins’, these boards enable the relatively lightweight SIP to support high loads and remove the need for internal timber studding as the boards themselves transfer the weight of the building to the foundations. Although the majority of SIP systems use OSB skins, a small number have started using fibre reinforced, cementbased composites.
Although the requirement for a drained and ventilated cavity is plainly stated, Code of Practice published by the UK SIP Association (December 2013) state that in the majority of cases, the cladding systems are installed by someone other than the SIP manufacturer and erector. It is therefore important that the cladding installers follow the SIP manufacturer’s guidance and, where applicable, their standard details.
In the UK, SIPs are available with a number of different insulation cores; expanded polystyrene (EPS), extruded polystyrene (XPS), polyisocyanurate (PIR) and polyurethane (PUR). Thermal performance is further improved because there is little or no internal studding to create cold bridges that characterise conventional timber frame panels.
SIPs and flooding
This vulnerability to dampness can affect the SIP panel when subject to flooding. In their Engineering bulletin 10 (Structural insulated panels construction - November 2015), the Structural Timber Association point out that water can ‘…wick up through the end grain of the board’ and if the panel gets wet, the board will usually dry out after the building is heated. However, the bulletin goes on to say that if the panel becomes saturated ‘then replacement or remedial work may be necessary and specialist advice should be sought’. This makes it clear that SIP buildings will be particularly vulnerable in areas prone to flooding. Although Kingspan (a major manufacturer of SIPs in this country) have published a technical bulletin about flooding and insulation (July 2016), the publication concentrates on the effects of water on the insulation in conventional cavity walls. It mentions nothing about the effect of flood water on the bond between the OSB skin and the insulation in a SIP structure.
However, the strong structural bond between the OSB boards and the insulation is central to the SIP’s load bearing ability. If this was to breakdown, the panels could become unstable. It is this feature that gives rise to concerns over SIP’s durability and many of the regulatory and installation requirements are focused on keeping the OSB boards damp free.
SIPs and dampness
Apart from the various standards and codes of practice that govern the design and installation of SIP systems, there is little information in this country about the durability and performance in use but there is more information in the USA where SIPs have been used since the 1950s. An internet search revealed sources that ranged from a federal investigation into failed SIP panels to public housing in Alaska through to numerous articles by builders and inspectors discussing failed OSB ‘skins’. Dampness seems to be the major factor in the reported problems.
The UK SIP Association also highlight the vulnerability of timber based products to dampness and highlight the need to keep the base of the building above external ground level by at least 150mm. However, they point out this can be difficult around entrances where level access is required and in this case, masonry upstands may be needed.
The biggest challenge is the repair of the SIP once the skin has failed. Where the breakdown of the OSB board is localised and limited, the panel can easily redistribute the loads around the problem. But where the failure affects the 17
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Assessing a SIP property
• Expansion joints – MMC/timber framed structures
often have mastic filled movement joints under the windows where clad with masonry.
So what does this all mean to those professionals who are left with the problem of valuing and assessing the condition SIP buildings? In an effort to provide broad guidance for residential practitioners, I have identified a three-stage protocol.
• Cavity weep holes – all types of cavity construction
will have open perpends/weep holes to allow cavity drainage and ventilation. These should be visible at the base of the external wall at approximately 1500mm centres and over openings and at other locations (for example, above cavity fire barriers at each storey height). SIPs with a cavity are not different.
• Identify whether the property is built using a modern
method of construction.
• Identify whether the modern method incorporates any
SIPs.
• Wall thickness – this is no longer a clear indicator.
• If it is a SIP system:
For example, masonry cavity walls can have very thick internal concrete skins while SIP panels can have slim claddings and no cavity resulting in a thinner overall wall construction - so keep an open mind!
• Does the property have the benefit of an
appropriate 10 year warranty and building regulations approval?
• Does it have a drained and ventilated cavity? • Is it in an area that is likely to be affected by
flooding?
These will be explained in more detail below.
