Value and Worth

The Moral Maze

What is my property worth?

We are often asked is the property worth what I am paying for it. Can you tell me how much the property is worth?

Recently, we helped out one Surveyor who was not comfortable with carrying out a valuation because it was a type of property that was unusual to him, although it was in an area he knew well. So, if even an expert such as a Surveyor, sometimes known as Valuers, have difficulty in valuing a property then how can the average lay person, or indeed an estate agent that is typically untrained.

Worth and value of a property

It is very important to understand the Surveyor who is acting for the mortgage company, be it a bank or building society, the role they play. We consider that they are little more than mortgage sales people, who help give validity to the value of the property, normally using what is known as comparable valuation techniques. This does allow for the valuation to be pushed towards whatever the offer price is and, in our experience, we would say that in 99.9% of cases, possibly more, the valuation of your property will be exactly what you have offered for it. This is truly the market value.

When surveyors look at valuing property they should follow the guidelines set out within the Royal Institution of Surveyors, RICS, Practice Statement, which is commonly known as the Red Book. This sets out that the market value of a property, which used to be known as the open market value of the property, is based upon the following criteria:

The Valuer's opinion of the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of valuation, assuming:

  a willing seller;

  that prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;

  that the state of the market, level of values and other circumstances, were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

  that no account is taken of any additional bid by a prospective purchaser with a special interest;

  that both parties to the transaction had acted knowledgeably, prudently and without compulsion.

If you can just re-read the above section, it is so important. Most people are about to spend 25 years of their hard owned money every month on paying a mortgage to pay off this amount.

The market value is very much about the average value, the average person and the average area, which is argued by many is fairly reflected in an open market sale by an estate agent or via the Internet using the website, such as Rightmove.co.uk or estateagent.co.uk or housesimple.co.uk.

However, this article is about value and worth, so we are looking at how much the property is worth to you. It could be for a variety of reasons you decide it is worth more. In this case, you are sometimes termed a special purchaser via the RICS Practice Statement on valuation. This could be that your brother, sister, mother, lives across the road and you want to be close to them.

There may be other factors that make the property worth more to you, for example we recently dealt with a case where it was a corner plot property and the owner had identified that they may be able to add a driveway to the side of the property and extension to the rear of the property and a balcony on the side, together with solar panels, all of which would make the property what they wanted it to be. This is where there is a big difference between value and worth.

In this particular case it was a house, but we have also seen similar scenarios with commercial property. We have looked at, for example, a public house that had seen better days, the business very much on wet trade, known as the drinks trade to those of us not in the business, where the owners saw potential to change it into a restaurant and food based business.

So, how do you value something that has more worth for you?

A pragmatic way of looking at the worth of a property to you is to look at the end value of the property once you've carried out all the various extensions, alterations and improvements you wish to carry out. Some alterations, extensions and improvements on a property may be of benefit to you but may have no worth to the average person.

The example that we use is if you like stone cladding on the outside of your property in an areas that is predominantly brick, this costs money but it doesn't add any value and is generally not liked by the majority of people. Equally, if everyone else in the road has double glazing and your house has older style metal windows or timber single glazed windows (not necessarily rotting) this can lose value by being out of step with what is common in the road or street.

As an aside, it is very interesting to see statistics relating to double glazing and how it is far more energy efficient to insulate your roof and insulate your walls.

The Moral Maze

We find it amazing that many people rely upon the bank or building society or mortgage company's valuation surveyor, who after all has a vested interest as they work directly for the company, or they are on a panel of valuers which work regularly for the company to pass and approve your valuation. This for many people is the only check that they have when buying a property.

If you speak to any Surveyor or Valuer carrying out this work they will be more than happy to advise you that you should have a building survey of your own as they understand that the valuation inspection is cursory and there is barely time to have a cup of tea, let alone look at the property and write a report on it, although modern valuations use a tick box format or are dictation by numbers it still takes time.

We have found various ways of doing this, from dictating it in the car and downloading it via mobile phone, to using tablet PC's and then downloading it. Either way, this is meant as a quick, fast operation to ensure that the mortgage company are not over exposed on their lending.

The argument is that they wouldn't lend a mortgage on it if the property had a problem

We have come across this argument that the valuation is backed by the mortgage company would lend on the property, but we think the problems of lending and greed of the 2000's, and not forgetting the various booms and busts previously, show that greed can be a very big driver in organisation and commonsense can be forgotten about, particularly when the people are bonused and incentivised to sell mortgages.

Whilst we are discussing this, this also brings to mind another factor. Are the comparables used by the Surveyors suitable for valuing the property? Without a good knowledge of the area Valuers may use comparables that are enhanced by the mortgage lending companies willingness to lend rather than the market value. Valuing using the comparable method will typically have 20 to 50 comparable properties that we can choose three from; three is the typical number that you are required to keep a record of. In our opinion, this system can clearly be abused by the mortgage companies valuer choosing to pick the higher valuations for the sake of a three bedroom property, rather then the typical valuation.

Most of them are also well aware that as black art and they are not that accountable if they are within ten or twenty per cent of the value. It could be interpreted to £10,000 to £20,000, depending of course upon the value of the property.

Can the same property have lots of different values?

The answer is yes. There may be an open market value, as we have discussed. There may be a value to yourself, based upon the worth it has. There may be a value to a developer, for the development potential which may involve knocking the property down, for example a bungalow could be knocked down to then build a large detached house. Finally, we would add that there may be a value placed upon the property by the mortgage surveyor based upon desire of the mortgage company or panel he is working for, to lend in that market. It is this area where the biggest risk is. Sometimes this is known as a value in the froth. If you imagine a pint of beer and the froth bit makes this expression clear.

Why use an Independent Surveyor?

We would say it is because they are not beholden to any mortgage company. We are not beholden to any panel requirements to value in a certain way, in a certain time and we put your interests first.

If you have a close look at any valuation form you will note also that it says to take independent advice.

We would add that you may not like what we say but we do look at what you are spending on the property and see if we would spend our money in the same way. Sometimes we have unearthed other options that clients decide are better for them.

Independent Surveyors

Independent Commercial Property Surveyors

If you have a commercial property, be it leasehold or freehold, then you may wish to look at our Dilapidations Website at www.DilapsHelp.com and for Disputes go to our Disputes Help site www.DisputesHelp.com .

We hope you found the article of use and if you have any experiences that you feel should be added to this article that would benefit others, or you feel that some of the information that we have put is wrong then please do not hesitate to contact us (we are only human).

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