How to value a property according to a RICS expert

The following article is based on an interview with Charles Dixon, a RICS (Royal Institute of Chartered Surveyors) professional from the South West of England with over 26 years experience in the real estate industry.

*** THE MODERN DEFINITION OF PROPERTY ‘VALUE’ ***

The UK property market has become a largely open and free market made up of thousands of individual transactions made by people and organizations with far-reaching goals.

A free flow of information in the market is essential in the decision-making process behind those transactions. The Internet has revolutionized the availability of property price information and made it accessible to everyone; whereas before only people in the industry had such information. This has allowed many more people to join the community of owners.

In the UK, there are two prominent methodologies for deducting the value of a purchase to let property:

(i) The comparable method (“comps”): most commonly used by real estate investors, but requires regular transactions to be made to be effective;

(ii) The Yield/Income Method – Commonly used in commercial real estate (and also advocated by several prominent stock market investors, including George Soros Warren Buffet) – Yield is calculated by dividing annual income by the total value of the active. While capital growth earnings should always remain a core part of any purchase to enable the investor’s strategy, cash flow will always remain “king” and making sure you are making a healthy profit each month will allow you to resist any impact, regardless of how the market is. behavior. Note also that here we refer to a gross figure (management costs, insurance, maintenance, repairs, etc. should be deducted).

Professional real estate appraisers base their assessment of value not only on comparable evidence of similar transactions (when available), but also on their assessment of current market sentiment as well as the volume of properties being traded. There are also a number of external factors that can affect valuations, including the general state of the economy, interest rates, government/tax policies, and environmental factors.

When pollsters take a conservative view, this should reflect a strict approach that the parties are taking in actual transactions and the uncertainty of the market of which they are a part. It is also important to note that many professional surveyors would agree that value is really what one person will pay another for a piece of property, and in order for value not to go astray, both parties must be well informed and act accordingly. consequently. an arms-length relationship.

*** DUE DILIGENCE ***

Due diligence is the fundamental stage to be able to deduce the potential of a property. General transaction data is available through many websites and local trends can be obtained by contacting the Department for Communities and Local Government. While several of these indices have been called into question regarding their methodology, they are a great way to understand overall movements (we recommend regularly examining 3 or 4 simultaneously).

More specific local research can be obtained through subscription websites (such as ‘Hometrack’, which tracks prices according to the Land Registry, as well as various other factors, including sales vs. home price ratios). sale, time on market, realtor sentiments, remortgage levels to name a few). Real estate agents can be contacted on the basis that they will be able to assist you with your future business dealings; they are approached tactfully and are not restricted in providing information (such as client confidentiality, for example). Additionally, rental evidence is readily available through local rental agents, the Rightmove portal, local news sites, etc.

A common problem during a real estate downturn for investors and surveyors alike, when there are so few transactions in a market, is firmly establishing the true open market value (OMV). However, most RICS appraisers would have a solid understanding of the area from speaking to professionals; participate in ongoing investigations (sales and remortgage tracking, for example); using the local government contacts they have and respecting their own code of conduct (the RICS ‘Red Book’). Depending on the purpose of the report, the appraiser will also consider most of the following when making a valuation decision:

– agreed planning;

– short, medium and long term planning problems in the area;

– recent repair/improvement/refurbishment work on the property;

– available consents;

– guarantee;

– limits and related responsibilities;

– location and routes of public services;

– environmental issues;

– contamination problems;

– presence of mines;

– flood risks;

– risks of sinking;

– construction details if not standard.

Much of this information and more is available through a local authority search, website inquiries of various organizations, or professional legal checks.