Getting a property valuation: who needs one and what are the requirements?
Expert advice from Serena Lau, managing director of RHL International, on real estate appraisals
Serena Lau is managing director of RHL International, a Hong Kong-based valuation firm. She talks about how property owners can get a valuation and what the requirements are to get one.
How can a property owner get a professional valuation?
It is not common in Hong Kong for buyers to request a valuation report from a real estate appraiser. Nonetheless, landlords, investors and listed companies would need a professional appraisal of the market value of their portfolios. For example, a big landlord may want to gauge how much his portfolio is worth on the market. It is a must for listed companies to publish a formal valuation report on their portfolio to meet accounting and auditing requirements. As part of due diligence, it is also common among buyers of luxury houses, whole-block buildings and development sites to assess the value of the premises they are looking to purchase before negotiations begin. In fact, most banks rely on us to provide valuations on properties so they can determine whether or not, or how much, they are going to lend to mortgage applicants.
How does the valuer assess a property’s value?
For most residential properties it is common to use the comparison method, because Hong Kong has a very transparent market and ease of access to market data and evidence. The underlying methodology is relatively simple. Market data such as transactions of comparable properties are analysed to provide evidence of the market value of the property. If it is an investment or commercial property we might use the income approach.
What sort of information is provided by the appraiser in the valuation report?
A full valuation report includes the purpose of valuation, definition of the meaning of the valuation, date of valuation, essential information about the property, such as tenure, location, description of the building of which the property forms part; and the gross floor area, saleable area and general conditions, among other things. The assessed value of the subject property, based on the valuer’s opinion and supporting evidence, is stated as the conclusion of the valuation report. It is worth noting that, during the assessment process, we pay particular attention to encumbrances, which could be a claim, burden or liability attached to the property and such liability runs with the land. Although an encumbrance may not be a bad thing, we need to disclose them all and, at the same time, estimate their potential impact on the title and marketability of the subject property. Property sellers may want to achieve a valuation closer to the upper range of their expectations, providing them with a basis from which to command a higher asking price. But potential buyers would want to see a lower valuation for the opposite reason.
Should a property owner, company or landlord do anything in advance of the appraisal inspection?
Most necessary information, such as land search records, transaction data and building plans, can be obtained from the public domain. But if the subject property is an investment or commercial property, the client has to provide us with all tenancy documents, such as tenancy agreements, rental terms, among others, in advance.
If I own a property in an old building and would like to sell it for redevelopment, how do I know if it has redevelopment value?
Redevelopment value is straightforward. Assume that all landlords within the building agree to sell it, then the factors that determine the future market value of a redevelopment project include the permitted land uses, zoning, maximum gross floor area, and so forth. Having estimated the redevelopment value, owners may want to know the amount a developer is willing to pay for the site – that is, the difference between the cost of building the project, including an allowance for profit, and the value of the project that they can put on the site.