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How should you value property?

11/08/2010

Question?  What is a property worth? What is its value?

A recent report in the FT polarises the subjectivity of value in a commercial marketplace.

Several independent analysts have recently argued that Ocado (the online grocer selling Waitrose food) , which has never made a pre-tax profit and last year reported a £25.5m pre-tax loss on sales of £402m, is worth considerably less than the £800m-£1.1bn range that the retailer set out on it. They put its value at about £500m-£600m.

This can readily be applied to property values.

Most people rely on a search on one of the many property portals that now reside on the web. By far the largest and most popular being rightmove.

The more savvy might incorporate useage with the likes of Property Bee to see how properties have been amended, re-listed, re-valued etc. since their original posting. Often useful information can be gleaned.

However, these sites only give us the values that the vendors and the estate agents think that the property is worth. The vendor (in most cases at least) wants to obtain the maximum price, a strategy supported by the agent who normally works on a commission basis.

The next step is usually a visit to one of the property price aggregators such as mouseprice or nethouseprices

These types of site, whilst invaluable can only provide factual data based on historic property purchase, information which is obtained from the Land Registry. Although moueprice for example provides and estimated current price, by their own admission it can be quite inaccurate.

Here lies the quandry, how can we establish what the true, up to date value of a property is?

The fact is you can’t !

Value is entirely subjective, once a purhase has been made the sum paid becomes the cost, an objective number. In other words, a property is worth what  purchasor is prepared to buy it from a vendor.

Detailed analysis can be built up using historical data, local knowledge or even “gut feel” However, a valuation even when undertaken by a Chartered Building Surveyor can only be an estimate albeit an educated one.

Another way is to adopt a general rule of thumb, as supported by London-born Cypriot Andreas Panayiotou who sold much of his £1 billion property portfolio before prices began falling between 2007 and 2009.  (Read more of this on the Property Tribes thread started by property expert Lisa Orme here)

Andreas advocates that in the current market, only properties that are available at around 30% of their peak value (2007ish) should be considered for purchase.

Despite the past track record of Andreas Panayiotu which speaks for itself, it remains that this strategy is not without risk and must rely on good due diligence.

Due diligence is a must when researching a property purchase for investment. You should never rely upon a third party to spend your money for you. If you don’t have the time or knowledge to undertake all of the reasearch yourself then it is wise to employ the services of a professional property sourcer, you could ask your mortgage broker for a referal or visit one of the more professional property forums such as Property Tribes. Under no circumstances however should it be necessary to part with large sums of money just to get hold of property details.

Even if you are happy with the information that a trusted professional has provided you with, ensure that you check out the information yourself, just to be certain that any decision that you make is a fully informed one.

We hope that you find this article of interest, if you do please tell your friends too.

About Walker Fox

Walker Fox Land & Property Ltd act as professional property sourcers working with investors to add to their property portfolio in Wakefield & the Five Towns (Pontefract, Castleford, Normanton, Knottingley & Featherstone)

Rob Hubbard has over twenty years experience in the construction industry in commercial roles dealing with procurement, valuation of works and variations, agreement of accounts and dispute resolution.


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