How to get the best property valuation
Guest post by Damien Fogg MRICS, property blogger, podcaster & active property investor.
Over to Damien:
Happy New Year The Property Voice readers!
It’s the start of a new year and inevitably thoughts go to our goals, hopes and dreams for the year, but one challenge that virtually all property investors will at some point come up against is a property valuation marked down by a surveyor on one of their properties.
This could be when you’re looking to buy a property and you’ve already agreed what you thought was a good price, or when refinancing a property in your portfolio, or perhaps when you are selling a property on and the other side produce a property valuation lower than you had hoped.
So let’s take a quick look at what can be done to give yourself the best chance of getting the property valuation you are hoping for.
First off – who are surveyors and why are they ruining your plans?
Surveyors, or members of the Royal Institution of Chartered Surveyors to give them their full title, are professionals instructed by a party to establish the market value of a property. The market value is described in the RICS Red Book (the valuation bible) as;
“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.”
Surveyors will therefore make these assumptions when valuing the asset.
Generally when a surveyor is messing up your plans, it is because they believe the value of your asset to be less than you do. Often the surveyor is acting on behalf of another party, for example the person you are selling to, or a mortgage lender, in both cases the instructing party wants the property valuation to be realistic but with a preference for pessimism rather than optimism.
How many of us have used surveys to negotiate down the price of a property? If you were lending money against a property, wouldn’t you want to be confident that the money you lent against the property was easily covered by the property valuation?
So it is with this background of information that we can start to see where the surveyor is starting their valuation process.
Methods of valuing property
There are five methods of property valuation that are generally recognised globally.
1. Comparative method
- Comparing the property with similar properties.
- For most residential investors this may be the only method you will experience.
2. Investment method
- Uses discounted cash flow techniques to establish value through the incoming producing nature of the asset.
- This method is often used in commercial valuations, as well as HMO valuations.
3. Residual method
- This is used to establish the valuation of development sites.
- Uses the cost of developing the land and the final gross development value to assign a value for the land.
4. Profits method
- Used more as a valuation for a business premises, such as hotels and cinemas.
5. Replacement cost method
- This is generally reserved for buildings with little comparable evidence, such as churches, schools, etc.
- The cost of the land and the cost to rebuild the structure are the basis of the valuation.
For some property developers there will be a need to understand the Residual method of property valuation. For commercial investors and HMO investors, the Investment method will be applicable. For every other type of property investor, simply understanding the Comparative method will suffice.
How to get the best property valuation you can
The surveyor is only human, that’s the first thing to keep in mind. They will go on the evidence before them when they carry out their desktop valuation, and then when they attend site. So how can you ensure the best possible valuation?
- Meet them on site
- provide them with access to everywhere they need
- answer any of their questions (truthfully!)
- make them a cup of tea (let that be the extent of your bribery for the day!)
- Talk through what you’ve done
- Did you redecorate?
- Have you replaced any bathrooms or kitchen?
- Have you put an extension on the place?
- What about structural works?
- Have you fixed the roof?
- Some works will be obvious and the surveyor will know you’ve done it, but if you’ve replaced all of the external guttering that was causing massive damp issues in half the house – how would the surveyor know that?
- Discuss what you paid, and how you’ve added value
- Estate Agents, those people who have a code of silence when it comes to what a property sold for recently or what offers are in on a property, suddenly become the biggest gossips in the world when a surveyor asks them for some comparative evidence. Surveyors are near the top of the food chain in property, so keeping a valuer happy is important to estate agents.
- Tell the surveyor what you paid for it and what the circumstances were. Maybe you paid £20,000 less than you should because you bought it off a family member, or the property sold off market. You can even quote back to them the phrase from earlier about “proper marketing”.
- This, along with point 2, is your best chance to increase the valuation you receive from the surveyor. Demonstrate you paid a lower price for a reason, and then show that you’ve done the work to remove that reason for future buyers.