Identifying the property is built using modern methods of construction
Practitioners have been distinguishing between traditional masonry buildings and those built using timber frames for many years (for energy performance certificates if nothing else). Although many MMC types are different to timber frames, some of the features are similar. Here are a few helpful hints: Desktop study and local knowledge – many practitioners keep a ‘watching brief’ on all new developments in their area and this can help identify those properties built using MMCs. Other useful information includes: • The likelihood of MMC being used increases after
Figure three: This timber framed property has a deeper reveal to all openings
• Smaller, one-off developments will often incorporate
Internally
2000.
modern methods as self-builders prefer the ‘packaged’ approach. Beware! One-off, self-build developments may not have the warranties required by mainstream lenders.
• The gable wall and party walls in the roof space
- a timber frame building is likely to have a timber spandrel panel forming the inside of the gable wall (at roof level – see figure 4). On the party wall, it may be clad with plasterboard. For SIP building or other similar MMC, you are likely to see a plain OSB face to both the gable and party wall panels.
• Make good use of ‘seller’s’ questionnaires and ask
the vendor specifically if the property was built using modern methods of construction and/or prefabricated building systems. The answers can be revealing.
• Solid lintels above openings - Traditionally, tapping
on the wall above a window opening can help distinguish between dry-lined conventional masonry walls and a timber frame structure. This is because masonry walls with batten-mounted dry lining will sound hollow but timber framed inner leaf will usually have a timber lintel immediately above the opening and so will sound solid. However, many masonry, timber framed and other panel structures are dry lined to provide a ‘service’ zone so don’t jump to early judgements.
Inspection of the property
This section assumes you are carrying out a standard inspection for a level two inspection without any ‘opening up’ (for example, a HomeBuyer Report or a Home Condition Survey). Externally • Window position - many MMC/timber-framed
structures will have windows fixed to the frame and not to the outer leaf. This may result in deeper external reveals when compared to brick/ blockwork construction (see figure 3).
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building control approval should include a final completion certificate. Does it have a drained and ventilated cavity? Assuming you have identified the property to be based on a SIP system, the next question is whether it has a drained and ventilated cavity between the cladding and the panel itself. If it hasn’t, then it will be vulnerable to dampness problems and is unlikely to have an appropriate warranty as all of those described above require a drained and vented cavity. A drained and ventilated cavity will have the following characteristics: • Brick slips, thin render systems and other cladding
Figure four: Timber spandrel panel to the gable wall of a timber framed property.
types that have a ventilated and drained cavities will have the following characteristics:
Does the modern method of construction incorporate any SIPs?
• Weep holes in the usual places including over
openings and above any cavity fire barriers at storey heights;
This is more difficult because if SIPs have been used to form the roof structure (which is likely), then the resulting ‘room in the roof’ will prevent that easy insight into the nature of the construction a conventional roof space usually provides. Despite this, there are some indicators that can help.
• A ventilated gap along the bottom edge of the
cladding covered with insect mesh at or around DPC level. At this point, there is likely to be a difference of at least 40mm between the face of the wall below and above the edge of the cladding.
SIP roof sections are usually supported on substantial purlins and ridge beams (see figure 5). Because the SIPs are usually factory finished with a suitable sheet material, this sheet will pass behind the purlin. If the roof was constructed on site, the ceiling finish would usually butt up to the purlin – a subtle but important difference.
• Masonry outer skins (brick, stone and rendered
blockwork) will have weep holes in the usual places and as described above and figure 6.
• Claddings that have a drained and ventilated cavity
will usually incorporate a DPC approximately 150mm above ground level.
As mentioned above, if there is a roof space SIP panels will show OSB panels rather than plasterboard.
Cladding fixed directly to the SIP panel without a drained and ventilated cavity will not have any of these features.
Figure five: This SIP roof is supported by very large purlins
Figure six: Drained and ventilator cavities will show weep holes and DPCs at low levels.
If it is a SIP system
Is it in an area that is likely to be affected by flooding? Although residential practitioners do not carry out a flood risk assessment as part of the normal level of service, local knowledge should reveal whether the site is in an area vulnerable to flooding (both river based and surface water). This information will usually be obtained from the Environment Agency website and based on the normal postal code search.
