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Determining the worth of an asset
Valuation is the analytical process of determining the current (or projected) worth of an asset.
This is how much a buyer would be happy to pay, assuming that they are willing to pay the current market rate and do not have any pressure to buy. At the same time, it reflects the amount that a property seller would be willing to accept after their home has been on the market for a reasonable period, provided that they are neither over-eager nor reluctant to sell.
Property valuations are sometimes referred to as ‘Red Book’ valuations. The Red Book is an RICS publication that sets out rules and guidelines for valuations. It stipulates that RICS valuations must be carried out by an RICS surveyor who is registered as an RICS valuer. It means that the surveyor is answerable to the RICS and is working to regulated professional, ethical and technical principles.
There are a number of valuation methods: comparables, investment, depreciated investment cost, residual.
For residential property, the most common method is comparables, where the surveyor will collate, analyse and adjust comparable evidence to reflect differences with their subject property.
Residential surveyors will undertake most of their valuations on behalf of lenders, such as banks and building societies to enable them to manage their risk of lending against a property. But as well as for lenders, other valuations that RICS surveyors undertake are for help to buy and shared ownership purchases, right to buys, tax and reinstatement costs.