Commercial Property Valuations for Bank Lending: How They Work and Who Instructs
- For secured lending the bank normally instructs a valuer from its approved panel, and the report is addressed to the bank.
- The borrower pays the fee but is not the client, and may only see a summary of the report.
- Lenders often ask for Market Value plus special assumptions, such as vacant possession value or a restricted marketing period.
- Commissioning your own valuation first is useful for planning and negotiating, but check whether any lender will rely on it.
When you borrow against a commercial building, the valuation decides how much you can raise and on what terms. It is also the one valuation where you have the least control. The lender chooses the valuer, the report is written for the lender, and you get the invoice. None of that is a reason to go in unprepared. Borrowers who understand how loan security valuations work get better outcomes than those who simply wait for the number.
Why the lender instructs
The valuation protects the lender. If you default, the bank needs to know what it could recover by selling the building. So it wants the valuer to owe a duty of care to the bank, not to you, and it wants someone it has vetted. That is why banks keep panels of approved firms, and why a report you commissioned yourself is often not accepted. RICS sets out the framework in its bank lending valuation guidance.
The valuer must also be independent of the deal. Anyone who has acted for you on the purchase, or stands to earn a fee from the transaction, has a conflict and should not be valuing for the loan.
What a loan security valuation covers
More than a single figure. A typical report gives:
- Market Value of the property as it stands, with the existing leases.
- Market Rent, so the lender can judge whether the income is sustainable.
- A commentary on suitability as security: the location, the building, the tenants, how easily it could be sold or re-let.
- Any risks the lender should know about, from short leases and weak tenants to flooding, contamination or an EPC rating that will need money spent on it.
The valuer will follow the method that suits the property, which for most let buildings is the investment method.
Special assumptions lenders ask for
Lenders think about the bad day, so they often want extra figures on stated special assumptions:
- Vacant possession value: what the building would be worth if the tenant left or the business closed. On an owner-occupied building let to your own company, this is usually the figure the bank lends against.
- Restricted marketing period: what it might fetch if it had to be sold within, say, 90 or 180 days.
- Value on completion of works: for refurbishment or development loans.
These figures can be well below the headline Market Value. If your loan-to-value has been calculated on one of them, the amount you can borrow will be lower than you expected. Ask the lender early which figure it uses.
How to prepare
Put a pack together. Leases and side letters, a current tenancy schedule, rent payment history, floor plans, EPCs, the asbestos register, service charge accounts, planning documents and details of recent works. A valuer who has to assume the worst because information is missing will do exactly that.
Fix what you can first. Settle an outstanding rent review, document a lease that is being renewed informally, deal with obvious disrepair. Loose ends reduce value.
Tell the valuer what you know. If you have recent comparable evidence, or a tenant has just committed to a longer term, say so and provide proof. You cannot instruct the bank’s valuer, but you can make sure they have the facts.
Valuation before you borrow
Get an independent Red Book valuation before you approach lenders. No-obligation quotes from RICS Registered Valuers.
When to commission your own valuation
Before you approach lenders, an independent Red Book valuation tells you how much you can realistically raise and whether a refinance is worth pursuing. It lets you compare offers on the same footing. And if the bank’s valuation later comes in low, it gives you evidence to query it with.
Some lenders will accept a recent report from a firm on their panel if it is re-addressed to them. It is always worth asking before you pay twice. Our guide to valuation costs covers who pays for what.
If the valuation comes in low
Ask the lender for the reasoning. If the valuer has missed a lease event, used out-of-date areas or overlooked stronger comparable evidence, put the facts to the bank in writing and ask for the valuer to consider them. You are entitled to raise factual errors. A difference of professional opinion is harder to shift, and at that point your options are more equity, a different lender, or waiting until the position improves.
Getting a valuation
ComSurv matches owners and investors with RICS Registered Valuers for independent valuations ahead of a purchase or refinance. Tell us about the property and what the commercial valuation is for, and compare no-obligation quotes.
Sources & further reading
- RICS bank lending valuations — RICS guidance on valuations for secured lending
- RICS Red Book UK national supplement — UK requirements for loan security valuations
- RICS Valuer Registration — who may carry out Red Book valuations
External links open in a new tab. ComSurv is a matching service, not a firm of surveyors, and is not affiliated with these organisations. This article is general information, not legal, surveying or valuation advice; take advice on your specific situation.
