Market Appraisal Flashcards
What is a Market Appraisal?
A Market Appraisal is a provision of an estimated guide price for the sale or letting of a property
May contain appraisals of the existing use, potential alternative uses and look at factors that may influence the rental and capital value, such as macro-economic factors and local market conditions
Give an indication of what could be achieved in the market - not a formal valuation
Give me some examples of different scenarios where a Market Appraisal may be undertaken?
Potential disposal or letting of a property
Potential change of use
If a client is considering their options and wants an indication of values rather than a formal valuation.
How does a Market Appraisal differ from a Red Book Valuation?
A Market Appraisal is carried out to give an indication of what the property could achieve in the market
It is not a formal valuation and cannot be used for lending purposes or relied upon by third parties
How do you make it clear to a client you are carrying out a market appraisal as opposed to a valuation?
I would confirm both within the terms of engagement and the report that the guidance is strictly for internal use and no Third Party should rely on the advice given
Do you charge a fee for a market appraisal? If not, why not? If so, how would you calculate the fee?
Depends on the instruction - normally a fee smaller than a formal red book valuation.
But I’m aware agents might provide an appraisal as part of a pitch for an instruction
What market appraisal approaches are you familiar with?
Comparable Method – Applying a price per sq ft based on comparable market evidence.
Income / Investment Method – Taking a hypothetical lease, applying a rental value to the area(s) and using an appropriate multiplier to reflect an investment yield.
What did you include in your Market Appraisal?
Property summary
Market commentary
Local area overview
Comparable evidence
Value/price guidelines
Likely method of sale/interest parties
What does the RICS Professional Statement: UK Commercial Estate Agency (2016) say about Market appraisals?
You should provide realistic advice in regards to the likely selling price/rent based on your professional judgement and market comparable evidence.
Any figure must reflect current market conditions and consider likely lease terms acceptable to the market.
You should be able to support your figure with comparable evidence in similar situations.
The advice is not a formal valuation of the property. It is important you make clear you are providing an estimate of anticipated market price or rent and not a valuation. If required by the client, you may instruct a formal valuation on your clients behalf.
You should only provide advice with a market appraisal if you have thorough and sufficient knowledge of the market.
How would you carry out a market appraisal in accordance with the RICS Professional Statement: UK Commercial Estate Agency (2016)?
Before providing advice on the likely selling price or rent you need to:
Inspect the whole property inside and out.
Where measurements are taken you should take reasonable steps to ensure these are accurate.
Review the general condition of the property (important to gauge the general condition)
Ask the client questions to establish they are the legal owner and any relevant issues that may impact on the marketing strategy you adopt.
When advising on a suitable asking price or rent you should obtain comparable data, details of sales or lettings and similar properties in the area.
You should also take into account the current market conditions, whether prices or rents have been rising or falling since the comparable sale or letting and by how much.
Talk me through your Chelmsford example?
This was a client’s owner-occupied office. It had become somewhat surplus to requirements since Covid-19. They wanted an understanding of what the property could achieve if sold. We were instructed to provide a range of likely values.
I concluded the property would most likely generate interest from an owner-occupier. I therefore undertook an appraisal using the comparative method, looking at sales within the vicinity and in similar towns.
I understood from my research that the owner-occupier market was slow. I was also aware office values had dropped c. 15% in the 12 months prior, and c. 40% in the 24 months prior, amid the ‘flight-to-quality’ trend seen across the market.
I concluded a likely price of £125-140psf (£2.5m - £2.8m).
Decided not to sell
Chelmsford Key Facts
20,000 sq. ft
Grade II Listed
Large columns, one set of WCs, 28 basement parking spaces
perimeter trunking, suspended ceilings, comfort cooling.
Reasonable specification for locality but dated
Comparative method - owner-occupied and unlikely to attract investor (not let)
market dropped off 15% prior 12 months, 40% prior 24 months
Concluded £125-140 psf (£2.5m-2.8m)
Market could keep going down
