Stuart Smith, associate director of Jones Lang LaSalle’s Valuation Advisory team in Birmingham, welcomes recent advice issued to commercial property valuers and lenders by the RICS Valuation Professional Group
“Valuers do not make forecasts” was one of the key points in a recent statement made by the Royal Institution of Chartered Surveyors (RICS) Valuation Professional Group which sought to provide additional guidance to both lenders to, and valuers of, commercial property when conducting loan security valuation reviews.
In the current climate, when commercial property values are changing rapidly, the guidance was issued as valuers are increasingly being asked by their lending clients to provide forward looking valuation advice.
When providing valuation advice to lenders, the basis used as the starting point is market value which assumes a hypothetical sale of the property. The date of valuation may be the same or before the date the valuation is certified but, crucially, not after.
Therefore a valuer’s opinion of market value is not going to be forward looking.
However, as many banks look to restructure loans in breach of their banking covenants, lenders are understandably becoming more focused on where the value of the property is going.
Banks are not selling distressed assets and are, as such, looking for more than just a ‘number’ and a recommendation to sell.
With the limited number of transactions taking place, the purpose of the RICS statement was to give guidance on the issues to be considered and reported upon in looking at a property’s future value prospects.
Some valuers have resisted the request from their lending clients to provide more in-depth valuation advice largely because they cannot ultimately certify future values.
However, as chartered surveyors, experienced valuers should be capable and, more importantly, willing to comment upon the likely future movements in value.
This should be carried out on a property specific basis having regard to the wider property market and the direction in which values are moving.
However, any forward looking view on the potential value of a property should be provided as an addition to an opinion of market value and in certain strictly defined circumstances.
Valuers who are not prepared to provide this level of commentary are not providing the best service to lenders who deserve, and should demand a high-quality advice that offers value for money.
On the other hand, those commercial property consultancy firms who are spearheading this current RICS guidance, by combining leading in-house research and market knowledge to provide their lending clients not just with market value but also advice on the likely future performance of a property/building are undoubtedly ahead of the market.