Monolithic-clad townhouse: mortgage valuation with moisture indicators
You are instructed by a bank to provide a market valuation for mortgage security of a 1997 two-storey, three-bedroom townhouse in Auckland. The unit has 140 m² floor area, a single garage and a cross-lease title. The cladding is monolithic plaster over fibre-cement sheet with no drained cavity; the council issued a code compliance certificate in 1998. On inspection you note hairline cracking around the north-west window openings, elevated moisture readings at the base of the north wall using a non-invasive meter, and rust staining at fixing locations. There is no interior staining. The owner provides a 2019 weathertightness report that recommends 'monitoring' and records no invasive testing. The owner refuses permission for invasive testing and wants the valuation within five working days. Recent sales include three remediated units (new cavity and cladding) at $1.05m–$1.12m and two unremediated units marketed 'as is' at $780,000 and $820,000. The bank's loan offer is 80% of value.
1. What further checks and limitations should you put in place before forming a value, and how should you handle the owner's refusal of invasive testing?
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Start by confirming the instruction in writing: purpose (mortgage security), basis of value, valuation date, reliance by the bank, and any limitation on inspection. The bank is the client; the owner's wishes do not define the scope.
Obtain and review the LIM, council property file, the 1998 CCC, the 2019 weathertightness report and any cross-lease or body corporate records. The non-invasive meter readings are indicative only and do not prove a leak, but together with the cladding system, cracking and rust staining they are a material risk indicator.
Recommend a suitably qualified building surveyor or weathertightness specialist carry out invasive moisture testing, thermal imaging and a cladding inspection. Ask for consent in writing. If the owner refuses, record the refusal, explain why the limitation matters, and either value on a clearly stated 'subject to' basis or decline to provide an unqualified figure. Do not treat the absence of interior staining as reassurance; moisture can be trapped behind the cladding.
Before reporting, check whether the cross-lease contains provisions affecting repair responsibility and whether the body corporate has any remediation levy or litigation. Also check insurer willingness to insure and any disclosure in the sale history. If access or information is withheld, the report must state the limitation prominently and the bank should be advised that the value is provisional.
2. How would you reflect the cladding risk in your valuation and reconcile the comparable sales? Give a reasoned range rather than a single figure.
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Use the market comparison approach, but match the comparables to the subject's risk profile. The unremediated 'as is' sales at $780,000 and $820,000 are the closest evidence because buyers were pricing the same uncertainty. The remediated sales at $1.05m–$1.12m show the upper end after a buyer has spent money and removed the risk; they are not direct evidence of the subject's present value.
Derive an indicative remediation cost from the specialist report, including cladding replacement, cavity, windows, flashings, consent fees, professional fees, temporary accommodation and contingency. Add an allowance for stigma, delay and risk of discovering more extensive damage. If remediation is, say, $220,000–$300,000, the gap between unremediated and remediated sales is broadly consistent with the market pricing cost plus risk, but do not mechanically subtract cost from the remediated price.
Reconcile by weighting the unremediated sales most heavily, adjusting for unit size, condition, location and sale date. Provide a range, for example $800,000–$870,000 'as is, subject to invasive testing', and explain the upper and lower bounds. Also consider a 'subject to remediation' figure only as a secondary hypothetical. With an 80% loan, the bank needs to understand that a high LVR on an unqualified value is unsafe. State the valuation date and the assumptions clearly.
3. The bank asks you to omit the moisture findings because 'the last valuer didn't mention them'. What is your response under professional standards and ethics?
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Explain in writing that you cannot omit material findings. Independence and objectivity require the report to disclose facts that a prudent lender would regard as relevant, regardless of what another valuer did. The bank's instruction cannot override the duty not to mislead.
Set out the facts neutrally: the cladding type, the non-invasive readings, the cracking and rust staining, the owner's refusal of invasive testing, and the resulting limitation. Avoid alarming language that goes beyond the evidence; say what is known, what is suspected and what remains unverified. Offer a practical path: the bank can instruct a specialist inspection, accept a 'subject to' valuation, or defer lending until the risk is resolved.
If the bank insists on an unqualified value with the findings removed, decline to provide that report. Record the request and your response. Consider whether the request must be reported under your professional obligations and the bank's own credit policies. The last valuer's report is not a defence; each valuation stands on its own evidence and disclosures. The reputational and lending risk of a suppressed defect is far greater than the short-term inconvenience.