Understanding Property Valuations: Types, Uses, and Preparation

Property Valuations

A Property Valuation estimates the market value of a property and is used when buying or selling property. But what are the types, and where else are they used?

Property valuation is a key factor in property transactions and legal purposes. Whether buying, selling, managing an estate or dealing with divorce, understanding the value of a property ensures informed decisions and processes.

This article covers everything from what a property valuation is and who conducts them to the detailed aspects of valuation reports and different valuation types. 

What is a Property Valuation?

A “Property Valuation” is the process of estimating the current market value of a property. This valuation is conducted by a qualified surveyor or valuer who considers various factors such as the property's location, condition, size, and comparable sales in the area. The result is an informed estimate of the property's worth at the time of the valuation. 

What is a Property Valuation Report?

A property valuation report is a comprehensive document that outlines the findings of a property valuation. It includes the property's estimated market value, a description, and an analysis of the factors influencing its value. This report provides an overview, covering aspects such as the property's condition, the local market conditions, and recent sales of comparable properties.

Who conducts a Property Valuation?

A chartered surveyor or valuer conducts a property valuation. These professionals are trained and experienced in assessing property values. They hold relevant qualifications and are typically members of professional bodies such as the Royal Institution of Chartered Surveyors (RICS). Their expertise ensures the valuation is accurate, unbiased, and reflects current market conditions.    

What can I expect during a Property Valuation?

During a property valuation, the valuer or surveyor will conduct a detailed inspection inside and outside the property. Internally, they will measure the size, note the number and types of rooms, assess fittings and fixtures, and consider the property's age. They will also evaluate the condition and structural integrity, noting issues like dampness (mould) that could impact the value.

Externally, they will assess vehicle access, the number of garages, and other outbuildings, taking photos of key features. This process can take some time, so be prepared and use the opportunity to ask any questions about the valuation.

How can I prepare for a valuation?

A property valuation determines its market value, so it’s essential to ensure that your property is in the best possible condition. Here are four ways to prepare for a valuation.

  1. Research your competition. Use property websites to get a valuation of your property and to compare it to other local property prices, such as Rightmove and Zoopla, and understand what similar homes in your area have sold for. This will help you manage your expectations and reduce surprises during the valuation.
  2. Prepare your documents. Gather all necessary documents, such as building plans, deeds, and the Energy Performance Certificate (EPC). Having these ready will speed up the process.
  3. Promote your property's key features. Prepare a list of your property’s features, including any hidden gems like adjacent additional outside space that comes with the property, access rights, quotes already obtained for loft conversions, when it was last rewired or replumbed, or new additions like solar panels, air conditioning, or a renovated kitchen. This ensures nothing is overlooked and highlights key selling points to your agent.
  4. Know your neighbourhood. Be informed about your area and its amenities. Your local knowledge, including future community plans like new developments or infrastructure projects, can help provide a comprehensive view of your home’s value. List both positive and negative aspects to discuss during the valuation.

What different types of Property Valuation can I choose?

The 4 types of property valuations you could choose are desktop valuations, RICS valuations, mortgage valuations and market appraisals (from estate agents). Let's dive into each so that you know what each type's for.

1. Desktop Valuations

Desktop Valuations are done remotely, using online data and tools without physically inspecting the property. They rely on existing information like recent sales data, property details, and local market trends. A desktop valuation is quicker and more cost-effective but less precise than an on-site inspection. Desktop valuations are useful for initial assessments, standard residential properties or when a quick estimate is needed.

2. RICS Valuations

RICS provides three levels of Home Survey, with an option for the Home Survey Level 2 that values the property. There are four methods of valuation: the comparative method, the profits method, the residual method, the contractor method, and the investment method. 

  • Comparative method (used for residential properties). This values a property by comparing it to similar properties recently sold in the same area, adjusting for differences like size, location, and condition.
  • Profits method (used for businesses). This values properties based on their income potential, considering revenue, operating expenses, and net income. 
  • Residual method (used for development sites). This calculates land value by estimating potential revenue from a completed development and subtracting development costs.
  • Contractor’s method. This estimated value is based on the cost to rebuild a property from scratch, including land and construction costs minus depreciation. 
  • Investment method. Values income-generating properties based on future rental income, operating expenses, and the capitalisation rate. Focusing on the present value of expected future cash flows.

A RICS valuation, conducted by a qualified chartered valuer or surveyor, will determine a property's market value according to guidelines set by the Royal Institution of Chartered Surveyors (RICS). These valuations are key for buying and selling properties, financial planning, tax assessments, and legal matters.

