For most people, whether dealing with residential or commercial property, valuations are something that crop up when it comes to buying and, more commonly, selling a property. For these so called market valuations, the standard approach is to go to an agent, they tell you what they think they can get for your property, and you agree to let them act on your behalf.
It is important to note, however, that there is little science behind these types of valuation. They are usually based on comparison with what a similar property might have sold for in a similar area in the not too distant past but there is generally no duty of care to the vendor and no legal remedy if the initial valuation is found to be inaccurate for whatever reason in the future. There is also a tendency for agent valuations to err on the side of optimism. After all, they want your business.
There are in fact lots of other reasons for needing a property valuation, aside from determining its market value ahead of a proposed sale. For commercial premises, a property owner may require a more formal valuation, for Company Accounts purposes Capital Gains Tax purposes, secured lending and expert witness reports for matrimonial/probate purposes or Compulsory Purchase to name but a few
For these purposes, valuations must carry weight and must stand up to scrutiny by the courts, HMRC and the specific requirements of lending institutions. With the prospect of valuations being challenged or discrepancies queried, they must be detailed,accurate, transparent and backed up by evidence.
Red Book Valuations
That is why the Royal Institution of Chartered Surveyors,established a global standard for “Red Book” commercial property valuations incorporating International Valuation Standards that accord and integrate with UK Generally Accepted Accounting Practice (UK GAAP).. The Red Book sets out clear guidelines for valuation approaches and methods, establishing industry standards for process and documentation which are intended to offer guarantees and protections to all parties, including the valuer.
Nigel Blyth, a director at Fairhurst Estates and an RICS Registered Valuer, explained that the main purpose of the Red Book is to ensure transparency in the valuation process. “The regulations demand an increasing justification of the figures the valuer comes up with,” he said. “Valuations can only ever be point-in-time assessments based on professional experience, market knowledge, economic awareness and facts at that moment in time. There can be a degree of uncertainty, and when conditions change – for example with Brexit on the horizon now, for example property valuations can change too. Valuers now are obliged to comment on valuation uncertainty in Red Book Valuation Reports.
“By employing an RICS valuer, you can be assured of getting a high-quality, in-depth and robust valuation report which adheres to established industry standards. It is a system that both promotes accuracy and transparency, and upholds accountability on behalf of the valuer”
One thing that catches people out with Red Book reports, says Nigel, is their length and cost. “People can be surprised at the amount of money they are quoted when they are expecting only a brief one- or two-page report. There is good reason for that cost – a Red Book valuation is a thorough, detailed document following an established methodology, with a strong emphasis on accountability, credibility and evidence and like most things in life, you get what you pay for”.
Nigel Blyth is an Estates Director at Fairhurst Estates Ltd, he is a Chartered Surveyor & Registered Valuer. If you require a formal property valuation for any purpose please feel free to contact Nigel for an informal chat on 0161 476 9476 or email firstname.lastname@example.org