Why is the valuation the same as the agreed price?

This article relates to an independent residential valuation; you can read about mortgage valuations here

Valuing a property is an elaborate analysis of various pieces information; however, it may sometimes seem a little oversimplified when the value matches your offer price exactly.

A query we often receive from clients is why the surveyor has agreed with the accepted price of the property rather than developing a conclusion about the property value themselves. Although it seems this way, the valuer will have developed a valuation of their own; however, the agreed price might have superseded it due to the way surveyors build their conclusions. Here we give a brief explanation of how surveyors come to conclusions about valuation.

When valuing a property, a registered valuer takes many variables into account. There are different types of valuation method, but for residential property on the open market, an RICS registered valuer will use the comparable method. The comparable method uses sold prices in the immediate area to form conclusions about the estimated value of a property. Using this method gives a surveyor a good idea of market value. However, one of the most reliable indicators of value is the price a person is willing to pay. A surveyor will ensure that the buyer doesn’t pay over the odds. However, when the surveyor’s valuation is within 5% of the accepted price, the surveyor will rarely disagree that this is the most reasonable value, as it is what two people were willing to accept.

The RICS red book offers the following definition of market value, which reiterates the above concept. “Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

If the surveyor’s valuation is significantly different from the accepted price, the surveyor will not consider the agreed value as a good indicator as the other variables would have overshadowed it. In this case, they will give a detailed justification of their conclusions.

When a property goes on the market, it will be listed at a price which is low enough to generate interest and high enough to compensate for any negotiation. It is the buyer’s job to decide what its really worth, so remember to do your research and instruct an independent RICS surveyor.

Disclaimer

The material contained in this article is intended for information purposes only and not as advice. We take no responsibility for the result of any actions you take as a result of reading this information.

You should always obtain the relevant professional advice prior to making investment decisions.