3. Mortgage valuation

A “mortgage valuation” is an assessment conducted by a professional surveyor on behalf of a mortgage lender. The purpose is to determine the property's market value, ensuring it’s worth the agreed purchase price. This valuation helps lenders assess the risk of the loan and calculate the loan-to-value (LTV) ratio, which is the amount you want to borrow compared to the property's value. Mortgage valuations are relatively brief and focus solely on the property's value rather than its condition. This type of valuation is a standard requirement during the mortgage approval process and is necessary for both the lender's risk assessment and the borrower's ability to secure financing.

4. Market appraisals (Estate Agents)

A market appraisal by an estate agent, often referred to as a "property valuation" or "market valuation," is an assessment conducted by a real estate professional to determine the estimated market value of a property. This valuation is based on current market conditions, comparable sales, and the property's condition and features. It helps sellers set an appropriate asking price that reflects the current market, attracting potential buyers while maximising returns. Unlike formal valuations performed by licensed valuers, market appraisals by estate agents are usually conducted as part of the listing process and are not legally binding. This type of valuation provides valuable insights into local market trends, enabling sellers to understand how their property compares to similar homes.


What is included in a Property Valuation?

The valuation is based on the surveyor’s expertise, knowledge of local comparable prices, and additional research.

The surveyor will note any obvious defects or damage that could impact the property’s value but will not advise on necessary maintenance or repairs. The valuation will include the following. 

  • Whether the property is of standard or non-standard construction
  • A brief inspection of the property’s overall condition
  • Signs of dampness, structural damage, faulty wiring, roof damage, etc.
  • Any renovation or refurbishment work
  • Accuracy of the declared number of bedrooms
  • Comparison with other houses in the local area

How much do they cost?

Property valuations cost around £50 - £150 for a basic desktop valuation, while a RICS HomeBuyer Report, including a valuation, costs between £350 - £900.

Depending on the circumstances of the property valuation, you may not need to pay anything at all (valuations provided by estate agents are typically free).


When do I need a Property Valuation?

A property valuation is used in various circumstances, including buying and selling, probate, matrimonial, and bridging loans—and that's not all. Here are the three likely situations you'll require a property valuation.

1. How will a valuation help me when buying a property?

A valuation ensures you pay a fair market price when purchasing a property. It also helps you secure a mortgage, as lenders require an accurate property value assessment to determine the loan amount.

2. How will a valuation help me when selling a property?

A valuation accurately estimates your property's market value before you list it for sale. This helps set a competitive asking price, attract potential buyers, and ensure a smoother transaction process.

3. How will a valuation help me during probate?

During probate, a valuation is needed to determine the market value of a deceased person's estate. This valuation is necessary to calculate inheritance tax and ensure equitable distribution among beneficiaries.

In all cases, the property must be valued on the open market, even if the estate's total value falls below the tax threshold. While a professional valuation is not mandatory, it is advisable when the property is sold or transferred from the estate or if there are tax implications such as inheritance, capital gains, or income tax. 

4. How can a valuation help me during a matrimonial separation?

In divorce or separation cases, a property valuation is essential for dividing assets fairly. An accurate valuation ensures both parties receive an equitable share of the property’s value.

5. Do I need a property valuation for a Bridging Loan?

Yes, you'll need a property valuation for a bridging loan. Whether that's a desktop valuation or an RICS survey will depend on your bridging lender's requirements. When applying for a bridging loan, lenders require a property valuation to assess the value of the collateral. This helps determine the loan amount and ensures the lender that the property can cover the loan in case of default.

When are the other times you may need a valuation?

Property valuations are also vital for other purposes, such as tax, insurance and the Help to Buy scheme.

  • For Tax. Valuations are needed to calculate capital gains tax when selling a property and other tax-related matters.
  • For Insurance. An accurate property valuation helps determine the appropriate level of insurance coverage, ensuring that the property is adequately protected against potential risks.
  • For Help to Buy. A property valuation calculates the repayable amount on a Help to Buy Equity Loan based on the current market value. 

What is the difference between a Property Valuation and a Building Survey?

Their purpose is the key distinction between a property valuation and a building survey. A property valuation determines the market value, whereas a building survey assesses the property's condition and provides recommendations (for improvements or further surveys). 

Here’s a comparison of all the different features of a property valuation versus a building survey. 

