RICS property valuations.

When considering the purchase of a property, home buyers often base their valuation on personal research, alongside mortgage valuations and homebuyer reports. However, there are situations where a formal valuation of a residential property is necessary . Whether you are paying off a Help to Buy equity loan, transferring equity, or  you just want a more comprehensive understanding of a property's market value, a formal valuation can be carried out by a RICS surveyor.

What is a RICS property valuation

A RICS property valuation is a formal assessment of a property's value conducted by a qualified surveyor who is a member of the Royal Institution of Chartered Surveyors (RICS). RICS is the leading professional body for qualifications and standards for residential property in the UK.

The RICS valuation provides an impartial, expert opinion of the value of a property at a given time, considering factors such as location, condition, and market trends.

A valuation is not a detailed survey or assessment of a property’s condition.  If you also want an overview of the general state of the property that identifies major issues or urgent defects, you may want to consider a Level 2 survey. Level 2 surveys ordered through Completely Moved include a free formal RICS valuation.

What does a RICS surveyor consider when calculating the value of a property?

When valuing a property, the surveyor will adhere to the "RICS Red Book", which sets out the formal guidelines for valuing property.

The surveyor will consider the following factors when valuing a property:

• The prices of similar properties in the same area that have recently been sold, to establish a benchmark for valuation.
• The property's location, including its neighbourhood, community facilities, and proximity to amenities and transport links.
• The overall square footage of the property, the number of bedrooms, and the layout's functionality.
• The current state of the property, including any signs of wear and tear, the age of the building, and the quality of construction.
• Any upgrades or renovations made to the property that could enhance its value, such as extensions, new kitchens, or bathrooms.
• Current property market conditions and trends, including supply and demand dynamics in the area.
• Any legal or planning restrictions or permissions, such as listed building status or rights of way, that could affect the property's value.
• The property's susceptibility to flooding or other environmental risks, as well as energy efficiency ratings.
• Whether the property is leasehold or freehold, and any leasehold terms, including the length of the lease, ground rent, and service charges, share of freehold etc.
• For investment properties, the potential rental income.

Why might I need a RICS property valuation?

Buying or selling a home

You may wish to seek the comfort of a formal valuation to make sure you are asking the right price when selling a property, or offering the right amount when buying.

Transferring equity

A valuation is essential when transferring equity to establish the property's current market value, ensuring a fair division of equity between parties. It is crucial for calculating potential tax liabilities, such as capital gains or stamp duty.

Paying off a Help to Buy equity loan

When repaying a Help to Buy Equity Loan, you will need a property valuation from a RICS chartered surveyor (sce: gov.uk) before completing the repayment form. This is necessary because of the repayment terms, which require you to return 20% (or 40% in London) of the property's current market value, rather than the original loan amount. An up-to-date market valuation of the property is therefore necessary to accurately calculate the loan repayment amount.

Probate

A property valuation for probate will be required to calculate inheritance tax (IHT) accurately, based on the property's market value at the time of the owner's death. HMRC will usually expect a RICS valuation

The valuation will also ensure fair estate distribution among beneficiaries, preventing potential disputes. It also helps beneficiaries in financial planning, especially if selling the property.

Financial and tax planning

A valuation can be used as a robust basis when financial and  tax planning. To calculate tax liabilities, such as Capital Gains Tax (CGT) or Inheritance Tax (IHT).

Legal disputes

A valuation during a legal dispute ensures an objective assessment of a property's market value, crucial for resolving issues like asset division in divorces, partnership dissolutions, or inheritance claims.

Insurance

A valuation for insurance purposes ensures your property is adequately covered, reflecting its current market or rebuild cost. This prevents underinsurance, which can lead to insufficient pay outs in case of damage, and avoids overpaying premiums for excessive coverage.

Investment analysis

A valuation determines a property’s market value and rental yield potential, guiding investment decisions. It helps assess the property's profitability, considering market trends and future growth prospects,

Development or renovation Impact

A valuation can help developers understand how renovations or extensions could affect property value.

Shared Ownership

A valuation is essential when buying additional shares, selling your stake, or adjusting ownership percentages. It ensures fair pricing for transactions, reflecting the property's true value and market conditions.

Is a property valuation the same as a mortgage valuation?

No.

In contrast, a mortgage valuation is conducted for the lender's benefit to ensure the property provides adequate security for the loan. It's less detailed, primarily assessing whether the property's value covers the mortgage amount, not its precise market value.

A conflict of interest could arise  if, for example, a valuer has a vested interest in the transaction outcome which might skew the valuation result. For instance, a mortgage valuation conducted for lending purposes might undervalue a property to reduce lending risk, disadvantaging the seller. 

An individual would not be able to rely on a mortgage valuation for any of the purposes set out in the previous section.

An independent valuation provides an impartial assessment of a property's market value, focusing on its true worth based on comprehensive analysis and market trends. Critically, the independent RICS valuation is carried out on behalf of the individual - not the mortgage