Sunday, February 7, 2010

What is my home worth?

The answer to this question could be 'It depends who's asking', according to an article in the UK Daily Telegraph. Citing the experiences of three typical British property sellers, the author Graham Norwood found that valuations could vary widely, depending whether they were given by estate agents, professional valuers or experts working on behalf of banks or insurance companies.

Local estate agents tended to value properties in line with 'similar' ones in the same area, relying for guidance on past sales, prices asked and the acutal amounts achieved. "Most agents simply make appraisals of a property and produce a figure that sits well in the local market" according to Peter Bolton-King of the National Association of Estate Agents. He admits there is also a tendency to pitch high in a rising market, and low in a stagnant market.

Surveyors working on behalf of banks, according to Bolton-King, err on the side of caution, in the interests of protecting the lenders, particularly in the case of new-build properties, which he argues are consistently under-valued.

The Royal Institution of Chartered Surveyors (RICS) issues its own 'Red Book' guide to valuation and says that looking at recent property sales are only a partial guide to a property's worth.

A comparable 400-page French manual offers comprehensive guidelines on how to value properties as diverse as apartments to commercial premises held on lease, using varying approaches including price comparison. However the manual distinguishes between physical value (broadly what it cost to build or replace the property), taxable value, judicial value and social/economic value. An attractive property with a high physical value could see this reduced if it were encumbered, for example, by onerous long-term leases (offering high levels of protection to sitting tenants), or planned local developments, such as road widening or a supermarket, both of which could detract from the property's other values.

Considerations such as these illustrate the weakness of valuation only by price comparison, and reliance on online 'automated valuation models' that offer property valuations based on data input from sources such as local councils and the land registry, rather than a personal inspection by a local estate agent or valuer. Although properties in the same area or even the same street may appear similar in size and type of accommodation, one could be tastefully decorated and maintained, and the other represent a DIY nightmare.

As with all property searching, there is absolutely no substitute for a personal visit and local knowledge of the current property market, the locality and the individual property.

Source: Daily Telegraph, 05 February 2010.