Your home is probably the biggest purchase you will ever make, and your workplace is probably your second largest outgoing therefore, you will probably want to know that the price you pay for it represents good ‘value’.
Below is a brief overview of the process of how to value a commercial or residential property, or piece of land.
If you have any queries at all, please do not hesitate to contact us.
What is a Property Valuation?
A professional valuation is a qualified opinion/estimate of the value of an asset. It provides a purchaser, lender or vendor with an informed view and allows them to ascertain if the agreed price represents a fair market value.
Can you challenge a Valuation Report?
A commercial property valuation, undertaken by a RICS* qualified Valuer will provide you with an empirical ‘fact’ (or value assessment) which will allow you to make an informed judgment about the price you intend to pay for a property or piece of land, or alternatively the (market) price you could sell it for.
Who should I talk to if I want a Property Valuation?
The best and safest option is to appoint an RICS Qualified Valuer because you will be assured of the fact that the valuation of your property or land will have been calculated after:
- Having interrogated extensive valuation data
- A review of local market values and national sector trends
A Qualified Valuer’s Valuation Report will therefore reflect current intelligence and be compiled using a methodology which has been approved by the RICS. The efficacy of the surveyor’s opinion will be underpinned by Professional Liability Insurance
How long is a Valuation Report valid for?
Most valuations undertaken by a RICS qualified valuer are valid for three months.
Why would a property be valued?
There are many reasons to value a property. These include:
- To support a purchase or sale
- To help resolve a matrimonial or commercial dispute
- For probate purposes
- Mortgage valuations
- Tax/Year end asset value appraisals
- For Expert Witness cases
- For insurance purposes
The reasons are many but the efficacy of the Valuation Report remains the same.
What are the methods of valuing a property?
There are five methods of valuing a property.
1. Comparable method
This estimates a property’s value based on the value of similar properties. It is the most common valuation method and is used to assess the market rent and market value of both commercial and residential properties. It considers property characteristics such as location, size and condition and market characteristics such as how quickly transactions in the property’s location usually take place.
2. Investment method
This is used on properties where there is an income stream to value and includes commercial, residential, retail and agricultural properties. Determined by the market, it involves an assessment of rental values and yield.
3. Profits method
This is used on ‘specialist’ properties where there is an income stream, such as hotels, golf courses, petrol stations and care homes. It considers the business’s operating income, profitability, and future trading potential.
4. Depreciated replacement cost/contractor’s method
Another specialist area of valuation, this is used for property which is rarely sold on the open market. It considers the value of the site the property sits on, plus the cost of constructing an equivalent property, i.e. the replacement value of the property.
5. Residual method
This method usually applies to assets with development potential. It helps determine whether a property is good for development, redevelopment, or, for purposes of the land alone.
What can reduce the value of a property?
There are many variables which can influence the value of a property, and this tends to be more complex for commercial properties than residential ones.
Commercial Property
Variables include the property itself (location, condition, use class) and market variables (income potential, development potential and market conditions.)
Residential Property
Variables include the property itself (location, poor maintenance, subsidence, structural issues, the presence of Japanese Knotweed), plus economic factors.
What should a Valuation cost
There is no ‘rate card’ for valuations as every surveyor firm has a different pricing strategy however, fees will probably start at around £250.
The reason there is no fixed fee is that there are many variables – depending on the asset. This includes:
- The size of the property or land
- The value of the asset
- Location
- Composition of the asset - eg is it a flat or a mixed-use (eg retail and residential) property
- Whether the development is new
- Whether it is a portfolio of assets or part of it
- Turnaround – obviously short deadlines result in higher fees.
Can you challenge a Valuation Report?
If you believe that the Valuation Report does not reflect your perception of ‘market value’ then, you are entitled to challenge the valuation.
Many lenders have their own process for challenging a valuation – but some don’t.
There are a number of grounds for challenging a valuation. These include:
- You believe that the Valuer did not draw on current and/or sufficient comparable datasets
- You spotted errors in the Valuer’s summary/conclusions
- The asset description was wrong – incorrect square footage/land size, the benefits of improvements have been undervalued, the number of rooms/bedrooms is incorrect
- You know that the Valuer did not enter the property – ie it was ‘drive-by’ valuation, not one based on entering the building and making an assessment on what he/she saw and/or measured.
If you choose to challenge a commercial property Valuation, you could either appoint a second Valuer and use his/her evidence to support your challenge, or you could gather your own data and evidence of the ‘true’ value of the asset. But beware basing your defense just on intelligence gathered just from local estate agents – as they are, in effect, salesmen whose mission is to seek the highest possible price for an asset, not necessarily an accurate ‘market’ price.
However, a DIY approach to data gathering can be time-consuming and the lender might not accept your conclusions/valuation.
Get in touch
Our national Valuation team helps clients to make informed decisions based on accurate market and property intelligence. Every member of the team is a RICS Registered Valuer and works to stringent internal protocols – this ensures the accuracy, consistency, and quality of our valuation reports.
Find out more about our commercial property valuation service or get in touch today.
North - Phil Winckles
South - Tom Norfolk
*Royal Institution of Chartered Surveyors (RICS) is a long-established professional body for surveyors, worldwide.
