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Property valuations can come across as intimidating and confusing, especially for those new to the property market. Two UAE valuations experts talk to PW about the basics of property valuations, how they should be done, and the four questions you should ask yourself before deciding whether a valuation is worth the bother.
Why should I have my property valuated?
Property valuations offer objective directional advice when making really important investment, buying and selling decisions. Even though property investment can be one of the most crucial decisions people will ever make, many insist on going ahead with their choices without taking impartial advice from a professional.
Gary Mark Richards, Managing Director of Dubaibased valuations company CNC, says this can be a big mistake. “A valuation is the reflection of a hypothetical transaction; essentially, it’s the price that an asset should sell for without it actually being sold. Everybody relies on valuations, from banks and auditors to lawyers, and without a valuation no one would know the true value of something.
“While it is important to valuate both residential and commercial properties, it’s often even more critical for commercial properties because their value can run into tens of billions.”
James Cresswell, Head of Commercial Valuation at Cavendish Maxwell, adds that an accurate valuation is imperative regardless of the asset class or size of a property. “Valuations provide a statement in writing that sets out the facts, assumptions, calculations and resultant value, ensuring objectivity and helping to secure property valuation’s position as a cornerstone of the real estate profession,” says Cresswell. “Consider your property’s valuation to be a legally binding document that can be very valuable when negotiating with buyers/vendors, and if any disputes arise.
“If you consider that the purchase of any property should be underpinned by a valuation, and then you think about how many properties are bought and sold in Dubai alone, you soon begin to grasp just how important valuations are. Property valuation also plays a pivotal role in the financial services sector and is very important to the economy as a whole.”
*Who should evaluate my property?
“Whatever is being evaluated, it’s important to remember that any valuation should only be undertaken by a suitably qualified and experienced valuer,” says Cresswell, who has experience valuating a wide range of properties, from a UK residence where squatters had just been evicted to skyscrapers under construction.
Richards adds: “There have been many occasions where we advised clients that they are paying too much or too little for a particular asset, or have shown that assets would not cover the liability if they were to be sold. While professional valuers are supposed to carry out valuations, in developing markets this is not always the case.”
Richards notes that in more advanced economies, valuers are well-respected, but their services are not valued as much in the developing world. “I hope that the recent introduction of the valuers’ law in the UAE will bring about some regulations for valuers.”
Cresswell says personal attachment can cloud judgement, potentially leading to bad investment decisions. “Most people form emotional attachments to the homes they live in, or even the property they wish to buy, and this can affect how much they believe it is worth,” says Cresswell. “An independent valuation can provide clarity and prevent unrealistic expectations. If you are selling, a valuation can provide a good idea as to what you can realistically expect it to sell for, and in some cases it may be more than you think it is worth. Valuations may be undertaken for various reasons, such as loan security, accounting purposes, listing on a stock exchange or acquisition and disposal. Whatever the case, they’re always a good idea.”
How much will my valuation cost?
Richards says that while valuations can be pricey, they can save money down the line. “Valuation fees can range from a few thousand to millions of dirhams depending on the work, time and effort involved, as well as the experience of the valuer. Despite that, [a valuer] will give you a much more realistic and hands-on idea of how much you should be buying or selling a property for and, more importantly, the reasons why.”
Cresswell says the fee will also vary depending on the methods required to undertake it. “For example, a valuation of a basic one bedroom apartment will be at the lower end of the scale, while one for a hotel or complex master plan will be quite different,” he says. “As with most things in life, you get what you pay for, so beware of any company that says it can do a valuation quickly and cheaply.”
Before hiring a valuator “check the credentials of the persons doing the work and examine whether they have adequate training and experience,” says Richards. He adds: “Many companies profess to be experienced but if you dig a little you may find the person who is doing the work is not as experienced as he or she should be.”
Cresswell agrees: “There are a number of valuation providers and any reputable provider should easily be able to demonstrate that they have the relevant qualifications, experience, and local market knowledge to offer accurate, independent, professional and accountable valuation reports. I would always recommend that the valuer be asked to demonstrate their credentials.”
What will impact my valuation?
“Location is a big factor, of course,” Cresswell says. “Factors also include, but are not limited to, ownership structure, the size of a property, its age and condition, and the economic climate. A skilled valuer will consider all macro and micro factors when establishing the value.”
For the inspection of a residential villa, for example, Richards says: “It’s likely the valuer will take an initial drive through the area to get an understanding of what is happening there and a feel of the neighbourhood. An external inspection of the property will then take place to identify any potential structural issues. Moving inside, each room will be inspected to note any defects and the level of maintenance within the property, including any wants of repair. The valuer will then return to the office and check the latest transactions of sales within the area, as well as checking what properties are currently on sale in the area.
“The valuer can then compare this comparable data and make adjustments to arrive at the final valuation figure. The calculations are checked by another valuer to ensure all factors are considered. Finally, a senior team member will review the report before it is issued to the client.”
Cresswell adds that the type of valuation will depend on its purpose. “Should you be looking for bank finance, the bank should have a list of approved valuers and will instruct the valuer directly,” he says. “Otherwise, take care to choose the right valuer who has the necessary qualifications — such as being a Certified Valuer under Dubai regulations or a Royal Institution of Chartered Surveyors (Rics) registered valuer or equivalent. Any reputable valuer will happily discuss the process with you prior to your appointment.
Source: Angela Boshoff Hundal, Special to PW