- Talk about the comparable evidence if you know it will help you out
- If you know the house next door went for the same price you’re looking to achieve, make sure the surveyor knows this. There is a good chance he will have found this out, but it doesn’t hurt to remind them.
- If you can prove that prices in the area have gone up by 10% since the sale of the house next door, or any other comparable property, then prove this with data and show the valuer.
- Discuss views of estate agents
- Don’t lie as they will be checking. But if a number of estate agents have valued the property for over what you are looking for, that will show a degree of local knowledge that the surveyor can use.
- If you have any paperwork from the agents with their valuation estimate, you can present that to the surveyor. Decent agents will show the comparable evidence and their reasoning behind their valuation.
- Discuss any offers you have received if more than one
- If you’re selling the property, maybe you have had more than one offer for the property. Clearly if the other offers were 20% under the price you are hoping to get, maybe keep that information to yourself, but if they are all quite close together let the surveyor know.
- It’s not unusual for higher offers to be rejected due to the buyers circumstances. Perhaps they were in a chain and you wanted a quicker sale, so mention this.
- As a buy to let property, the achievable rental figure will be important for the loan coverage, so again provide evidence of comparables and any offers or current rent achieved.
I could, and usually do, go on forever about topics such as these, but in the interest of your time I’ll leave it there for now.
Hopefully you’ll have learnt a few steps you can take to help the surveyor give you the property valuation you need, and justify it to anyone who may challenge that valuation in the future.
Best of luck and happy investing.
Damien Fogg MRICS
The Property Voice insight:
Property valuations are quite possibly one of the biggest factors in successful property investing, especially when using a buy-to-sell or buy-refurbish-refinance strategy, as I often do.
Personally, I have had a mixed experience when it comes to property valuations, as I will illustrate with a few examples.
On a project in Cornwall my property was valued at 17% below direct sales comparables sold on two neighbouring streets within a matter of months. When questioned I was told by the lender that 'I was free to go elsewhere'...of course this was a short-time before the proposed completion date by this time.
On a different occasion, I had a very positive and supportive property valuation, this despite the fact that in this case my upgrade spend was limited but I had also received a significant discount from similar property values in the area and this was duly noted by the surveyor.
Most recently, I have been left somewhat frustrated that a surveyor appeared to make a clear error in the calculation in the 'Investment Method' basis of calculation and rather than admit this, instead chose to spin off what sounded to me like a list of excuses to cover up their mistake, rather than review and change it. That said, I am of course also biased and so perhaps I did not want to hear what the surveyor said...although in my defence, a different surveyor had used what I believed to be a fair (and higher) valuation only a short time before that...
Damien highlights some very interesting points, such as the surveyor being human - yes they are people too and often it is easy to forget this, especially in the cut and thrust of a deal. Similarly, meeting a surveyor on site, explaining the works undertaken and demonstrating any added value as well as highlighting relevant comparable property values, all helps us to get the 'right' property valuation.
However, as the saying goes, 'you cannot make a silk purse from a sow's ear' and just because we want a certain property valuation does not automatically mean that we will get it. After the financial crisis a lot of surveyors were sued by disgruntled investors and banks alike. They took a big hit for apparently over-valuing properties back then. Many also left the industry altogether, which also in part explains why it can take a while to get the survey booked! Adding it all up, we cannot ignore the human aspects, the threat of being sued and the fact that often we as property investors sometimes having competing motives to other stakeholders in the property food-chain. At times this can be frustrating as said but Damien at least lays out some thoughts and ideas of how best to go about getting what we want.
So, how about you?
What has your property valuation experience been like?
What do you think of surveyors (careful now...moderator settings are on!) and;
Would you like to hear more about property valuations from Damien, a chartered building surveyor?
Please let us know in the comments box below, or start a conversation via social media and we will see if we can get Damien to join in...
Finally, if you had a look at our Mentoring page recently, you may have noticed that the name Damien Fogg appears there too! That is because Damien and myself have teamed up to offer joint mentoring property programmes, which should hopefully give our mentess different perspectives and insights into property investing from our combined approach...two for one mentoring if you like!