If you decide the structure of the property includes SIPs, ask the following questions: Does the property have the benefit of an appropriate 10 year warranty and building regulations approval? The NHBC, Premier, Zurich and BOPAS warranty and insurance schemes are the most common types in the market place. Most commentators agree that these would provide reassurance to valuers and lenders in the future especially if backed up with building control approval. The
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Reporting to the client
Making a decision Once this information has been collected, the following series of questions may be of use. It adopts a very simple ‘yes’ or ‘no’ response to four questions and may help practitioners take a view. There is no numerical route to the ‘right’ decision although a full set of ‘no’ responses may suggest a conclusion!
response where the property does not ‘pass’ the proposed assessment protocol (usually under E4 in the HBR): The property is built using modern materials and techniques with some parts pre-fabricated in a factory and transported to the site. This particular method is known as (insert name or generic type). The main walls are formed with (describe the details). There are a number of concerns: • It is unlikely the property has appropriate assurances and warranty cover and/or building regulation approval; • The structure of the property is not properly protected from dampness by the external cladding/walling;
Although a professional judgement will still have to be taken, it should give you a logical and factual trail to show clients and lenders that an objective approach has been followed.
• The property is in an area vulnerable to flooding that may affect the structure of the property. • These are potentially serious problems (see J1 Risks to property). Condition rating 3 (further investigation). (Adjust the following phrases to suit) Some properties built with modern materials and techniques have encountered difficulties when offered as security for normal mortgage lending and this might affect saleability in the absence of appropriate assurances and warranties. I noted a number of features that indicate the property may not meet the expected standards (briefly describe these).
Figure seven: the BlueBox partner’s SIP assessment protocol
Reporting to the client Like all assessments, practitioners should aim for a balanced decision. It is important to raise legitimate concerns about these new and emerging technologies without resorting to a biased and ‘luddite’ inspired decisions just because something is new and unfamiliar. The following phrases may be helpful. Generic MMC phrase – satisfactory The following phrase is may be suitable for those MMC based properties that appear satisfactory (usually under E4 in the HBR): The property is built using modern materials and techniques with some parts pre-fabricated in a factory and transported to the site. This particular method is known as (insert name or generic type). The main walls are formed with (describe the details).
You should ask an appropriately qualified person to investigate these matters and provide you with a report on the suitability of this form of construction before you commit to purchase. You should ask your insurance company if this problem would affect your ability to get insurance cover for this type of property in this location (see section I2). You should ask your legal adviser to check whether this construction method is included in a certified scheme and that an appropriate structural warranty is available (see Section I2).
What do you think?
Is this a practical and reasonable approach? Does this match your experience of assessing SIP buildings. Drop us an email and let us know.
References
The following references may be useful:
Condition rating 1. No repair is currently needed. The property must be maintained in the normal way.
A variety of technical papers are available for download from a company called SIP Building Systems at: http://www.sipbuildingsystems.co.uk/technical-papers.php
Some properties built with modern materials and techniques have encountered difficulties when offered as security for normal mortgage lending and this might affect saleability in the absence of appropriate assurances and warranties.
The Building Research Establishment (BRE) have published the following: • An introduction to building with Structural Insulated
Panels (SIPs). IP 13/04
You should ask your legal adviser to check whether this construction method is included in a certified scheme and that an appropriate structural warranty is available (see Section I2).
Generic MMC phrase – not satisfactory The following set of phrases may help formulate appropriate
• Modern methods of house construction – a surveyors
guide. Keith Ross. BRE Trust 2005.
Other useful sources of information include: • Flooding & Insulation: steps to improve the flood
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TECHNICAL BULLETIN resilience of buildings. Technical paper published by Kingspsan. July 2016.
