valuations - residential property

What is a Valuation?

A valuation is an assessment of the value of a property given certain assumptions.  Most valuations are related to market value.  It is important that the purpose of a particular valuation is fully understood.  The value for one purpose may be different from the value for another purpose.

Valuations may be undertaken for many purposes including;

  • Mortgage finance
  • Acquisition
  • Sale 
  • Probate
  • Litigation 
  • Leasehold Enfranchisement
  • Property development
  • Insurance 

Loan Security Valuation

Where a client obtains finance from a bank or other lending institution, it is common to provide security in the form of a valuable property.

Lenders often require a valuation from a Chartered Surveyor to ensure that the value of the property exceeds the amount of the loan.

Such a valuation is not an estate agent’s ‘asking price’.  It is not a sum that may be obtained in special circumstances.  It is a sum that could reasonably be obtained given exposure to the market at the date of valuation.

Lease Extension/Freehold Purchase Valuations

Such valuations are necessary as part of the procedure whereby leaseholders of flats and houses may extend their leases or jointly acquire the freehold under the Leasehold Reform legislation.

Where a lease is to be extended, the Valuer assesses the value of the premium required under the statutory scheme.

Flat leaseholders are entitled to extend their lease term by 90 years and for the ground rent to be reduced to zero.

Valuations are typically made up of three parts:

  1. The value of the ground rent income.

  2. The value of the freeholders reversion at the end of the lease.

  3. 50% of any ‘marriage value’, i.e. the increase in value brought about by extending the lease. 

When purchasing the freehold interest, additional sums can also be payable.

This is applicable when some leaseholders do not participate in the freehold purchase, or where there is development value.

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Litigation/Expert Witness Valuation

Where a dispute relates to the value of property, the court requires that a valuation be prepared by an ‘Expert Witness’, i.e. a Chartered Surveyor who is expert in valuation.

In some cases, the court will allow each party to appoint an Expert Witness to produce a Valuation Report and the two experts may negotiate.  Eventually they may give evidence in court.

In most cases, the court directs that a Single Joint Expert be appointed to report to the court independently of the parties. The parties may ask questions of the Valuer and receive written replies.  The court may direct that the Valuer appear in court to be examined and cross-examined.

Taxation

There are many circumstances when a valuation is necessary in connection with taxation. Valuations are often required for Inheritance Tax, Capital Gains Tax, Pension Schemes, etc.

Buildings Insurance

A Buildings Insurance valuation is an assessment of the cost of reinstatement following fire, subsidence, physical damage or other damage.

Some people insure their buildings for the market value.  This sum is different from the reinstatement cost. In many cases, the reinstatement cost is lower than the market value and a saving in premiums may be obtained.

The reinstatement cost may be higher than the market value.  If a property is under insured, then any claim, however small, will be paid pro-rata.

Reinstatement valuations include the cost of building works, demolition, site clearance and professional fees.  Outbuildings, roads, paths, boundary walls and fences etc. should be included.

Rent Review Valuations

Many leases for commercial premises provide for periodic reviews of the rent.  It is necessary to carry out a market rental valuation prior to the review date, and negotiate a revised rent, either on behalf of the landlord or for the tenant. 

Lease Renewal 

Tenants of commercial property have a right to renew leases under the Landlord and Tenant Act 1954.  It is necessary to carry out a rental valuation and agree the lease terms.  Failing agreement, the Act provides for the court to determine the rent and other terms.  It is necessary for each party to submit valuation evidence to the court.

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Acquisition

Clients may acquire freehold or leasehold property for occupation, investment or redevelopment.
 
It is advisable to obtain a professional valuation to ensure that the price does not exceed the market value. 

Charities

A valuation and the advice that goes with it are a requirement of the Charities legislation before a charity can acquire or dispose of property.  

Lloyd Davies Chartered Surveyors?

Ours is an independent firm of chartered surveyors established in 1996 providing advice on the value and condition of residential and commercial property in the London, Surrey, Hampshire, Sussex and Kent area.

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To contact us please select from the appropriate area link below:

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