My house was valued by one local estate agent at £750k, by another at £725k, and by BBC Escape to the Country at £725-730k. Within 4 weeks of marketing it, I found a buyer at £725k needing a tiny mortgage. The surveyor came along and valued it at £625k! £100,000 less than the buyers had been willing to pay and in disagreement with the view of 4 others; and they just walked away. I sold to my second buyer for £55k less – £670,000; pretty realistic I thought. They needed a big mortgage and when the surveyor came along he valued the house at £550k, making it impossible to get their mortgage and they were so sad they had to back out. His valuation put my wonderful grade listed house with attached barn on a par with a much smaller local property with no barn and needing complete renovation. I feel gutted by what surveyors can do. Apart from being £70,000 apart in their valuations, they were £125,000 and £200,000 less than the local estate agent. The reality is that an asset is worth what you can get for it. This applies to fine art in auctions, and to goods on Ebay, so why not to houses? Shouldn’t surveyors be restricted to surveying the condition of the property if they can’t even agree on approximately close valuations? Houses are the only items I know of that are subject to the view of a closed-shop clique who have the power to wreck sales, and then walk away scot free.
I complained to the RICS about the first valuation on the grounds that the survey was factually and significantly incorrect. They said ‘We don’t question the judgement of our surveyors”. I pointed out that their website claims that the RICS ‘maintains the highest standards of the profession’. They replied – if you want to sue him go ahead, and do let us know the result! Bah! This made me think that surveyors can be virtually as irresponsible as they like.
The reason we were unable to sell our house only came to me after the second failure. I surmise that the local agents did not like the fact that I had gone with an inexpensive online agent charging £630 instead of the £9,000 they asked for the same job. The surveyors came from local agents who did not want a cheap alternative on their patch. I was so disgusted and decided that if I was not going to be allowed to sell my property in this new effective way then I must pay their ‘blood money’. So I went to a local agent who did a very poor job. The manager himself had started training as a surveyor in earlier days and was not surprised by my theory of ‘dirty tricks’. He told me that when he was training, his mentor told him to remember – if you rubbish a property the first time, then you or a colleague gets a fee for doing it a second time. And so it has turned out. My house is now under offer again at £655k this time, despite the recent increase in house prices, and the surveyor will be round soon to collect the third fee for a single sale! The words I would like to use regarding my experience would cause your moderator to chuck this item off the website. I hope he does not choose to do that anyway. My faith in the profession stands at zero. What skill is there in being unable to conclude a value within £70,000 of each other ! I myself have lost £70,000 at their behest against my original agreed sale. One thing that seems necessary from this experience is that estate agents should not be allowed to employ surveyors, who should be truly independent.
Hi Keith – thanks for commenting in detail on this thread. You passed moderation although O am unsure how visible the post is?
Needless to say, we feel for you here. I have also had situations where valuers have scuppered my plans I have to say, although none with a various as wide as your I have to say. It’s hard to suggest what you can do, however, all valuers should be part of RICS and so perhaps you could look to them if you felt there was any funny business going on?
We featured your plight in the podcast episode we have just recorded to make others aware of the situation and we shall see if we can get a word from Damien Fogg on the subject as well.
I hope your latest sale manages to go through OK this time; keep us posted.
Scottish Valuations are a waste of money and hinder the property market, it just makes it legal to rob you.
Fascinating to read these – my property was down valued by 70k recently on the basis of similar comparators (that were not true comparators as they were substantially smaller than mine and also outside the surveyor’s own six month timeframe for recent sales). This is despite the same company having previously valued my property at the figure that they claim it is not longer worth! It is true to say they are human but my surveyor seemed to take a stick a figure in the wind approach and has refused to move despite me pointing out the various errors and inconsistencies in his approach. It may be that they have been sued as a result of overvaluing, but in swinging too far the other way they also run the risk of being sued for down valuations without, in my opinion, valid supporting comparator evidence!
Hi …. LD?
