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Market appraisals vs formal valuations: the basics

Thu 9 May 2019

Alex Rew FRICS FAAV of Stags Professional Services department outlines the crucial difference between a market appraisal and formal valuation and why you should always choose a RICS registered valuer.

As surveyors of residential properties, farms and land we are often asked why two separate valuations of the same property can differ. When a property is valued, factors like the current market conditions at that particular time are taken into account. As such, an element of subjectivity does play a part, but provided you are using a RICS registered valuer, you should expect valuation figures from multiple professionals to fall within a close range of each other.

This leads onto the very important distinction between market appraisals and formal, or ‘Red Book’, valuations.
Market appraisals are carried out before putting a property on the market to give the vendor an idea of what is possible in terms of selling price. This might not be a true reflection of what the property is actually worth, but it is a good starting point.

By contrast, formal valuations are evidence-based opinions, formed by the comparison of relevant market data relating to the sale of similar properties in the area. These are usually combined with a detailed inspection of the address, during which measurements, notes and photographs are taken and referred to when creating a final report. 

Formal valuations are relied upon and required for lending purposes, such as mortgages. These valuations are used to satisfy a lender that the loan requested against a property is in line with its value, ensuring they do not lend beyond its value. As such, when comparing a market appraisal with a formal valuation, you will find that the market appraisal – based on hope – is likely to be a higher figure than the formal valuation – based upon evidence.

Why choose a RICS registered valuer?

When a formal valuation is carried out by a RICS registered valuer, strict professional guidelines are followed and adequate professional indemnity insurance is provided to cover the valuation figure given. This means that you can be confident that the opinion of value provided by a Stags RICS registered valuer can be relied upon subject to any qualifications stated in the valuation document.

Purchasers, lenders, sellers and insurers can instruct an independent RICS registered valuer in the knowledge that they will receive an honest, accurate, independent and reliable valuation of the property and/or land in question.

Why might I need a formal valuation?

  • Secured lending for mortgages: Stags is on many bank valuation panels.
  • Inheritance and Capital Gains Tax: our valuers understand capital taxation and we are often called upon to provide valuations and negotiations for capital tax purposes. We often save clients significant sums of money through our knowledge of the reliefs available including Agricultural Property Relief (APR) and Business Property Relief (BPR). 
  • Expert Witness: Stags provides valuations and reports in support of property related litigation including matrimonial disputes, for which our comparable database provides accurate and supportable figures. Increasingly, disputes will be settled by mediation and we are qualified to produce reports suited to both mediation and court proceedings. 
  • Partnership Dissolution: Stags is able to provide valuations of all assets held by farming and rural partnerships. Assisted by our On Site Sales department, we are able to use up-to-date prices from auctions, livestock markets and direct sales.
  • Charities Act: Stags is often called upon to undertake Charities Act compliant valuations, which are required when a charity is considering purchasing/disposing of an asset. 
Stags has a team of RICS registered valuers who can provide Red Book property valuations across Devon, Cornwall, Somerset and Dorset – contact your local professional today. 

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