Aspect

Property Valuation

Building Survey

Purpose

To determine the market value of the property 

To assess the condition of the property 

Commissioned by (in most cases)

Lenders

Buyers

Level of detail

Basic 

Detailed 

Focus

Market value, comparables, location 

Structural integrity, defects, maintenance 

Report length

Surface-level inspection 

In-depth inspection, including structural 

Time taken

Typically 1-2 hours 

Typically a full day 

Cost

£325 - £900 (based on RICS)

£630 - £1,200 (based on RICS)

Outcome

Valuation figure: a mid-level survey that gives a ‘good overview’ of a home's condition, flagging any problems found.

Identify potential issues and remedial work required. A thorough inspection of the property, both inside the home and grounds (and outhouses).

Why is it used?

For selling, securing a mortgage, matrimonial, probate, bridging loans and help to buy

Identify issues, plan for repairs, and make a purchasing decision

Includes valuation?

Yes

No (typically not included; focus is on condition)

Surveyor Qualification

RICS Registered Valuer or Surveyor

RICS Chartered Surveyor 


What can I do if my property is Down Valued?

If your property is downvalued—meaning the surveyor assesses its market worth lower than the agreed purchase price—consider taking the following three steps.

  1. Review the Valuation Report. Analyse the surveyor’s report to understand why the valuation was lower. Look for specific reasons, such as structural issues or market conditions.
  2. Discuss with the Surveyor. Contact the surveyor to discuss their valuation. Seek clarification on factors affecting the valuation and explore if adjustments or additional information could change the assessment.
  3. Consider a Second Opinion. Get a second valuation from another qualified surveyor to validate the initial assessment and understand if the down valuation is reasonable.

Dealing with a down valuation requires understanding its reasons and considering options to resolve the situation, such as completing refurbishments and renovations to increase the market value.

What is a Down Valuation?

Down valuations occur when a surveyor determines a property's market value is lower than the agreed-upon purchase price. This discrepancy can impact the mortgage approval process, as lenders base their loan amounts on the surveyor's valuation rather than the purchase price. Consequently, buyers may need to renegotiate the price, increase their down payment, or face potential delays in securing financing.

How can you improve the value of the property?

Home improvements can increase the property market value by thousands of pounds. Here are 3 key ways to improve your property’s value.

  1. Kitchen renovations. Updating your kitchen can significantly impact your property’s value. Modern appliances, new countertops, and a modern look can make your home more appealing, potentially increasing the value by up to 15%.
  2. Energy improvements. Increasing your home's energy efficiency by installing double-glazed windows, adding insulation, or fitting solar panels can make your property more attractive to environmentally conscious buyers.
  3. Create additional space. Extending your property by adding a loft conversion, an extra room, or a conservatory can significantly increase its market value. Additional living space provides more utility and can attract buyers looking for larger homes.

Will I still get a loan if my property is downvalued?

If your property is downvalued, the appraised value is lower than the purchase price or your expectations. It can complicate securing a mortgage or loan. Still, it doesn't necessarily mean you won't be able to get one. Here's how a downvalue may impact you.

A higher Loan-to-Value Ratio (LTV)

  • A lower property valuation increases the Loan-to-Value (LTV) ratio, a key factor lenders use to assess risk.
  • Lenders typically have maximum LTV ratios they are willing to approve, so a higher LTV might mean you need to provide a larger down payment to lower the LTV to an acceptable level.

A bigger deposit or cash stake (equity)

  • You may need to increase your deposit or cash into a loan to cover the difference between the loan amount the lender is willing to provide and the purchase price or desired loan amount.
  • When buying a property, you might need to renegotiate the purchase price with the seller if you cannot increase your deposit. 
  • When remortgaging a property, you may need to reduce your borrowing and increase the cash you put in to readdress the shortfall in borrowing.

Higher interest rates

A higher LTV ratio might result in higher interest rates, as lenders perceive your loan as much riskier.

Challenging loan approval

Some lenders might still approve your loan but with different terms, such as a higher interest rate or requiring additional collateral.

  • Alternatively, the lender might deny the loan if the downvaluation significantly impacts the perceived risk.

Final Thoughts

Different valuations serve different purposes. Knowing which type you need and why will save time and money. Understanding when you'll need a property valuation and how to best prepare for it will help you buy, sell or refinance your property with minimal headaches. 

Property valuations offer essential insights for buyers, sellers, investors, and those navigating legal matters like probate or divorce settlements. They clarify market values, allowing for fair pricing, secure financing, and decision-making. By relying on the expertise of RICS Chartered surveyors and understanding the valuation methods, you can prepare for a valuation and be aware of what to expect.

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