It is important to understand the difference between a market appraisal and a valuation. The term 'valuation' gets used widely throughout the residential property industry, and is often used interchangeably with 'appraisal', but the two words describe very different things.
In this article, we take a look at the difference between a market appraisal and a valuation and help you understand which option will work best for your specific requirements.
What is a market appraisal?
A market appraisal is an estate agent’s assessment of a property’s likely market value and recommended asking price. This is usually done for homeowners who are considering selling and it is used to inform a pricing and marketing strategy.
A market appraisal offers an indication of value but it should not be confused with a formal property valuation. The purpose of a market appraisal is to advise on how a property should be positioned within the current property market in order to attract prospective buyers and get the best possible outcome.
In order to ascertain a price, an estate agent will consider a variety of factors including recent comparable sales in the area, current market conditions, local buyer demand and the property’s individual characteristics. It is important to note that the asking price may reflect the agent’s marketing strategy and market dynamics.
Market appraisals are also usually provided free of charge which makes them a valuable tool for homeowners looking for an informed view on their property’s market position. Getting appraisals from different local agents can also help build an understanding of how the property may be perceived by the market.
However, a market appraisal is not suitable for all purposes that require a formal or independent documented valuation such as probate, taxation matters or certain legal and financial transactions. In these cases, a RICS Red Book valuation is the appropriate option.
Market appraisals are an important part of the selling process and they provide homeowners with guidance in pricing, market conditions and marketing. They also offer the opportunity to assess the experience and approach of a prospective estate agent before instructing them to sell the property.
What is a formal valuation?
In formal terms it is a statement of 'market value' in accordance with the definition produced by the Royal Institution of Chartered Surveyors (RICS) within their Valuation Standards, known as the 'Red Book’.
Although differing slightly for certain purposes, the definition is generally:
"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion"
With the above in mind, there is a requirement for specificity here: a specific amount on a specific date, which in the case of tax valuations, may be in the past. The valuation is intended to play out the operation of the 'open' market at the valuation date.
This valuation will usually come in the form of a report in a prescribed format, with comparable evidence and rationale, and details of the property. It can be formally relied upon because it is provided by a chartered surveyor who will also be a RICS Registered Valuer and who carries suitable professional indemnity insurance. It will also confirm neutrality and will be undertaken with the necessary due diligence (into tenure, for example) to ensure the reported value is suitably robust.
A formal evaluation will take longer to complete than a market appraisal because of the more detailed assessment needed.
When do you need a formal valuation?
We would advise that a formal valuation should be obtained for any 'formal' purpose or where a specific value is required for a tax computation (past, present or future), financial settlement or decision making.
Such valuations are not free of charge, but carry a fee, which will depend on the value of the property and the complexity of the job in question. However, these fees can often be offset against agency fees if a property is sold in the future.
In summary, the term 'valuation' has become common parlance in the estate agency industry, and we are no exception to its use and, arguably, misuse. When searching online or using a portal, this is the term people encounter. Undeniably this leads to some of the confusion, but it is important to appreciate the distinctions.
A free market appraisal is perfectly adequate if you do not need a formal valuation.
Frequently asked questions
Is a market appraisal the same as a valuation?
A market appraisal is a free estimate of a property's worth, provided by an estate agent. A formal valuation, which must be conducted to Red Book standards by a RICS Registered Valuer, is a paid written assessment that can be relied upon in legal and financial matters.
What is the difference under RICS standards?
A RICS valuation adheres to strict Red Book criteria and provides a legally defensible figure tied to a specific date. A market appraisal is an agent's recommendation of guide price for marketing purposes and does not carry the same legal weight.
At John D Wood & Co. we have an in-house team of chartered surveyors specialising in valuations for tax, litigation and leasehold enfranchisement. Please email [email protected].
Author:
Alex Ingram-Hill MRICS
Head of Valuation & Surveying
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