Homeowners commission valuations of their property for various purposes, from sale, to taxation, to matrimonial separation. Estate agents will offer free property surveys and valuations and that is often the first port of call for homeowners in such situations. However, the standards adhered to in producing these ‘valuations’ can be quite loose, and this may lead to difficulties.  An estate agent’s valuation is technically no more than a recommended asking price, and will typically be produced quite quickly (sometimes, during the course of walking around the property). While a good agent will be familiar with the local market a more in-depth analysis in often required in order to produce an accurate valuation. At worst, agents can be tempted to purposefully inflate their valuations in order to induce the vendor to instruct them to sell the property. Getting an accurate valuation can be very important – if a property is overvalued, the owner might pay too much in tax, for example. If it is undervalued, it might be sold for less than it is worth.

Qualified valuers registered with the Royal Institute of Chartered Surveyors (RICS) work to much tighter standards. The RICS provides regulations with which its member valuers must comply, including minimum standards for the way valuations are undertaken. When producing a valuation, and RICS member will consider, amongst other matters, the type and age of the property, its accommodation, its location and situation and the condition of the property alongside tenure tenancies and service charges.

In producing their valuation, the valuer will collate and consider evidence in the form of comparable sales. Comparable sales are other properties which have been sold in the relatively recent past in the local area which are similar, to a greater or lesser extent, to the property being valued. Valuing property is more complicated than valuing other more liquid assets, such as stock, shares, currencies or bonds, because there is no centralised marketplace, and unlike most other assets, properties are heterogeneous (no two are the same). Consequently, the valuer will need to consider the circumstances of each individual comparable sale, and make adjustments to the sale price to account for differences between the comparables and the property being valued. Ideally the comparables will be very similar to the subject property, but in some cases, particularly when the property in question is unusual, or where the market is slow and there is a lack of evidence, the comparables might be quite different from the subject property. In such cases the valuation process will be as much art as science, with the valuer relying on his own expertise and market knowledge to arrive at an appropriate figure.

There are numerous approaches to making adjustments to comparable evidence, but they will all involve either quantitative adjustments (such as making adjustments for size with reference to a price per square foot), or qualitative adjustments (such as making a broader adjustment to price to account for an aspect such as a view). When making quantitative adjustments the valuer must be cautious of taking a purely mathematical approach which does not reflect the realties of the marketplace. When making qualitative adjustments the valuer must be wary of the perils and potential inaccuracies that can result from taking an entirely subjective non-evidence based approach.

Typically, the valuer will set out his analysis in a matrix. In the following example, the valuer has made quantitative adjustments for size on a price per square foot basis, and house price inflation with reference to the Land Registry House Price Index. Additionally, the valuer has made a qualitative ‘lump sum’ adjustment of plus 5% to two of the comparables on account of their poorer location. After making his adjustments the valuer arrives at an average value of £525 per square foot, which he can apply to his measurement of the subject property in order to arrive at the valuation.

Valuation is a specialist area of practice, and can be complicated. Whilst estate agent’s valuations have their uses (primarily as guidance for those thinking of selling), if an accurate figure is required, for purposes such as taxation, or matrimonial separations a qualified valuer who is a member of the RICS should be employed.