Sorry you’ve had a bad experience with your surveyor. I suppose the question is, who’s going to sue them for down valuations? It’s an annoyance for home owners and investors. But banks don’t really care, and they are the ones holding the debt. So there is zero risk for a surveyor valuing the property low, whereas there is potential risk of overvaluing a property.
If there are no comparable properties within the last 6 months, then this would suggest it’s a slightly depressed market in your area (or a niche low turnover area). In circumstances like that, the valuer must use an extrapolated comparable evidence model. This is a way of comparing apples with chocolate brownies. By its nature it’s less accurate, and therefore a further degree of caution will be added to the final figure.
The fact the valuation has changed over time is not surprising. The property market changes, and any valuation is given on a precise date. If the valuer is incompetent however, then you can request another valuation be carried out and be sure to point out that the properties that they may find and use as comparables aren’t true comparables as they are smaller / less valuable etc.
The customer (me) will sue – either the bank or the surveyor (esurv).
I appreciate your comments about valuations changing over time which I fully understand but this is as you set out; a niche low turnover situation.
Bizarrely, the comparators he quotes have all gone up in value (in line with the recorded general trend in the area) – despite this mine has apparently decreased by £70k without any evidence to support this. Property prices have not rocketed in my area but they have not fallen off a cliff either.
The surveyor has refused to acknowledge that the properties he has referred to are not true comparables (refusing to even disclose these, I had to get them from the bank) just stating he will not change his “opinion”. However, opinion has to respect fact.
The fact is he has noted a rental valuation on mine as £700 per month using another flat in the same development as mine (which is much smaller than mine and is reflected in the fact that it was purchased for £70k less when they were built).
My flat has never rented for £700 and was renting for £950 a few months after the valuation he’d done. Was any of this taken into account?! No, he refused to change his “opinion” despite it ignoring the factual reality of the situation and esurv refused to allow me to have another valuation done (which probably would have been a conflict of interest at that point anyway).
A second valuation noted a valuation of £60k more than the first surveyor had attributed.
It does seem to be obvious to everyone else that he has simply looked at the other flat, decided (incorrectly) same size, same development = same value.
Unfortunately had he done any research, and I am unable to see that he has, he would have known that the purchase price was far lower and floor space was much less. Is this not a professional conduct issue? Who else does not check basic facts before issuing what is now a binding decision according to the bank and esurv? It was left to me to point all of these things out- even then the surveyor said they were not relevant. I rather think they go to the crux of a valuation, no?
I see no other option but to sue for negligence. There is no other profession where a second opinion is refused and, when presented with real facts, the supposed professional refuses to acknowledge these stating that these do not alter his “opinion”.
An opinion has to be based on or at least in some way related to fact!
View and comments from anyone with similar experiences or advice as to how they would deal with such a situation is welcomed.
Not sure what the exact situation is, so hard to say who (if anyone) you can sue. And also why you would and what you would hope to achieve from doing it…
I’m no solicitor, but from my vague recollection from negligence claims you’ve got to show a financial loss in order to claim for damages. If you were just remortgaging to release money, then you’ve not actually suffered a loss as a result of the down valuation. Perhaps you’ve been able to pull out less money, or no money at all, but it’s still not caused a loss.
I also wonder if the surveyor has any duty of care to you directly. As an investor you are treated very differently than a normal home buyer. It is expected that you’re a more sophisticated investor so will rely less on their valuation reports. It seems that the surveyor was instructed by the bank to work on their behalf, not yours. While it impacts on you, they don’t actually have any link with you. So I’m not sure you’d be able to sue them directly in that case.
I may not fully understand your particular circumstance though, so could be wrong.
The way negligence claims work – and I’ve played the part of expert witness when investigating negligence claims against other surveyors – is that another firm of surveyors will go out and look at what a reasonable surveyor should have taken into account and what the end result should have been versus what actually happen. If there is any financial damage caused to you, then that is the extent of your negligence claim.
