Understanding Market Value in a Changing Property Market

Market value describes the amount for which a property would be expected to exchange between willing parties at a specified date, after proper marketing and where the parties act knowledgeably and without compulsion. The definition is deliberately narrow, and much of the discipline of valuation lies in respecting its limits.

Valuation is dated, not continuous

Every valuation is an opinion as at a date. In a moving market that date matters materially: evidence gathered three months before the valuation date may reflect different pricing expectations than evidence closer to it. The proper response is not to abandon older evidence but to weight it, and to say plainly how it has been treated.

Evidence, expectation and the gap between them

When sentiment shifts faster than transactions occur, valuers work with thin evidence. Two errors follow. The first is to ignore market direction because no transaction yet proves it. The second is to adopt sentiment as though it were evidence. A defensible valuation acknowledges the evidence available, explains the adjustments made, and identifies the sensitivity of the conclusion to those adjustments.

What readers of a valuation should look for

• A clear statement of the purpose, basis of value and valuation date
• Identification of the interest valued, tenure and any restrictions
• Transaction and letting evidence, with adjustments explained
• The methodology adopted and why it suits the asset
• Assumptions, special assumptions and limitations
• Sensitivity of the conclusion to key inputs

A valuation that sets these out can be tested. One that presents a figure with limited reasoning cannot, and it tends not to survive review by an auditor, a credit committee or an opposing professional.