"Market Value deliberately ignores the compulsive element of buyers’ and sellers’ needs to buy or sell and as it does those may be more speculative asking prices."
In its January report, the Royal Institution of Chartered Surveyors (RICS) highlighted that new buyer demand increased to its strongest level since the height of the stamp duty holiday in May last year. However, RICS noted that the response for January was prior to the base rate increasing to 0.5 per cent in February.
The report also outlined that new instructions fell to a reading of -8 per cent, with the score remaining consistently in the negative since last April and that house prices continued to rise, with 74 per cent of respondents reporting an increase. In addition, surveyors expect new sales to improve in the next three months, with a score of 22 per cent. This represented a 10-month high for this measure. For the year ahead, 24 per cent of respondents suggesting that sales would increase.
These are important trends to understand and it’s evident that an affordable housing supply gap remains a long-term issue and this comes with many differing repercussions. Over the past eighteen months or so, we’ve heard countless tales of bids being accepted far and above initial asking prices. A trend which resulted in the re-emergence of one of the most misleading and inaccurate terms in the surveying sector – ‘down valuation’
Make no mistake that ‘down valuation’ is a misnomer and every time I hear it my heart sinks. The fact is that valuations are based on the level a property is likely to transact for between a willing buyer and willing seller, acting knowledgeably and prudently, after a proper marketing period and without compulsion to buy or sell. For valuers, there is no deviation from this rule. Market Value deliberately ignores the compulsive element of buyers’ and sellers’ needs to buy or sell and as it does those may be more speculative asking prices. The valuer’s assessment of value is based on supported evidence of what properties are transacting for; the comparable method. We work to a hierarchy of comparable evidence and the valuation is based on this; the stronger the evidence the greater weight and reliance can be placed on it in the valuation journey.
There is no directive or accounting for the strength of a potential buyers desire to purchase certain properties or, on the flip side, how desperate a seller may be. These desires can wildly affect agreed buying and selling prices but these variables can’t and shouldn’t affect market value at the time of the valuation. Which leads to the question - how can a property ever be ‘down valued’?
In short, it can’t.
Inevitably, there will be differences in opinion over what a particular asset is worth from a sellers, buyers, agents, neighbours, person in the local post office queue’s perspective. However, for the purpose of the mortgage valuation, let me reiterate that all we can do is work with the information we have to make an informed decision about an individual property’s market value at that time.
Could this process be improved?
Undoubtedly, and it is improving all the time but can ‘down valuation’ ever be a valid term?
In my opinion, certainly not.