If you’re just unhappy that a surveyor appears to have done a bad job and it hasn’t worked in your favour, then I’m not sure you have much scope for pursuing the matter.
It sucks, but does highlight some of the key points in the blog post – Meet them on site, and discuss comparables. After the event, as you are finding, is much more difficult to alter opinion as you are questioning their competence. During, you are simply helping them do their job.
Best of luck with whatever route you do go down. And don’t worry, the RICS does take negligence claims very seriously as a bad surveyor ruins the reputation of the organisation. So there is unlikely to be a ‘boys club’ mentality and protecting their own.
I have just had an issue where a bank appointed valuer has valued my home in its current state at £650k v my expectation of £1m. An estate agent suggested a marketing value of £1.2m 2 years ago but, to be fair, the local market has been very soft especially at this level. The same property was valued 3 months ago at £900k by a different valuer, who when challenged very robustly defended his £900k valuation.
The subject property is about to have an extension added and the existing house is being upgraded throughout to provide A grade accommodation (underfloor heating, rewire, replumb, highest level of insulation, first class finishings etc. It is set in 2.5 acres of land and has fantastic views all around, yet the valuation estimate of the completed project is £189 psf when the local developer is selling semi-detached boxes on a housing estate for £300 psf. The valuer refuses to accept that this is a valid point of discussion and when I point out that there are simply no comparables in the past 3 years for the property she refuses to say what her comparable are. The works are set to cost +/-£250 psf.
I have however just discovered that the valuer’s family own a significant amount of the land in the vicinity of my property, her father is a neighbour and her aunt owns the house about 1/2 a mile up the hill that has uninterrupted views to the rear of my property.
The valuer is now hiding behind the fact that she was instructed by the Bank and not by me (even though I paid for the valuation) and refusing to engage in a discussion on her valuations or confirm which Ombudsman Scheme she is a member of.
I suspect that my property is coveted by the family but have no proof.
In these circumstances do you believe that the valuer is conflicted and should not have accepted the instruction?
Is a psf valuation method a valid basis for valuation in the absence of comparable sales evidence?
What recourse do I have to a professional body / Ombudsman / the Courts?
Any advice would be gratefully received.
Hi A2B,
There could be a conflict of interest, but as she has mentioned she was instructed by the bank and therefore would have been obliged (if there was a conflict) to advise them rather than you. If they were aware of it and still proceeded, then she’s covered.
A psf valuation would be an unusual valuation method for a residential property. Not completely unheard of, but definitely not something that would be the norm. Even without recent comparable sales, the comparable method is almost always used.
You can extrapolate using overly complicated comparisons of say a sale 5 years ago then altered to take into consideration the local house price changes. Or you can use a non comparable property, but then give a % increase to take account of different elements.
I.e. if you have good sales evidence for a 4 bed detached but you’re trying to value a 4 bed semi, you could make the judgement that a semi is 15% less desirable than a detached, therefore the valuation is 15% lower.
(This is where valuation becomes an art and not a science – and where most disputes arise).
As to what you should be doing. Sounds like you should ask the bank to instruct another survey and accept that you’ll be paying for it. Most lenders, if you can give a good enough reason as to why you think the surveyor may not have considered all the relevant information, will be OK with sending another valuer out. Especially as it doesn’t cost them again.
As for recourse to a professional body, there is the whole debate around “Does a duty of care exist between a surveyor instructed by a bank and the person relying on it?”.
You sound like a residential home owner, so the courts look favourably on that, however the price of your property may put you in a position where the courts deem you to be sophisticated enough to know what you’re getting into.
It’s something of a grey area.
The lender will have a complaints handling procedure, so that would be one avenue to explore. If the surveyor is refusing to give you their CHP details, you could go to the RICS as the first point of call. The courts would not be interested if you haven’t shown some attempt at resolving this more directly.
Sorry that may not be too useful, but hope it helps.
