VALUATION. In endeavouring to arrive at the value of a property for the purpose of granting a loan thereon, it is necessary to ascertain as nearly as possible what it would be likely to sell for at the present moment. It may be expected that the land will, from various causes, probably increase in value within a few years, but a banker does not lend money upon a prospective value but upon its present value. Having ascer tained what may safely be regarded as its present sale value, a banker then considers to what extent of that value he should advance. Mortgagees do not, as a rule, advance more than two-thirds of the value, and in some cases, owing to the particular nature of the property or the position of the borrower, not more than one-half its value. Though bankers may wisely, and for safety, be guided by the practice of ordinary mort gagees when advancing upon properties, there are frequently, with bankers, other considerations to be taken into account. It may not be possible for a banker always to make a hard and fast line and require a margin of a half or a third to be absolutely preserved, but a prudent banker considers each case on its merits and preserves a margin which he considers sufficient. In considering how much a banker should advance upon any given property he will not go far astray if he asks himself (1) " Would I lend the amount applied for on this property out of my own pocket ? " (2) " Could I, if necessary, obtain repayment of the loan out of this property either next month or in several years time ? " To arrive at the value of a property it is necessary to ascertain the gross income, and to deduct therefrom the amount of the outgoings in order to find the net income. Having ascertained the net income, that amount must, to arrive at the capital value, be multiplied by the number of years pur chase which is customary in the district on a sale of a similar property. If, for example, cottage property sells, as a rule, in a certain district at ten years' purchase it is clear that if a banker, after having ascer tained the net income, assessed its value on a twenty years' purchase, and lent two thirds thereon, he would, when he required to realise, find himself in an uncomfortable position, e.g. a prudent banker would say— Income 00 10 years' purchase.
300 Advance two-thirds =200 Margin =1:100 But if a hanker (forgetting local circum stances) estimated the value on a twenty years' purchase, which he knows to be the custom in some other district, his figures would be— Income 00 20 years' purchase.
(300 Advance two-thirds =400 Margin =f200 The property on a sale would, of course (other things being equal), realise only what is usual in the district, namely ten years' purchase on the net income, 900. The banker therefore who advanced the /200 would easily get his money back, but the banker who lent /400 would have to look elsewhere for /100.
Even where house property is usually saleable at about twenty years' purchase, a banker should for safety base his valuation on, say, a fifteen years' purchase. There is usually a considerable difference between the price paid for a property and what is obtainable on a forced sale.
If the rent of a house is, say, /30 per annum, a deduction of, say, 10 per cent. for repairs and 5 per cent. for collection of rents, etc., should be made in order to obtain the net rental.
In the case of tenement property where the rents are collected weekly, the charge for rent collection, etc., should be put at 71 per cent. or 10 per cent. of the rent. 10 per cent. will probably he sufficient for repairs.
In an agricultural estate the rent of farms, fields, cottages, woods, etc., should be ascertained to find the gross rental, and all outgoings such as repairs, taxes, insur ance, tithe rent-charges, etc., should be deducted therefrom to arrive at the net income. Questions which may arise are : Is the rent a reasonable one, and can the tenant by cultivating the land pay the rent and live upon the profit which remains ? How does the rent compare with adjacent properties ? What sort of land is it, is it poor, clayey soil, or bog-land, or steep difficult land to cultivate, or good loam soil capable of good results ? What buildings are there on the land, and are they suitable for a farmer ? In what state of repair are they ? Is there a good and satisfactory water supply ? Is the supply from a river or from wells ? How is the property situ ated with regard to a railway ? How far off is the station ? What is the distance from the nearest market town ? (Land near a town is much more valuable than when far removed.) Is there any timber upon the land ? Are the buildings, hedges and fences in a good state of repair ? These, and other questions which would he sure to arise, should be considered when examining the figures representing the gross income. With regard to repairs, if the property is not in good order a sum suffi cient to put it into repair must he deducted, as well as a sum estimated as being necessary yearly to preserve the property in good condition.