The value of a property is key to determining the risk of a private mortgage. Lenders and investors rely on accurate valuations to understand how much they can safely lend. This means you must document how and why a property’s stated value was determined.

Read on to learn more about your responsibilities when it comes to valuations.

What you should do now

  • review your procedures for obtaining, reviewing and retaining property valuation information
  • ensure that lenders and investors receive enough evidence to assess the property's value and investment risk. This may include an appraisal report or other appropriate evidence of value

Why accurate valuations matter

Valuations directly affect the loan-to-value ratio, which is an important measure of mortgage risk.

For example, an unsupported or inaccurate property value could make a mortgage investment appear less risky than it really is. That may prevent a lender or investor from making a fully informed decision.

Accurate valuations help lenders and investors better understand the transaction before they commit their funds.

Verify valuations

Brokerages should not simply provide claimed valuations to prospective investors without considering whether those valuations are reasonable.

Under the law, brokerages must take reasonable steps to identify inaccurate or misleading information. This responsibility applies to information provided as part of a mortgage transaction, including information used to provide evidence of a property's value.

Make sure your disclosure package tells the full story

Where applicable, Form 1 disclosure packages should include appraisal reports or other evidence supporting the property's value.

Missing or poorly supported valuation information can make it harder for lenders and investors to assess the suitability of the proposed mortgage investment and its risks.

Learn more: