Property Valuation – RICS
First off – who are surveyors and why are they ruining your plans?
Surveyors, or members of the Royal Institution of Chartered Surveyors to give them their full title, are professionals instructed by a party to establish the market value of a property. The market value is described in the RICS Red Book (the valuation bible) as;
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
Surveyors will therefore make these assumptions when valuing the asset.
Generally when a surveyor is messing up your plans, it is because they believe the value of your asset to be less than you do. Often the surveyor is acting on behalf of another party, for example the person you are selling to, or a mortgage lender, in both cases the instructing party wants the property valuation to be realistic but with a preference for pessimism rather than optimism.
How many of us have used surveys to negotiate down the price of a property? If you were lending money against a property, wouldn’t you want to be confident that the money you lent against the property was easily covered by the property valuation?
So it is with this background of information that we can start to see where the surveyor is starting their valuation process.
Methods of valuing property
There are five methods of property valuation that are generally recognised globally.
- Comparative method
- Comparing the property with similar properties.
- For most residential investors this may be the only method you will experience.
- Investment method
- Uses discounted cash flow techniques to establish value through the incoming producing nature of the asset.
- This method is often used in commercial valuations, as well as HMO valuations.
- Residual method
- This is used to establish the valuation of development sites.
- Uses the cost of developing the land and the final gross development value to assign a value for the land.
- Profits method
- Used more as a valuation for a business premises, such as hotels and cinemas.
- Replacement cost method
- This is generally reserved for buildings with little comparable evidence, such as churches, schools, etc.
- The cost of the land and the cost to rebuild the structure are the basis of the valuation.
For some property developers there will be a need to understand the Residual method of property valuation. For commercial investors and HMO investors, the Investment method will be applicable. For every other type of property investor, simply understanding the Comparative method will suffice.
How to get the best property valuation you can?
The surveyor is only human, that’s the first thing to keep in mind. They will go on the evidence before them when they carry out their desktop valuation, and then when they attend site. So how can you ensure the best possible valuation?
Meet them on site
- provide them with access to everywhere they need
- answer any of their questions (truthfully!)
- make them a cup of tea (let that be the extent of your bribery for the day!)
Talk through what you’ve done
- Did you redecorate?
- Have you replaced any bathrooms or kitchen?
- Have you put an extension on the place?
- What about structural works?
- Have you fixed the roof?
- Some works will be obvious and the surveyor will know you’ve done it, but if you’ve replaced all of the external guttering that was causing massive damp issues in half the house – how would the surveyor know that?
Discuss what you paid, and how you’ve added value
- Estate Agents, those people who have a code of silence when it comes to what a property sold for recently or what offers are in on a property, suddenly become the biggest gossips in the world when a surveyor asks them for some comparative evidence. Surveyors are near the top of the food chain in property, so keeping a valuer happy is important to estate agents.
- Tell the surveyor what you paid for it and what the circumstances were. Maybe you paid £20,000 less than you should because you bought it off a family member, or the property sold off market. You can even quote back to them the phrase from earlier about “proper marketing”.
- This, along with point 2, is your best chance to increase the valuation you receive from the surveyor. Demonstrate you paid a lower price for a reason, and then show that you’ve done the work to remove that reason for future buyers.
Talk about the comparable evidence if you know it will help you out
- If you know the house next door went for the same price you’re looking to achieve, make sure the surveyor knows this. There is a good chance he will have found this out, but it doesn’t hurt to remind them.
- If you can prove that prices in the area have gone up by 10% since the sale of the house next door, or any other comparable property, then prove this with data and show the valuer.
Discuss views of estate agents
- Don’t lie as they will be checking. But if a number of estate agents have valued the property for over what you are looking for, that will show a degree of local knowledge that the surveyor can use.
- If you have any paperwork from the agents with their valuation estimate, you can present that to the surveyor. Decent agents will show the comparable evidence and their reasoning behind their valuation.
Discuss any offers you have received if more than one
- If you’re selling the property, maybe you have had more than one offer for the property. Clearly if the other offers were 20% under the price you are hoping to get, maybe keep that information to yourself, but if they are all quite close together let the surveyor know.
- It’s not unusual for higher offers to be rejected due to the buyers circumstances. Perhaps they were in a chain and you wanted a quicker sale, so mention this.
- As a buy to let property, the achievable rental figure will be important for the loan coverage, so again provide evidence of comparables and any offers or current rent achieved.