Property valuation in the UK: material uncertainty and COVID-19
| Pages | 463-470 |
| DOI | https://doi.org/10.1108/JPIF-05-2020-0053 |
| Date | 10 June 2020 |
| Published date | 10 June 2020 |
| Author | Nick French |
Property valuation in the UK:
material uncertainty and
COVID-19
Nick French
Real Estate Valuation Theurgy, Frilsham, UK
Abstract
Purpose –An understanding of uncertainty has always been an integral part of property valuations. No
valuation is certain, and the valuer needs to convey to the user of the valuation in the degree of uncertainty
pertaining to the market value.
Design/methodology/approach –This practice briefing is a short overview of the importance of
understanding uncertainty in valuation in normal markets and the particular difficulties now with the material
uncertainty created by the COVID-19 pandemic.
Findings –This paper discusses how important it is for the valuer and the client to communicate and
understand the uncertainty in the market at any point of time. The COVID-19 has had a significant impact on
property values and the importance of clarity within valuation reports.
Practical implications –This paper looks at the importance of placing capital and rental value changes due
to material uncertainty in valuation reports.
Originality/value –This provides guidance on how professional bodies are advising their members, around
the world, on how to report valuations and market value in the context of material uncertainty.
Keywords Uncertainty, Property valuation, Market value, Comparables, Material uncertainty and Market
sentiment
Paper type General review
Introduction
Previous work by French and Gabrielli (2004,2005) has argued that, as valuations are
professional price estimates made at the time of the valuation, market values are not certain.
This has always been the case; there has always been uncertainty in valuations. However, the
current situation with the COVID-19 pandemic, triggering the Global Downturn of 2020, has
meant that the valuation profession has been forced to look at the market through the eyes of
material uncertainty; uncertainty that is over and above that experienced in “normal”
markets.
Such uncertainty doesn’t reflect on the ability of the valuer but from a lack of comparable
information in the market at a particular point of time. Since February 2020, in some markets
there have been no transactions at all and existing comparables, pre-Covid, do not reflect the
impact on the global downturn on asset values. The valuer therefore has fewer (or no)
comparables to act as “signposts”to help determine the market value of the subject property.
Instead, the valuer needs to rely upon, and look at, any other signposts in the market that may
provide an indication of where market prices may be at that point in time. These could be
other forms of market data such as asking price information of similar assets or enquiry
details of potential purchasers or a host of other indicators within a hierarchy. Not all
comparison is equal and the property profession recognises that some evidence is more useful
than other information. In a normal transparent market, market transactional evidence is
always preferred as the principal signpost but in more opaque markets, there will be a need to
give greater emphasis to these other market signposts. But, as the information used moves
away from the relative veracity of transactional evidence, then the certainty of the valuation
will become less. In extreme cases, such as the current COVID-19 crisis, that uncertainty can
Material
uncertainty
and COVID-19
463
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 9 May 2020
Revised 9 May 2020
Accepted 9 May 2020
Journal of Property Investment &
Finance
Vol. 38 No. 5, 2020
pp. 463-470
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-05-2020-0053
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