Association. • Surveys of Timber framed houses. Wood Information
• Structural insulated panel construction. Structural
Sheet 10. TRADA technology. 2015
Timber Engineering Bulletin 2015. Structural Timber
SURVEYORS COMPARABLE TOOL FROM ‘RIGHTMOVE’ FOR SMALL AND MEDIUM SIZED FIRMS BlueBox partners has obtained an agreement with the country’s leading property portal, ‘Rightmove’. ‘Rightmove Plus’ has now been improved through the development of the Surveyors Comparable Tool (SCT) so that finding comparable information is much easier for both sales and rentals. The SCT combines access to the Land Registry data with ‘Birds eye’ and ‘Street view’ all in the same place and much more efficiently. In line with RICS requirements, the reports now provide an audit trail for complete transparency, together with Rightcheck which checks the Rightmove database for things like hidden incentives, over or under valuation and much more. For more info, please email info@blueboxpartners.com We are now able to offer a subscription service combined with ‘pay-as-you-click’ access to archived property sales data. We can offer Rightmove Plus (which includes the Surveyors Comparable Tool, Rightcheck, access to the Rightmove AVM, and Rental comparables) at £120 plus VAT per month, which includes 20 free clicks (£6/case once the 20 cases are exhausted) for the Surveyors Comparable Tool. This offer is only available through BlueBox partners to small/medium sized firms and sole practitioners, and we think this is a “must have” for any valuer undertaking residential valuations. Please contact Chris Rispin on 01908 442112 for more information.
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ASBESTOS CONTAINING MATERIALS IN RESIDENTIAL PROPERTIES How to avoid potential costly errors and omissions MARIA JACOBS CUSTOMER AND TECHNICAL SUPPORT CONSULTANT, SAVA
Failing to spot and report a “visible” potential asbestos containing material on a survey is something that can be very difficult to defend later. Only if the material is genuinely ‘hidden’ and impossible to see without any invasive activity will be easily defendable. For the rest, if the asbestos containing material is present and the surveyor simply failed to note and mention it to the client, then any complaint or claim resulting from that omission is very likely to end in financial compensation to the client.
As early as the beginning of the 20th Century a London doctor, Dr Hubert Montague Murray, reported on lung disease in an asbestos textile worker, with an autopsy confirming the presence of asbestos fibres in the workers lungs. Later, in the 1920s, this condition was formally described as Asbestosis when studies identified that textile workers exposed to asbestos fibres were dying of lung disease at a very young age. From the 1930s and 40s the dangers of asbestos were beginning to be recognised by manufacturers, though the science was concealed from workers and the public in general. Only in the 1960s were the full dangers of asbestos finally documented and publicly recognised.
Later, in this article we will report on two instances where the surveyor did not notice the ‘asbestos’ material. There are some good ‘learning points’ worth sharing so others can avoid this costly yet simple error. In construction, the use of asbestos was so pervasive that it has been estimated that about 50% of UK buildings still contain asbestos and asbestos is still the greatest cause of work-related deaths in the country. The Guardian Newspaper reported on the hidden use of Asbestos in 2011 when it quoted Peter Coling, the technical director at Kinleigh Folkard & Hayward, who estimated “…that 30% of asbestos is found in ceiling coatings, 15% in boiler flue pipes and ducts, and 15% in floor tiles. A further 15% is found in areas such as cold water storage tanks, insulation materials, eaves, gutters and rainwater pipes, while 10% is in cement panel ceilings, 10% in outbuildings and 5% in fire protection materials, for example on the underside of integral garage roofs and in cupboards enclosing boilers.”
The final end for asbestos came in 1999 when The Asbestos (Prohibitions) (Amendment) Regulations 1999 came into force in November 1999, 5 years ahead of the European deadline. Amosite and Crocidolite (‘brown’ and ‘blue’ asbestos) were banned in 1985. ‘White’ Asbestos, Chrysotile, had been the only type permitted since 1985. The regulations banned the new use of asbestos cement, boards, panels, tiles and other products, although it allowed for Chrysotile containing products to remain in place until they reach the end of their useful life, if installed prior to November 24th 1999.
Undertaking the Inspection
The dangers of exposure to Asbestos
Because the use of Asbestos in construction was so prevalent, it seems sensible to adopt a few robust approaches to ensure you correctly identify the potential
It took nearly a century for the dangers of asbestos to be fully understood and acted upon. 22
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TECHNICAL BULLETIN risk of asbestos being present.
