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Different types of residential property valuation explained

We find that clients quite often are, understandably, confused by differing types of property valuation. There are a number of different options but the key valuations homeowners will encounter are as follows:

Market Appraisal - Estate Agent Valuation

This is a valuation by an estate agent giving advice as how to best market your property and at what level to pitch the price of the property in order to generate interest, book viewings and secure a sale.

To an extent agents are trying to predict what the market will do whilst your property is on the market – often this might be no more than an informed guess. Their appraisal value is quite often sales-orientated, and some estate agents fall into the trap of being over optimistic in order to try and secure the business.

Ultimately, this can be dangerous because if an estate agent is deliberately over valuing a property and it goes on the market at too high an asking price, often it will receive a poor response and no offers will be forthcoming. This means that it will ‘stick’ and ultimately be difficult to sell, as it will have been seen by many potential purchasers at a higher price. Consequently it may be necessary to make large cuts on the price in order to revitalise the market and rekindle interest. This can often lead to a protracted sales process and/or result in a sale at below market price.

Estate agents generally offer a market appraisal free of charge, and it is worth speaking to a few local agents to get a range of appraisal valuations. It is important to be realistic at this point and not be tempted by the higher price on offer from more bullish estate agents who might be fishing for the instruction.

Red Book Valuation

A RICS Red Book valuation, on the other hand, is a highly regulated valuation undertaken by a Chartered Surveyor and following guidance set out in the ‘Red Book’, which gives very clear ground rules for carrying out the assessment.

This valuation will be based on hard-and-fast comparable evidence of similar properties that have sold in the locality within the last 6-9 months adjusted for key features and negative elements. This valuation is therefore a professional, considered valuation not seeking to achieve anything other than to give the best estimate of what the property might sell for in the current market.

These are the types of valuation that are carried out by surveyors on behalf of a mortgage company (a “mortgage val”) where the surveyor is attempting to answer a very simple question: “what is the value of the property and is there adequate security for the loan?”

In simple terms, what this means, is the property worth enough to cover the debt if the borrower defaults? Hence the question: “is it adequate security for the loan?”

It’s also important to note that if a surveyor is carrying out a mortgage valuation, they are not acting for you, the buyer, but for the mortgage company. See also our article "Why you should get a survey".

Other purposes of a Red Book valuation would include Probate valuations, Taxation, Divorce proceedings, gifts and Trusts etc which are acceptable valuations for tax authorities or the courts.

A Red Book valuation by an RICS Registered Valuer is a professional valuation and will generally cost between £300 to £600 depending upon the value of the property. 

House Valuation vs Selling Price

A RICS Red Book house valuation is inherently more conservative than an estate agent’s market appraisal as it relies heavily on actual recorded sales rather than the often rather optimistic agent’s guesstimate, and it is this that can give rise to discrepancies between lenders valuations and estate agents selling price valuations.

Banks and building societies are cautious about not having borrowers caught in a negative equity situation – not because they are being particularly altruistic and concerned about the borrower, but because in the event of repossession and subsequent forced resale, they will want to ensure that they recover the outstanding loan balance.

This is particularly the case where selling prices are predicted to fall or are actually falling, where lenders will often try and protect themselves by taking a pessimistic view of a valuation, and by not offering high loan-to-value (LTV) mortgages.

Insurance Valuation

The final type of valuation which is of interest to homeowners is the insurance valuation or the insurance rebuild cost assessment.

This often causes confusion as it is not a market valuation as such. It is effectively the estimated cost of the total replacement of the dwelling and the ancillary elements on a total loss basis, i.e. assume a Boeing 737 has landed on the house and the garden and it is the cost of reinstating the property into its form at the time of valuation.

An insurance valuation is effectively a bricks and mortar value (or cost) only and it takes no account of land value.

Land Valuation

If you were to take the Red Book valuation and deduct the insurance rebuild cost, you would end up with the value of the land, which is another type of valuation.

Land value is derived by taking the value of the final completed development (GDV) and deducting all costs to procure that development. The balance, or residual figure, is the value of the land.

We hope this gives you some insight into the various different types of valuation that are on offer to homeowners on a day-to-day basis.

Richard E M Winder MRICS
Chartered Surveyor & RICS Registered Valuer
Associate Member of The Academy of Experts

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What is the RICS?

RICS - London

The Royal Institution of Chartered Surveyors is the organisation responsible for the training and regulation of Chartered Surveyors. To be listed on Local Building Surveyors, surveyors must be either a RICS Member (AssocRICS, MRICS/FRICS) or a Firm Regulated by the RICS, so you can be assured that your survey will be carried out by a qualified regulated professional.

Find out more about the RICS

What type of survey do I need?

Find out more about the different RICS Surveys

There are three standard RICS Survey Levels. Check out the links below to find out more:

RICS Level 1 Condition Report

RICS Level 2 HomeBuyer Report

RICS Level 3 Building Survey


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