We had our property valued for IHT purposes. It consists of a dwelling with agricultural land and woodland. The surveyor gave us separate values for each component of the land but the end figure was, we felt, too low, by about £250k. So we queried the Red Book valuation. The surveyor refused to change their valuation but did issue a second valuation based on information that there was still planning permission on the site to build another dwelling. This was incorrect, since, for various reasons, the permission was extant. Even so we felt that the second valuation was still too low, by about £100k. The property has recently been valued by the District Valuer on behalf of HMRC at the value we thought was right in the first place. They did point out, as well, that the values for the Agricultural land and woodland had been priced too high by the surveyors. Luckily for us we had decided to ignore the Red Book valuation and had put in our own value so we don’t have a problem with HMRC. But we do feel we have a problem with the surveyors. We paid quite a lot of money for the Red Book valuation, yet the valuation was wrong by quite a margin. Can we claim the fee charged, either in full or in part, back from the surveyors?
You can but ask. They definitely won’t refund you if you don’t ask.
First port of call is always the firms own Complaints Handling Procedure. Speak to them and say you’re unhappy they have provided a valuation that is not inline with the District Valuer’s and would like some kind of refund.
The problem with valuations is that they are ultimately just opinions, so it’s hard to say they are “wrong”. Not sure what figures you’re working with, but if they are £250k low and the valuation is £8 million, then that’s hard to prove negligence as it’s within a margin of error. If they are £250k low and the valuation is £400k, then it’s somewhat easier to prove negligence
The District Valuer has an opinion, this surveyor has one (or two apparently). It’s only if you sue for negligence and get an expert witness that you can come up with a “final valuation” that could be one or the other, or something new.
Best of luck with it though.
I have just received the valuation on my property which I am selling. This is the purchasers valuation as instructed by their lender. Astonishingly they have downgraded the value of the property from £110500 to £100K. The comparables they have used are not representative of my property and in fact 2 of the comparables used are either out of the 6 month window and the other outside the 10% threshold. I find this ‘finger in the air’ valuation disgraceful and totally unprofessional. Even though I didn’t instruct or pay for the valuation the effect of this rather rogue valuation has significant impact on whether I can sell and buy a property. The estate agents valuations are in excess of what was paid, additionally all the online valuations were rather inflated but state they have high confidence. I believe the property was marketed appropriately and attained a fair price (still nearly 10% below estate agent valuations as I was keen to have a quick sale). Surely there has to be some recourse as to the ‘opinion’ of the surveyor because his valuation has tangible effects on the sale of a house or not. They cannot just place values without being accountable and that accountability must fall some way to the owner they are devaluing a property on and who’s to know if there is any ulterior motive unless they are challenged. I would like to know who I can complain to, the surveyor or RICs?
Hi Tony
You might not like the answer I am about to give, but it is the answer nonetheless. Valuation surveyors are indeed accountable…to the person instructing them. It is they that they owe a duty of care to, which is often but not always a lender. Also, an estate agent ‘valuation’ is not a valuation at all, it is a ‘market appraisal’, which is also an opinion but one coming from someone with a vested interest to get you the highest possible price for your property and so is hardly unbiased, nor indeed are you clearly.
You can undertake a Hometrack or Mouseprice valuation for about £20 to see the likely valuation range and historic relevant sale values if you want a bit of piece of mind. However, this will only pick up Land Registry data and not the most recent actual sales data, which a valuation surveyor would usually obtain from local agents to add into their evaluation. The current state and potential trend of the market could also have a bearing depending where you are. You could also instruct your own valuation survey from a RICS valuer if you wish to show that to a future buyer and their valuation surveyor at the price agreed…surveyors are unlikely to disagree with another credible survey unless something has changed.
I think you could potentially contact RICS and ask them if you can lodge a complaint but once again, I am not sure that you have any rights here I’m afraid. I can appreciate that you feel aggrieved by this and trust me, as a property investor that has been subjected to a ‘down valuation’ I feel your pain. But in all my years I have only ever seen one low valuation overturned on appeal and that was a Black Swan event most likely.
Sorry, but good luck.