Why don’t Estate Agents and Surveyors Agree on Value?.
During 2018 there was media coverage alleging surveyors were ‘down valuing’ and preventing some buyers from obtaining mortgages. Even the BBC covered this in July 2018, saying that there had been a “significant” increase in properties being valued at an amount less than the buyers agreed to pay.
So why do surveyors ‘down value’?
Back in the middle of 2018, Emoov’s then CEO Russell Quirk was quoted as saying “down valuations” are due to surveyors “simply covering their backs”. This is not true and demonstrates a real lack of understanding about the way surveyors work.
Surveyors provide valuation services across many asset classes and the RICS requires that they work to the highest standards that is underpinned by the mandatory regulatory scheme, Valuer Registration. It is not simply that they are Chartered Surveyors. Now they must also be Registered Valuers.
In addition, the approach they take to a valuation is governed by the RICS Valuation Practice Note, the Red Book. This practice note contains mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations.
For example, the RICS is careful and precise in the definition of Market Value – a term often bandied about when talking about value.
The recognised definition of Market Value is as follows:
“Market Value is 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”.
Below are the key things that a valuer needs to adhere to in order to comply with both the Regulator and their customer, according to the International Valuation Standards Section 104.
- The estimated amount – this is the most probable price reasonably obtainable on the valuation date. It should be the best price for the seller and the most advantageous one for the buyer. It must exclude special terms or atypical financing or any element that would only be available to a specific owner or buyer.
- The willing buyer – it’s important that they’re not over eager or determined to buy at any price. This buyer is also one who purchases in accordance with the realities of the current market and with current market expectations, rather than in relation to an imaginary or hypothetical market that cannot be demonstrated or anticipated to exist. The assumed buyer would not pay a higher price than the market requires.
- The willing seller – the seller should equally not be over eager to nor considered to hold out for any price. The factual circumstances of the seller are in effect ignored by the definition that puts in place this hypothetical basis.
- After proper marketing – means that it is assumed that the exposure to the market has also been the best possible. There should have been enough time for the asset to be brought to the attention of a sufficient number of potential buyers. Some of this information may not be available to the valuer, but that assumption will be made.
As if this was not complicated enough, valuers also have to work to the guidance produced by individual lender clients. Each lender company produces it’s own guidance on how valuers should approach a property when undertaking a valuation on their behalf.
And Red Book valuations are getting more complicated as issues such as cladding on blocks of flats and repair liabilities are emerging. How will this impact on the ‘willing purchaser’?
Valuation is not a fag packet activity, rather it is a professional, thought through responsible process and for the most part is conducted as such by both Estate Agents and Surveyors alike – but taking a different approach. If agents were able explain how a surveyors approach to value is different to theirs, and indeed anticipate this when advising their client, might it give clients more faith in the whole process and and create more consistency within the market?
If you would like to develop your own skills and insight into how a RICS Red Book Valuation is conducted and regulated, or indeed if you have ever considered developing your career into the world of residential surveying, then you should consider getting in touch to find out if the Sava Diploma in Residential Surveying and Valuation could be for you. Find out more about the Diploma in Residential Surveying and Valuation.
FAQs: The Differences in Valuation Between Estate Agents and Surveyors
Why do surveyors sometimes value properties lower than the agreed purchase price?
Surveyors are often perceived to ‘down value’ properties, but this is a misunderstanding of their role. They follow strict guidelines set by RICS (Royal Institution of Chartered Surveyors) under the Valuer Registration scheme. Their valuations are based on a comprehensive understanding of the property market, adhering to the RICS Valuation Practice Note, also known as the Red Book, which mandates rules, guidance, and standards for conducting valuations.
What is the definition of Market Value according to RICS?
Market Value is defined by RICS as the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller, in an arm’s length transaction, after proper marketing, with each party acting knowledgeably, prudently, and without compulsion.
How do surveyors determine the value of a property?
Surveyors determine the value of a property by considering the most probable price reasonably obtainable on the valuation date. This involves ensuring that the price reflects the best interest of the seller while being advantageous for the buyer, excluding any special terms or financing that would not be available to all buyers.
What does “after proper marketing” mean in a property valuation context?
“After proper marketing” assumes that the property was exposed to the market in the most effective way possible, allowing sufficient time for it to be brought to the attention of an adequate number of potential buyers. This is an assumption made by the valuer, as they may not have access to all marketing details but is essential for determining a fair market value.
Why do estate agents and surveyors often come up with different valuations?
Estate agents and surveyors may approach valuations differently due to their distinct roles and objectives. Estate agents might focus on achieving the highest possible sale price for their clients, often working on behalf of the seller. In contrast, surveyors conduct their valuations based on objective criteria set by RICS, considering current market conditions and the specifics of the property, which can lead to different valuation outcomes.
Do surveyors consider the needs of lenders in their valuations?
Yes, surveyors also adhere to guidance produced by individual lender clients. Each lending institution has its own set of instructions on how properties should be valued on their behalf, which can influence the surveyor’s approach to valuation.
How do emerging issues like cladding affect property valuations?
Emerging issues like cladding on blocks of flats and repair liabilities can impact valuations as they affect the ‘willing purchaser’s’ perception and the property’s overall safety and desirability. Surveyors must consider these factors in their assessment, which can complicate the valuation process.
Is property valuation a simple process?
No, property valuation is a professional, well-thought-out process that requires a deep understanding of the property market, regulations, and standards. Both estate agents and surveyors aim to provide accurate valuations, but they may do so from different perspectives, reflecting their roles in the property transaction process.