Valuation instructions are almost invariably to value a particular interest in a particular property on a particular date, on the assumption that there is a ‘true’ value and an acknowledgement that there is a reasonable (depending on the property circumstances) range of ‘non-negligent’ valuations. That range has often been held by the Courts to be between 10%-15% either side of the ‘true’ value (a matter of fact in the case, not a matter of law).
Let’s look at an example of an auction Lot submitted on multiple occasions:
14-16 South Undercliff, Rye, TN31 7HN
Freehold – run down – development potential subject to planning permission – vacant.
| Event/Auctioneer | Date | Result |
|---|---|---|
| Clive Emson auction: sold | July 2022 | £162,000 |
| Land Registry completion to Danshe Limited | August 2022 | £162,000 |
| Barnard Marcus auction: sold | February 2023 | £166,000 |
| McHugh & Co. auction | March 2023 | UNSOLD |
| Savills’ auction: sold | April 2023 | £120,000 |
| Auction House London | June 2023 | WITHDRAWN PRIOR |
| McHugh & Co. auction | October 2023 | WITHDRAWN PRIOR |
| Savills’ auction: sold | June 2024 | £162,000 |
| McHugh & Co. auction | December 2024 | UNSOLD |
| Auction House London | February 2025 | £90,000 |
| Land Registry Proprietor: ECIM Property Ltd | February 2025 | £90,000 |
Allen –v- Leicester City Council (2013) UKUT 016 (LC)
A view from the Upper Tribunal on the reliability of an auction result.
Issue: compulsory purchase compensation.
45. Mrs Stewart also said that the purchasers of No.32 had admitted to having overpaid at auction. I attach little weight to this evidence which is hearsay but, in any event, it is not suggested that the figure of £120,000 was a maiden bid (which seems unlikely given the guide price of £90,000 to £95,000). An auction is a recognised method of disposal to achieve open market value. Bids are made openly. It differs from an informal or formal tender where prospective purchasers make their offers in confidence and where there is scope for misjudging the market and offering considerably more than the other bidders. In my opinion the auction in September 2006 established the then open market value of No.32.
Please note RICS Common Auction Conditions (edition 4) Paragraph A3.5:
Where there is a reserve PRICE the SELLER may bid (or ask US or another agent to bid on the SELLER’s behalf) up to the reserve PRICE but may not make a bid equal to or exceeding the reserve PRICE. YOU accept that it is possible that all bids up to the reserve PRICE are bids made by or on behalf of the SELLER.
Every now and then a valuer is accused of negligence and has to defend a claim. How certain are you of your valuation? If there was any reason for uncertainty, did you say so? How important is the bracket of non-negligent values in the light of Bratt –v- Jones (2025) EWCA Civ 562.
RICS Standard: Comparable Evidence in Real Estate Valuation (October 2019)
Uncertainty generated by a lack of comparable evidence is a common feature of the real estate market. Most valuers recognise this, but many of their clients do not. Such uncertainty is inevitable, and the valuer should not be afraid to report it – indeed Red Book Global Standards states that:
‘Valuers should not treat……a statement expressing less confidence in a valuation than usual as an admission of weakness…..it is…..a matter entirely proper for disclosure’.
If a client understands that unusual market conditions result in an uncertain valuation it may enable them to make a better-informed business decision. It is for this reason that Red Book Global Standards requires the valuer to ‘comment on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user’ (VPS3, Valuation Reports, Section 2.2 (0))
- How have different Courts or Tribunals dealt with valuation uncertainty and have they said anything which can be quoted in a valuation report in support of drawing a client’s attention to uncertainty?
- Standard residential or business properties in good condition and without problems: little room for uncertainty.
- Properties with a speculative risk profile, dodgy auction lots, development prospects, limited market appeal, legal/tenure issues and those in poor condition: much room for uncertainty.
Brickfield –v- Ullah (2022) UKUT 025 (LC); dodgy auction lots
Issue: premium payable for a 1993 Act extended lease (16 years unexpired on existing lease).
34. We do not consider that either of the sales, in isolation, is reliable… It is possible that the leasehold interest was snapped up by Birdview at less than market value… It is equally possible that the respondents overpaid at auction… Were the respondents persuaded to pay a price thinking that the eventual premium would be modest? We just don’t know; neither did the FTT.
Blendcrown –v- Church Commissioners (LRA/50/2002): speculative risk
Issue: is there hope value (of future marriage value) to be paid for non-participating flats in an enfranchisement.
77. I would emphasise that hope value is a speculative element of value which does not lend itself to objective assessment. It is essentially a matter of informed opinion. …..Hope value is by its nature speculative, uncertain and incapable of precise assessment. It is the value now of the chance of a future payment.
452 Finchley Road Freehold Ltd –v- 452 Finchley Road LLP (LON/00AC/OCE/2023/0089)
Issue: development value of roof space (if any). FtT view of ‘hope value’.
48. We think that there is sufficient ‘hope value’ that would justify the addition of £20,000 to a premium which would represent the amount that a hypothetical purchaser would pay in respect of the potential of the site for future development…
2KPG Limited –v- P Hubbard & Ors (LON/00AW/0CE/2024/0093)
Issue: whether the value of the House (6 flats) should include the ability to charge a premium for joining buildings.
70. This creates a negative value. There is no rational economic argument for carrying out this work… Given the nature of the work, the Tribunal considers a spot figure in the order of £100,000 would be reasonable.
Sloane Stanley Estate –v- Mundy (2016) UKUT 223 (LC)
Issue: graphs of relative values for leasehold flats with different unexpired terms.
169. …When those methods throw up different figures, it will then be for the good sense of the experienced valuer to determine what figure best reflects the strengths and weaknesses of the two methods which have been used.
Twyman –v- Brookmans Homes Limited
Issue: claim for trespass and for compensation.
93. …needs to consider whether “the deal feels right”. If nothing else, this is a useful reminder that the court, in assessing damages, is looking to do the best it can on the evidence available.
Major Pitfalls
The uncertainty in most cases is the speculative element (or risk assessments) where the subject property has problems, or there is a locational problem, or the market for that particular type of property is rapidly changing. Residual valuations must rank at or near to the top of uncertainties. Subsequent negligence claims frequently involve:
- Predicted –v- hindsight GDVs
- Budgeted –v- hindsight actual building costs
- Anticipated –v- hindsight actual regulatory compliance
- Programmed –v- hindsight actual time frames
- Assumed –v- hindsight actual competence of project management
Uncle Arthur Advice
- Bear in mind that any later complaint or negligence claim will be made with the benefit of hindsight.
- Differentiate between what could reasonably have been known at the valuation date compared with what you know now.
- Identify if the property is low-risk, an occupied investment, or a speculative dealer’s lot.
- How reliably close are your comparables? Keep legible notes on file about adjustments.
- For residual valuations, do you have relevant survey experience? How do you cover uncertainty for input figures?
- Ensure all assumptions are in your conditions of engagement and the main body of your report.
- Be careful how you word statements of uncertainty. Avoid using standard uncertainty clauses.
Example of a standard uncertainty clause:
In conclusion, as at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes… Our valuation(s) is/are therefore reported on the basis of ‘material valuation uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case.