Mortgage Valuation Under Borrower Pressure and Defective Title
A Lagos-based estate surveying firm is instructed by a mortgage bank to value a four-bedroom detached duplex at Ikota, Lekki, for a 20-year mortgage. The borrower, who negotiated the instruction and will pay the fee, tells the principal partner that a neighbouring duplex sold for ₦185 million last month and that any figure below ₦170 million will 'kill the transaction'. The bank's credit policy caps loan-to-value at 70% of a 'forced sale' figure. Inspection reveals the duplex is on a 500 sqm plot, has a defective Deed of Assignment with no Governor's consent, a rear extension built without planning approval, and a tenant on a two-year lease at ₦6 million per annum. The only recent comparable is a bank-forced sale of a similar duplex at ₦142 million, while asking prices in the estate range from ₦175 million to ₦195 million. The bank wants the report within 72 hours.
1. Identify the professional and ethical issues raised by the instruction and explain how the valuer should respond to the borrower's pressure.
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The central issue is independence. The valuer's duty is to the bank as client and to the profession, not to the borrower's loan expectation. A fee paid by the borrower is common in Nigerian mortgage practice, but it must not be contingent on the value reported or on the loan being approved. The valuer should confirm the instruction in writing with the bank, state the purpose and basis of value, and make clear that the figure will not be negotiated with the borrower.
The borrower's reference to ₦185 million is not evidence; it is an unverified assertion. The valuer should record the communication and politely decline to discuss a target figure. Under the NIESV and ESVARBON codes, a valuer must not accept an instruction on terms that compromise objectivity, must not misrepresent values, and must preserve confidentiality. If pressure continues, the valuer should report it to the bank and consider withdrawing.
Practical steps: obtain the bank's written instruction and lending policy; inspect and measure; verify the lease and title documents; search the relevant land registry; keep a contemporaneous file note of all calls; and disclose the borrower's approach in the report. The report should not repeat the borrower's confidential loan information. A short extension should be requested if 72 hours is insufficient for proper inspection and search; speed must not replace due process.
2. Recommend the basis and approach to value, and show how the comparable evidence should be adjusted.
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The primary basis should be market value, defined as the estimated amount for which the property should exchange on the valuation date between a willing buyer and a willing seller after proper marketing, with both acting knowledgeably, prudently and without compulsion. The bank's 'forced sale' figure is a lending policy concept, not a valuation basis. The valuer can provide a separate forced sale or distressed value, clearly defined, but must not label it market value.
The main approach should be the comparison method, cross-checked by the investment method because the property is tenanted. The forced sale at ₦142 million is evidence of a forced sale value, not open-market value; it should be adjusted upward for the compulsion element, then adjusted for time, location, plot size, accommodation, condition and lease terms. The asking prices of ₦175–195 million are offers, not transactions; they should be discounted for negotiation and, where necessary, for optimistic marketing. The ₦6 million rent capitalised at a market yield of, say, 4%–5% gives ₦120–150 million, which suggests the asking prices are relying on capital growth rather than income; that is a cross-check, not the sole method.
The defective title and unapproved extension reduce marketability and value. The valuer should make a specific allowance, explain it, and state that the value is subject to a legal opinion on title. The final figure should be a reasoned range narrowing to a single point, not a figure chosen to fit the borrower's target.
3. Draft the key disclosures and limiting conditions the report must contain, and explain why each matters to the bank.
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The report should disclose: the client and intended user (the bank); the purpose (mortgage security); the basis and definition of market value; the valuation date; the extent of inspection, including that no structural survey, environmental audit or measured survey was undertaken; the title documents examined and the registry search result; the absence of Governor's consent; the unapproved rear extension; the existing tenancy and rent; and the fact that the borrower attempted to influence the figure.
It should state the assumptions: that the property is free of undisclosed encumbrances, that the lease is valid, that no material adverse planning or environmental matter exists, and that the building is in the condition observed. It should include limiting conditions: no liability to third parties; the report is confidential to the bank; the valuer has relied on information supplied but has checked it where practicable; and the value is subject to a solicitor's confirmation of title.
These disclosures matter because the bank will rely on the report to advance public or depositor funds. If the valuer stays silent about the defective title or the unapproved extension, the bank may lend against security that cannot be realised. If the valuer does not record the borrower's pressure, the bank cannot assess the risk of bias. Clear assumptions also protect the valuer from later allegations of negligence or misrepresentation. The report should recommend that the bank obtains legal advice and withholds drawdown until the title and planning defects are resolved.