History of the use of Asbestos in the Construction Industry
1. When undertaking any inspection, it is a good idea
to work on the principle that an asbestos containing material (ACM) could be found in any dwelling built, extended or refurbished prior to the year 2000, although most manufacturers and constructers had stopped using them many years before that.
The use of Asbestos actually dates back thousands of years. Fibres were used in textiles and pottery in Ancient Egypt, Persia and Rome but it was only with the Industrial Revolution that its use really began to develop and to such an extent that it was eventually used in almost every aspect of construction. It was used in asphalt and vinyl floor tiles; acoustic plaster; sound insulation such as ceiling tiles; electrical insulation and partitions; lift parts; fire blankets, curtains and doors; roofing felt and shingles (in America from as early as 1858); textured paints and coatings; and many other products.
2. Consider when the property was originally built and
then consider it against the asbestos industry time line to assess the enhanced risk of an ACM being present (particularly as a fundamental part of the construction). For example, Eternit really came into its own during the 1920s and asbestos containing sheeting was sometimes used in the way that modern plasterboard is used today. But remember too that there was a massive use of semi compressed asbestos insulation board (trade name Asbestolux) right up to the mid 1980s. So if built, modernised or repaired anytime up until 1985 then it is prudent to expect ACMs of all types anywhere. From 1985 to 1990 there may still be ACMs used in the property but these are more likely to be “white” asbestos (Chrysotile). Although white asbestos could still have been used in the 1990s the likelihood is low, although you should still look out for the exceptions.
Of course, it is particularly well known as an additive to cement being used in cement pipes, siding and wallboards. In 1899, a German company started producing asbestos cement sheets and Austrian industrialist Ludwig Hatschek created the perfect asbestos and cement mixture. His product was called Eternit, and it was so popular that ‘eternit’ is often used as a generic name for fibre cement products. After WW2 a new type of sprayable asbestos coating was created, a fundamental step towards the construction of high rise buildings, as the coating insured that structural steel beams would not bend in a fire. The Chase Manhattan Bank,built in New York in 1958, was one of the first skyscrapers to use asbestos insulation. Famously this technique was also used in the World Trade Centre and it is estimated that when the twin towers collapsed in September 2001 an estimated 400 tons were released into the New York atmosphere.
3. While an older property constructed before asbestos
became a common construction material is unlikely to have used an ACM in the original construction this does not mean that an ACM will not be present. For example, the material could have been introduced during extension or refurbishment (It is quite possible to have a Victorian cottage with an asbestos cement facia board if the roof was refurbished during the 20th century)
In the 1950s and 1960s, vinyl-asbestos became one of the most common products for tiling because they were durable, inexpensive and easy to install. Their popularity continued until the 1980s, when they were phased out due to health concerns. Asbestos use was not confined to construction. Its fire-resistant properties made it particularly useful in engineering (for instance in lining steam engines) and in researching this article we even discovered that at one point, in the early 1950s, it was used in by Kent, an American tobacco company, as a component for their cigarette filters! (A double whammy!)
Examples of ACM materials in dwellings
We believe that those ACMs that residential surveyors are most likely to encounter are asbestolux sheets, decorative textured coatings and asbestos cement products in all its forms. 1. Keep a look out for semi compressed asbestos
insulation board or AIB (Asbestolux) typically used as ceilings, fire proofing on doors and partitions, panel panels and so on. Asbestolux can be recognised by
• an ‘orange peel’ texture to its surface (see photo on
the next page)
Victorian cottage – the plastic guttering at the rear of the property is attached to a potential ACM facia (not visible from this photograph). The roof covering is not original and it is probable that the original wooden facia was replaced when the roof covering was replaced.
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• surface that is harder than plaster/plasterboard (you
can’t put holes in it with a damp meter) and where it is used as a ceiling board, timber battens were used to hide the joints because the material was never skimmed.
