A Guide to Residential Property Valuations

Whether you are buying, selling or even gifting a house or flat, an accurate assessment of its market value can provide important insights. But more than that, you are unlikely to be able to proceed with a mortgage for purchasing a home, or a sale of a shared ownership property, without a residential property valuation from a valuation surveyor.

What is a residential property valuation?

Getting a property valuation gives you the ‘market value’ of your home. In a nutshell, the market value 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.

You may hear property valuations 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 a registered as an RICS valuer. It means that your surveyor is answerable to the RICS and is working to gold standard professional, ethical and technical principles. This definition of market value is specified by the RICS. This means that surveyors across the country use tried and tested methods to produce reliable valuations that are backed up by concrete evidence.

Once complete, residential property valuations are normally valid for 3 months. In most cases, the valuation validity can be extended for a further 3 months. To do this, a surveyor must carry out additional desktop research within 2 weeks of the original expiry date.

 

What does a residential property valuation include?

A valuation of a residential house or flat typically involves a short visit to the property, along with considerable desk research. Evidence from both the visit and the research are combined to determine the market value of the home.

The surveyor will make a visual inspection of  many aspects of the property when making a residential valuation. These can include:

• how the property was built and what it is made from
• the size of the buildings and grounds
• the presence of outbuildings, garages and parking
• the structural condition of the property
• whether there are any serious defects
• recent improvements to the property, such as extensions or loft conversions
• the location of the property – its desirability, proximity to local amenities and the quality of the local amenities
• information on the sale price of three comparable homes nearby that have recently been sold.

It is important to remember that valuations are not building surveys. Properties can have many defects, both major and minor, that do not affect market value but that do require costly repairs and maintenance. For this reason, if you are purchasing a property it is a good idea to have a building survey done by an RICS surveyor. That way, you know exactly what you are buying.

 

Types of residential property valuation

Mortgage valuations

Lenders request these to make sure that their loan to you is secure. If you are buying the property for substantially more than someone else is likely to pay, then the lender may not be able to recover their investment if they need to repossess and sell the home. This is particularly problematic when deposits are small and the mortgage represents a large proportion of the property value.

HomeBuyer valuations

Valuations are included with most HomeBuyer surveys to help you decide whether or not you are paying a fair price for a property. A HomeBuyer valuation can differ from a mortgage valuation if mortgage lenders have specific criteria. For example, whereas a bank might not lend on a house that was built with non-standard construction, and so would give it a value of £0, the market valuation would always have a positive value.

Help to Buy valuations & Shared ownership valuations

Shared ownership schemes allow you to buy part of a property, with another person or entity buying the remaining shares. The most well-known scheme is Help to Buy, in which the government purchases part of the equity in the home. Other shared ownership schemes are usually in partnership with housing associations.

Whoever owns the remaining shares in your property, when you come to sell it or repay the loan you will need a valuation. This tells the other party exactly how much their share of the property is worth. If house prices have risen since you bought the home, the value of their share will have risen too. Equally, if house prices have fallen, the outstanding loan amount you owe will fall too.

Right to Buy valuation

If you live in a property owned by a council or housing association, you may be eligible for the Right to Buy your home. If you apply for Right to Buy, your landlord will send you a letter telling you how much the property is worth and how they determined its value. It will also explain the current condition of the property and any structural issues. If you disagree with your landlord’s valuation or their assessment of the property condition you can get your own valuation. This can be used to challenge the landlord directly, or can be taken to the District Valuer and used in an appeal.

Valuations for tax or legal purposes

These are most commonly done for inheritance tax purposes or to get an accurate assessment of a property value to support divorce proceedings. However, valuations can also be required for company accounting purposes, calculating capital gains tax or non-domicile tax purposes.

Reinstatement costs

Getting an accurate cost for rebuilding your home in case it is seriously damaged means allows you to check that your insurance cover is appropriate. Reinstatement valuations should be done by a competent surveyor.

 

Residential property valuations vs estate agent valuation appraisals

Valuation surveyors and estate agents all use expert judgement to value houses. However, the methods and aims of the valuations or appraisals are quite different, and their valuations will often differ.

Valuations

• Valuation is designed to reflect a fair and accurate market value that a willing buyer and purchaser would both accept
• Surveyors are trained to spot serious defects in your home that may affect value
• Surveyors have access to large databases of local ‘under offer’ prices. The find similar properties to help them determine a home’s value
• Surveyors must look at a minimum of 3 comparable properties when valuing a property
• Surveyors are accountable for their valuation. If they are challenged and cannot provide evidence to support their valuation, they can be sued
• There is no risk of bias. If a surveyor has a conflict of interest, they are not allowed to value the property
• Valuation is designed to reflect a fair and accurate market value that a willing buyer and purchaser would both accept

Appraisals

• Valuation appraisal is designed to generate a sale. The agent may value high to maximise returns for both themselves and their client, or low to encourage a bidding war
• Estate agents focus on cosmetic aspects of a property that are likely to affect the chances of a sale
• Estate agents can look at sold prices or under offer prices from their own portfolio, but cannot access to the detailed databases available to surveyors
• Estate agents are under no obligation to consider the prices of other properties when making a valuation
• Estate agents cannot be held to account for the estimated value they provide
• Estate agents earn commission from listings and sales. A desire for a quick sale or high commission could bias their valuation. The value could be adjusted to persuade you to market with them instead of a competitor

This article was written by Kim Allcott of Allcott Associates LLP. Allcott Associates’ RICS surveyors and are happy to provide advice and surveying services, whether you need an RICS valuation, building survey or a HomeBuyer survey.

For more information, get in touch with our team on 0333 200 7198, email us or visit our website.