For property developers and investors, especially those venturing into the world of bridging loans or buy-to-let investments, understanding property valuations is crucial. Choosing the right type of valuation can make or break your deal. In this article, we’ll demystify the three primary types of valuations—AVM, desktop, and full valuations—and help you determine which suits your needs. We’ll also dive into real-world case studies, so you’ll walk away feeling confident in your next property deal.
What Is a Property Valuation?
A property valuation assesses a property’s market value at a specific point in time. Lenders use valuations to ensure the asset provides adequate security for a loan. Accurate valuations are pivotal in property development, especially for securing bridging loans or development finance.
The Three Main Types of Property Valuations
Let’s explore AVM (Automated Valuation Model), desktop, and full valuations, highlighting their differences, use cases, and pros and cons.
1. AVM (Automated Valuation Model)
What Is It?
An AVM is a digital, algorithm-driven valuation based on big data, including recent sales, market trends, and property-specific details like size and location. There’s no human involvement—it’s entirely automated.
When Is It Used?
- Quick, low-value transactions: AVMs are common in straightforward residential purchases.
- Preliminary checks: Developers might use an AVM to gauge whether a property is worth pursuing.
- Bridging loans: In specific cases where speed is essential, some lenders may accept AVMs to issue decisions in principle.
Pros:
- Speed: Results are instantaneous, allowing faster decisions.
- Cost-effective: Typically much cheaper than other valuation methods.
- Convenient: No need for site visits or manual reviews.
Cons:
- Limited accuracy: Algorithms can’t account for unique features or structural issues.
- Not comprehensive: AVMs only analyze available data and might miss outliers.
- Restricted use: Many lenders won’t accept AVMs for high-value or complex cases.
Case Study: The Rapid Bridging Loan
James, a property investor, needed £300,000 to secure a distressed property at auction. Time was critical. An AVM provided an immediate valuation of £320,000, allowing the lender to approve the bridging loan in 24 hours. However, during refurbishment, James discovered structural issues the AVM missed, which required additional costs and reduced the eventual sale price.
2. Desktop Valuations
What Is It?
A desktop valuation involves a professional valuer reviewing available data remotely, including recent sales, market trends, and photos or floor plans, without physically visiting the property.
When Is It Used?
- Moderate-risk lending: Suitable for buy-to-let mortgages or smaller bridging loans.
- Time-sensitive deals: Desktop valuations offer a balance between speed and detail.
- Properties in predictable markets: Where data is reliable and consistent.
Pros:
- Faster than full valuations: Typically completed within 48 hours.
- More detailed than AVMs: Valuers provide a nuanced assessment using human expertise.
- Affordable: Less expensive than full valuations, making them ideal for mid-range loans.
Cons:
- No on-site inspection: Structural problems or unique property features may be overlooked.
- Data dependency: Relies heavily on the availability and accuracy of online information.
- Not ideal for complex cases: Mixed-use properties or properties needing significant refurbishment may require a full valuation.
Case Study: The Buy-to-Let Bargain
Emma, a 40-year-old investor, found a promising three-bedroom house in a high-demand rental area. A desktop valuation confirmed the property’s market value of £250,000, enabling her to secure a £175,000 buy-to-let mortgage. While the process was smooth, Emma later discovered outdated wiring and damp issues not flagged in the valuation.
3. Full Valuations
What Is It?
A full valuation involves a qualified surveyor physically inspecting the property, assessing structural condition, location, and market value. These reports are thorough and widely accepted by lenders.
When Is It Used?
- High-risk or high-value transactions: Essential for development finance or large bridging loans.
- Unique properties: Includes listed buildings, mixed-use developments, or properties requiring significant refurbishment.
- Pre-purchase due diligence: Ensures the property’s condition aligns with the proposed investment.
Pros:
- Comprehensive: Covers every aspect, from structural integrity to market trends.
- Widely accepted by lenders: Ensures smoother loan approval processes.
- Reduces risk: Identifies potential issues before purchase or redevelopment.
Cons:
- Costly: Can be significantly more expensive than AVMs or desktop valuations.
- Time-consuming: May take several days or weeks to complete.
- Requires access: The valuer must physically visit the property, which can delay deals.
Case Study: The Development Dilemma
Sarah and Mark, aspiring developers, secured a full valuation for a £600,000 property they planned to convert into flats. The surveyor discovered severe subsidence and an outdated planning permission. While disappointing, the comprehensive valuation saved them from an unprofitable investment.
Comparing the Valuations
| Aspect | AVM | Desktop Valuation | Full Valuation |
| Speed | Instant | 1-2 days | 3-10 days |
| Cost | Lowest | Mid-range | Highest |
| Detail | Basic | Moderate | Comprehensive |
| Ideal For | Preliminary decisions | Buy-to-let loans | Development finance |
Choosing the Right Valuation
- For Speed and Simplicity: Use AVMs for quick, low-risk decisions.
- For Balance: Choose desktop valuations for mid-range transactions where time and cost are concerns.
- For Accuracy: Opt for full valuations in complex, high-value, or development scenarios.
Key Takeaways
Understanding the differences between AVM, desktop, and full valuations is essential for property developers and investors. Each valuation method has its place, depending on the property’s value, risk, and urgency. While AVMs and desktop valuations can save time and money, full valuations provide unmatched accuracy and peace of mind.
For more expert advice or to discuss your next property project, feel free to reach out! Whether you’re a seasoned investor or just starting, the right valuation can make all the difference.
To keep informed of our latest property articles about all things property follow us on facebook
#PropertyValuation #BridgingLoans #UKPropertyInvestors #RealEstateTips #BuyToLet #DevelopmentFinance