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Clarifying valuation methods for commercial properties
We sometimes get intermediaries asking for an ‘Investment valuation’ not realising that the surveyor will choose to work off comparables or off an investment figure depending where the property is located in the country.
If it’s not in an investment area, they have no obligation provide a valuation based on investment income, so we can’t ever guarantee that.
As a general rule of thumb, surveyors need to apply a comparable basis approach to valuations hence they need 3 comparable sold properties within an area set by RICS to evidence their valuation figure.
The confusion arises because surveyors providing a commercial valuation (we use Appraisers UK) have the same approach but also have a potential of providing an investment figure. However, a commercial valuation doesn’t necessarily mean the landlord will get a ‘yield based’ or ‘investment’ valuation. In fact, we avoid using those terms.
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By requesting a commercial valuation, it does not necessarily mean a valuation figure on an investment basis will be given. The specialist surveyors can be expected to carry out a short form or commercial valuation depending on the property types i.e. standard HMO or MUFB/Large HMO. But then, the magic recipe to whether an investment figure or a comparable figure is used depends on the area. Generally, if the property is in an investment area i.e. a university area, or a large employer like JCB, then an investment figure might be given. If it’s in a residential area, with minimal HMOs or lack of investors then a comparable figure will be used.
The hardest areas to judge and value are secondary HMO areas where there is not a high level of investment properties and sits just outside the cities. In this situation, we recommend the intermediary contact the surveying firm in advance to know their planned approach.
Hopefully this helps add some colour to some of the more technical aspects of valuing specialist properties.
If you would like to discuss your specialist property case with one of our experts, please call today.
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