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Decorative ceiling tiles
‘Orange peel texture’ of asbestos insulated board 2. Decorative ceiling and wall finished
could be ACMs (often referred to generically as Artex although other products/brands were available)
Grid tiles
Textured Ceiling/Wall coverings (‘Artex’)
4. Guttering, facias and bargeboards can be made of an
3. Are there acoustic tiles used anywhere in the
ACM – look out for this and take it into account when applying a condition rating (an ACM will cost more to remove and will affect the decision process if you use the SAVA protocol). Because ACM boards could not usually be nailed, look out for cupped and screwed fixings.
property? When were these likely to have been installed and compare this to the asbestos industry time line
5. Be alert to ‘unusual’ forms of construction or finishes
– particularly relating to properties dating from post WW1 and the increased use of Eternit board. Could these suggest the possible use of an ACM?
Acoustic asbestos tiles
Asbestos cement corrugated panels?
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TECHNICAL BULLETIN 6. Boiler flues, AIB in boiler cupboards, fireplace linings
Boiler cupboard lined with AIB and flues
1960s vinyl floor tiles under modern floor covering
7. Floor tiles were once a popular choice for flooring, and
you will often find old asbestos floor tiles hidden under carpets, laminate or other modern floor coverings.
Below are REAL SITUATIONS where Surveyor omitted to recognise potential ACM containing materials and/or the report lacked appropriate advice.
Case Study 1
A surveyor recently undertook an inspection of a 1920s property. The construction of the bedroom ceilings ran an initial alarm bell, especially the cover battens to the boards joints. Following the trail, inspection of roof space provided further cause for suspicion. The material used for the ceiling board has an ‘orange peel texture’ suggesting a semi compressed board e.g. asbestolux. Sure enough, on testing, this particular property was found to have ceilings made with an asbestos containing board, eventually removed at considerable cost to the home owner. Please note, if you suspect the ceiling may be made of asbestos containing material, take extra care not to disturb anything in the loft and do not touch or move any thermal insulation’. In this case study the ‘loft side’ of the ceiling board was clearly visible. But of course, In some situations, it is simply not possible to see the other side of ceiling boards mainly due to the inspection limitations. (boarding, insulation laid on ceiling joists, no access to roof space, personal storage laid over joists) In these cases the worst-case scenario should be assumed, which is that the ceiling contains a potential ACM material and should be reported as such.
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TECHNICAL BULLETIN Presence of any potential ACM containing material within a property must be noted in the site notes and reflected in the report. SAVA has recently investigated a couple of claims which succeeded because the Surveyor failed to report to the client that the ceiling material was a possible ACM even though no repair was needed. This type of complaint is almost impossible to defend. The probability of a complaint related to ACM material turning into claim is very high, two in three cases will result in payment. Thorough inspection, clear marking in site notes, comprehensive reflection and inclusion in the report will avoid the unnecessary stress and frustration on both sides. You will not know for certain if an Artex ceiling dating from the 1980s will contain asbestos. (It is impossible to be certain without taking a sample for laboratory testing) but you must report it as a possible ACM and as a potential risk to people. (Section C in the Home Condition Survey).
Case Study 2
This relates to a bungalow built around 1925 that needed some renovation works after purchase. The construction of the ceiling in the kitchen should have rung alarm bells for the surveyor, particularly in relation to the age of the property. There was access to the loft on the date of inspection and while some of the ceilings were insulated, the ceiling immediately above the kitchen was not. However, access was difficult and the surveyor could not get close enough to see if the ceiling was a likely AIB material. The surveyor reported, in this case wrongly, that the ceilings were all plasterboard. As a result, there was a successful claim by the purchaser. Although the surveyor could not get close enough to see the texture of the ceiling board to confirm possible AIB, it would have been more prudent to report that some construction materials could have obtained asbestos, particularly as suspicions were aroused by the unusual ceiling construction.
Asbestos and Boilers Asbestos insulation board was often used to line boiler cupboards. The example here is a particularly worrying example where there is evident powder in the cupboard and the door lining is crumbling at the corners. As well as a serious health risk to any occupier (in this case the property was tenanted) such boilers will be very expensive to replace or repair with many gas engineers (including British Gas) refusing to even quote for a boiler in such a location. This should be specifically pointed out to the customer since it will significantly increase the cost of and difficulty to arrange any repair or replacement.
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