Firstly, I’ve got to admit that this article is probably only going to add to your confusion by initially clearing the ‘fog’ by giving an easy definition and then bringing in the 1001 items that can change the result!
There is only one market value for a property and that is what a prudent person would pay. A market valuation is an opinion. Nobody can say exactly what price two other people are going to agree to sell and buy at, at some time in the future. Valuation has been described as ‘part art, part science’. The latter is the easy bit, in gathering, filtering and prioritising relevant information. The ‘art’ involves relating all the worldwide financial influences to a single property market and then focusing that onto one particular building. Also, the valuer has to ignore all the various influences pushing and pulling his opinion in various directions and finally settle for something he feels is fair and supportable by evidence.
How often do we hear in conversation and even radio adverts – “Valued at 500,000€ euros, but we’ll sell to you at 400,000” - or something similar? How can it have a value of 500,000€ euros if you can buy it at 400,000€ euros?! No wonder people in general are confused!
Valuations are personal and must relate to the client requesting it. The valuer must know for what purpose the valuation is required. If it's for a bank, it's got to be conservative as the bank will be selling the property only after ‘troubled times’ and thus it and the market may not be at it's best. But if the valuation is for a buyer it has to be at the top end of the scale as, assuming that there is competition for the property, it's value is what the top bid will be for it. For a seller, the value has to relate to the price of other comparable properties in that a prudent buyer will pay the least he can for identical property.
And this is where the art comes in. Each property is unique as none are identical in location. How does one place a value on a view? On a golf frontage? On a ‘retreat’ location? One person’s ideal location is close to shops, restaurants and general ‘buzz’. That could be close to hell to another to whom ‘buzz’ only means constant noise and invasion of wider private space. It's all a balance. So when it comes down to it, everybody’s value is different and that’s why a valuation is a personal document.
Then we have to add ‘Hope’ Value (the chances of improving its physical or planning permission), ‘Forced Sale’ Value (now more properly defined as ‘Restricted Value’), Insurance Value (the cost of rebuilding and not related to the property market), Marriage Value (joining adjacent properties together and finding their combined value is higher than the sum of the individual values), etc. All of these and many other variations have their official definitions according to The Royal Institution of Chartered Surveyors (RICS) in the UK and the International Standards of Valuation (ISV), which is a coming together of valuation bodies around the world to agree standard valuation definitions and methods.
Coming to Spain, the Bank of Spain dictates that valuations for Spanish registered banks can only be carried out by Tasador companies registered with them. To register, a Tasador company has to place a substantial bond with the Bank of Spain, which bond the company will probably obtain as a guarantee from a private bank, thus potentially obliging the company to that bank.
To provide consistency, there are very strict guidelines that the valuers have to follow, which can have the unfortunate effect of ignoring the individuality of each property. In addition, the guidelines are open to use by the Bank of Spain as part of the Government’s economic policy, by dictating that values reported for banks must be reduced or increased (rarely that!) according to certain formulas with the aim of reducing the rise in property values. Thus the reported value strays away from the market value. It's really the banks that should be requested to reduce their lending % of value, but that would be interference with private businesses! Over valuation could also occur if the private banks want to lend and put pressure on the valuer to ‘aim high’. Like everywhere, valuations in Spain ultimately depend upon the professional conscience of the valuer.
So, that’s a start. Make sure that you know what the valuers’ instructions are and you may know more about valuation differences. We at Survey Spain Chartered Surveyors are regulated by RICS, have a professional conscience and value to our clients’ instructions, based firmly on market value.
Written by
Campbell Ferguson
Survey Spain are Independent, Experienced, Professional Chartered Surveyors based in Marbella on the Costa del Sol, Spain, who speak both English and Spanish.