The vendor and buyer perception of value might be defined by heart, desire or what the competition is prepared to pay.
However, for agents, a valuation is a professional process of collating comparable sales evidence – often historic – that aims to support a tangible or realistic value. Covenants, rights of way, wayleaves, planning potential, minerals and energy potential all play a part.
Valuations are also informed by potential buyers – whether they have a personal or historic connection to the property, whether they own neighbouring land, whether there is scope to add value to an existing asset (such as by providing better access or enabling water abstraction), or whether the property offers potential for business expansion.
The financial climate inevitably plays a role in valuations. If banks are lending and interest rates are low, thus facilitating affordable borrowing, prospective buyers are well positioned to unlock capital, boost transaction levels and buoy prices.
By contrast, when lenders are reluctant and interest rates are high, capital is harder to obtain, which can diminish market demand and, in turn, values.
The current financial market is an odd mix of historically low interest rates, but with banks’ credit departments being more interested than ever before in a borrower’s ability to repay interest.
- Make the decision to sell and instruct an agent – the agent will then help advise on timing.
- Over the next few years there are a lot of unknowns and a number of outside influences will affect the market, so if someone is happy with the price now, take it.
- Choose a sensible guide price in order to encourage offers.
- Keep the sale simple – a good deal with a good buyer means any small issues can be dealt with along the way and usually leads to vendors getting the outcome they want.
Valuations must also reflect market performance for similar offerings. When property prices are increasing, there is scope for ambitious guide prices; by contrast, in challenging markets, guides must be realistic.
By pricing competitively, there is the potential to attract more than one offer, and in a climate where more interest often equals higher prices, there is a platform for negotiating up.
It’s also worth bearing in mind that market conditions can change very quickly; in the past decade, we’ve experienced periods of rapid growth, decline, and plateauing, caused by the global financial crash, commodity price shifts and, most recently, the uncertainty surrounding Brexit.
From 2004 to 2014 the market grew strongly for all sorts of reasons, in part because of the market catching up on a historic plateau, land being seen as a safe haven, market sentiment around commodity prices and more.
A property appraisal should be set within its market context.
What affects valuations?
- Plans that show the land’s drainage – having accurate and clear drainage plans for the property for the buyer to see is likely to increase the valuation of a farm.
- Clarity about any required overage (a clause in a contract that seeks to capture future development value for the previous owner) – overage can have a double-edged effect on valuation. Clarity of overage and how it will be triggered in the future means a smoother sales process. In general, the more restrictive the clause, the more potential there is for a buyer to be put off.
- Clean crops during year of sale – in order to maximise the price, presenting the crop to its best advantage on a viewing day is helpful, even if in that cropping year it means spending a bit more.
Some agents are prone to overcooking appraisals. In some instances, this can be a result of not understanding the market in a particular location.
In others, it is driven by wanting to win an instruction – based on the notion that vendors are most likely to instruct the agent who promises to achieve the highest price for the property.
Inevitably, overcooking guide prices and launching to market carries vast risks.
Invariably, the property will languish until its price is reduced; often, purchasers are deterred from even making an approach. In the long run, overpricing often leads to vendors losing control of a sale.
It is therefore best practice to approach more than one agent for a market appraisal. If one agent comes back with a valuation that’s significantly higher than the others, ask why.
A legitimate agent will provide a list of properties sold recently that support the suggested level and explain where their view differs from the evidence.
Ultimately, with a healthy dose of due diligence, market appraisals need not be complicated.
Work with a reputable agent, be realistic, refer to comparable evidence, and the process should be smooth sailing.
Mark Russell is a partner at Carter Jonas.