What Lenders Ask of a Quantity Surveyor (QS)

What Lenders Ask of a Quantity Surveyor (QS) For a lender the key part of any property build is understanding and managing costs. This is where a Quantity Surveyor (QS) plays an indispensable role. A QS’s expertise ensures that the project remains financially viable while meeting design and functional expectations. Lenders rely on the QS’s […]

January 3rd, 2025

What Lenders Ask of a Quantity Surveyor (QS)

For a lender the key part of any property build is understanding and managing costs. This is where a Quantity Surveyor (QS) plays an indispensable role. A QS’s expertise ensures that the project remains financially viable while meeting design and functional expectations.

Lenders rely on the QS’s assessments to mitigate risk and ensure their investment is secure and that they can lend for the property development project.

Here’s an overview of what a QS looks for when assessing property build costs, and what lenders typically expect.

Initial Project Scope

The QS will be looking for a clear understanding of the project’s scope. This includes:

Design specifications: Reviewing architectural plans and engineering details.
Purpose of the build: Whether the property is for residential, commercial, or mixed-use.
Size and scale: Calculating the gross floor area and other relevant metrics.

Lenders expect the QS to provide a clear and detailed assessment of the project scope to confirm feasibility and alignment with the proposed budget that the client has provided. This is one of the first credibility checks a lender has, in ensuring that what the client has provided as the project costs broadly match the QS view.

Site Conditions

The physical characteristics of the site significantly influence construction costs. A QS evaluates:

Topography: Sloped or uneven sites may require additional excavation, more foundation work, piling or specialised works.
Soil conditions: Poor soil may necessitate specialised foundations.
Access: Difficulty accessing the site can increase transportation and logistics costs. This is common with development of garden plots or developments in more built up areas
Utilities: The availability or absence of utilities like water, electricity, and drainage.

Lenders need assurance that these factors have been properly accounted for to avoid unforeseen costs, for many developments that have gone wrong the issues should have been known on day one.

Procurement Methods

Different procurement methods affect costs. The QS assesses whether the project will use:

Traditional contracts: Fixed-price agreements where costs are predictable. This is a lenders generally preferred option.
Design and build: Where the contractor manages design and construction, potentially impacting cost certainty. Where not the QS may want details of the Project Manager or other specialist acting.

Understandably, lenders favour procurement methods that offer transparency and minimise risk.

Detailed Cost Breakdown

A QS produces a comprehensive cost breakdown, again this is expected to broadly match what the client has provided. This document includes:

Preliminaries: Site setup, safety measures, and temporary works.
Substructure and superstructure: Foundations, walls, roofing, and structural elements.
Finishes: Flooring, painting, and internal fittings.
External works: Landscaping, driveways, and fencing.
Contingencies: Allowances for unforeseen circumstances.

Lenders require this level of detail to understand the allocation of funds and to budget when funds will be required during the development period. It also helps a lender verify that adequate contingencies are in place, even if this means allocating a greater total loan.

Risk Assessment

A QS identifies potential risks that could inflate costs, including:

Delays: Weather, supply chain disruptions, or labour shortages. Labour can be a common issue with cost of trades increasing as supply becomes limited.
Design changes: Client-initiated modifications after construction begins.
Economic instability: Fluctuations in interest rates or cost of materials.

Lenders rely on the QS to provide a risk assessment, along with strategies to mitigate these risks. It is acknowledged by lenders and the QS that not everything can be mitigated.

Ongoing Monitoring and Reporting

Cost assessment doesn’t stop once the build begins. A QS continuously monitors expenditures and provides an update to the lender to enable them to release the next tranche of development funds with confidence:

Progress reports: Comparing actual costs against the budget.
Cash flow forecasts: Ensuring funds are available as needed.
Cost audits: Verifying invoices and claims from contractors.

Lenders require regular updates from the QS to ensure that the project is progressing. The QS is usually the lender’s first notification where a project has deviated from plan or cost.

Conclusion

A Quantity Surveyor’s role in assessing property build costs is multi-faceted. For lenders, the QS’s involvement is critical to ensuring financial prudence and project success. For many first time developers there is confusion between the role of the valuer and the role of the QS, there is an overlap but the scope of each if very different.

If you want to chat through a proposed development and how to finance then get in touch.

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.