Why does commercial property valuation need a detective?

No two commercial properties are alike. Even a pair of buildings from identical blueprints will have subtle differences, they are unique, just like you and I.

To reach a valuation we need to look at evidence, we cannot just pluck a value out of the air. Even then it is our evidenced professional opinion as to value, until a purchaser actually buys a property, it is a best guess. This is why we need to look at all factors and use experience and research to inform that guess and justify the figure.

We commonly use comparables to inform our value. In order that we apply a consistent approach to property valaution using comparables we need the information to be:

  • comprehensive
  • recent
  • verifiable
  • similar to the subject property
  • consistent with local market practice
  • ‘arms length’ transactions, not connected parties or with any strings attached.

In the rapidly changing market, data swiftly becomes outdated, so when we collect evidence together, from trustworthy verifiable sources, we need to adjust these depending on how they differ to the subject property, by date of transaction, size, use, location. The most reliable data source is transactional evidence, that is actual sales figures, this data is publicly available. Asking prices can be a guide but are not set values until a price is agreed. This sort of market evidence is an essential tool for the valuer. Historical evidence is useful to track trends in the market but must be used with caution.

The commercial property valuer is akin to a detective, finding evidence, ensuring there are no hidden motives in the comparables values (such as a connected party transaction) and weighing up that evidence to ascertain a value. The more unusual the property, the more difficult evidence will become to uncover and more guesswork and professional judgement will be required.

One of the fundamental skills a detective and a valuer need to possess is to take a step back and to survey the whole scene, does anything look out of place, is the verdict I am going to announce seem to be reasonable and am I able to explain why I came up with this solution to an ordinary person, if so, then you fully understand the journey you have taken to solving the mystery.

Perhaps I have read a few too many detective novels, but the simile seemed appropriate.

You can meet our own version of Detective Inspectors on our climate risk and commercial property valuation course, they will guide you through the processes and equip you with the knowledge and skills to be able to solve your own commercial property valuation mysteries and how climate change may impact them! The next instance is this course starts on Tuesday 9 March so book now.