There is both an art and a science to valuing real estate, which are is easily overlooked or misunderstood from the outside.
Today, a home buyer or seller can enter a handful of details into an online property platform, which in turn will provide an approximate valuation for a house or flat. Needless to say, such estimates are unreliable – moreover, they do a disservice to the technical training that is required to establish a sound market value for a piece of land or real estate.
Depending on the type of valuation, sales comparisons, income capitalisation, land value and building costs can be assessed as part of an accurate valuation. What’s more, given how the value and benefits of real estate are realised over a long period, both social and economic trends must also be carefully considered. Of course, the complexity of the process is what typically makes qualifications through bodies such as the Royal Institution of Chartered Surveyors (RICS) necessary for those who value property for a living.
So, why make these points now? Simple – because the coronavirus pandemic has brought property valuations back into the limelight.
As a result of lockdowns and social distancing measures, it has become more difficult for professionals to gain access to a property in order to conduct a thorough valuation. Instead, there has been a rise in “virtual valuations”. And with the UK back in lockdown – even with new hope of a vaccine arriving soon – there is a widespread understanding that we are living in a “new normal”; a world where digital tools and services are increasingly important in lieu of physical meetings and easy travel.
When it comes to property valuations, this trend raises two interesting questions. Firstly, can we trust virtual valuations to reliably replace the traditional, on-site methods? And secondly, how may COVID-19 impact the way property is valued in light of changing demands from buyers, renters and businesses since the onset of the pandemic?
The rise of virtual valuations
According to Zoopla, between April and May 2020, there was a 90% rise in the number of virtual property valuations completed by agents. Indeed, nearly all vendors stated that they would prefer agents to value their properties remotely instead of making a physical site visit; only 2% said they would be happy to meet an agent in person.
Virtual valuations involve an individual – typically the owner – giving a real-time tour of a property to an agent or valuer via a video platform such as Zoom. From this, the professional can glean information regarding the size of the property, the number of rooms it has, and the general condition it is in. They can also assess the property’s features, the storage available, and the surrounding buildings and outdoor space.
The sharp rise in virtual valuations in 2020 has enabled properties to continue to be listed on the market and for transactions to be completed. They have allowed both agents and lenders to press ahead with this critical part of their respective operations.
Are they reliable? In theory, there is no reason why surveyors or valuers cannot get the necessary information about properties via video calls rather than through visiting premises themselves. Yet there are challenges that must be acknowledged.
For one, the onus will be on the professional to thoroughly guide their on-site camera operator throughout the process. They might need to take the camera into various nooks and crannies; multiple angles of rooms will be required to gain a clear impression of its condition and to bring to light any potential issues. There might, of course, be issues that the property owner (and virtual tour guide) does not want the valuer to see, so attention must be paid to exploring every corner carefully.
Camera lenses can distort our perspective of a space, while poor lighting can hide certain issues when conducting a video call. These problems are harder to overcome, but again, a thorough and diligent methodology should ensure professionals can still gain a fair appreciation of the property and its condition.
Further, the data that will inform much of the valuation remains accessible regardless of the virtual tour of the property. From the exact square footage through to sales comparisons in the area, a surveyor gains much of what they need from these figures, which are available to them from their laptop.
As such, there is no reason not to place faith in the reliability of virtual valuations. Just as with virtual viewings for prospective buyers or renters, they are not ideal and will never completely mimic the experience of a visit to the site; yet, when necessity dictates, they are important ways of keeping the real estate industry moving.
How will COVID-19 affect property values?
Beyond the practical undertaking of property valuations, COVID-19 will also impact this field through broader social implications.
Over the past nine months, millions of Britons have been working from home, while socialising has been made difficult if not impossible. As a result, people are spending more time in their homes, which is affecting their demands when it comes to buying and renting property – these demands, as a basic market driver, will affect valuations.
For example, homebuyers are looking for more space from their property; in July, estate agent Dexters surveyed buyers to establish their “non-negotiable” demands. The top result was a spare room that they could use as a home office while working remotely, followed by outside space in the form of a garden, roof terrace or balcony. The company added that the preferences marked a major shift from previous surveys when “vanity factors” (such as external appearance or the size of the kitchen) had ranked higher.
With people now expecting remote working to remain the norm in the future – at least in some capacity, with employees splitting time between the office and home – there is also a trend of homebuyers looking further afield for properties. Free from the daily commute, homebuyers might consider villages and towns that are further from their place of work.
All of these social trends will affect property valuations. Again, the skill is in understanding and monitoring the ways in which the market is evolving – in turn, this will ensure a house, flat or commercial site can be given an accurate value.
Ultimately, while the property market is undergoing a wide range of fascinating and unexpected changes, when it comes to valuations, the need for traditional training and education has never been greater. Only those skilled in the consistent, technical aspects of valuing property will be able to adapt to sudden fluxes in the wider market – these skills have never been more valuable.
Mark Shepherd, Course Director for the University of Manchester’s blended online MSc Real Estate course.