By Campbell D. Ferguson of Survey Spain Network
We all have an opinion about the value of a property, especially when it’s ours, and that’s the problem! It’s the value that a prudent, knowledgeable buyer will put on it that’s important.
Homeowners, mixing emotion and ego (and sometime desperation) plus the money they have spent on it, into the equation, will famously tend to overvalue their property. An agent may go along with this to get the listing, but reality strikes when the buyers list what can be bought elsewhere and the bank won’t give a big enough mortgage at that price.
Therefore, it is important to bring in an independent, experienced professional specifically trained to accurately value individual properties – the chartered surveyor, based in Spain.
Bearing in mind that cost does not equal value, a starting point can be the cost of land plus construction plus charges for taxes, permissions, professional fees and, often forgotten, the cost of financing the land and construction when it’s being built.
Obviously in practise these factors are variable depending on the market and the individual property.
- Land cost – if this can be registered for uses other than merely residential, the value may be greater
- Desirability of the location and technicalities such as ease of access and availability of services will also affect the price.
- Construction – the cost of this can vary considerably. At times of high demand the cost of materials and labour charges will increase. However, during periods of economic crisis the cost of getting work done will be noticeably lower.
- Permissions – these should be relatively constant.
- Recompense for the hassle and risk of construction – it takes a long time between buying the land and getting the permission to occupy the property and there has to be some recompense for that.
However, if there is a similar property that is being offered at a lower price, the ‘builder’ has two choices – either drop the price and accept less recompense or hold on and hope that the cheaper properties will be sold, demand continues and thus the house becomes the best that that price can buy. In a falling market, as we’ve had for a few years in Spain, many have been caught out and ended up chasing the market down, dropping their price eventually, but always finding somebody willing to sell a similar property at a lower price.
As with choosing a life partner, the attractiveness of any given property is in the eye of the beholder! That is why property (we do not ‘value’ life partners!) can only be valued on a comparative basis, with the valuer judging, from experience, how the average buyer and seller, the ‘market’, will react at the time of the valuation. The Royal Institution of Chartered Surveyors’ (RICS) definition of market value is: ‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’
A professional valuer forms an opinion of value based on what else the buyer could do with the money; what other property could be acquired for the same investment and how does this particular property relate to all the others on the market? If there are more buyers with finance and willingness to purchase than there is available real estate, there will be strong competition, with the ‘winner’ being the one who offers the highest price. On the other hand, as now, if there is more property than buyers, the successful seller will be the one who offers the best for least.
Reliable information on actual sale prices and accurate descriptions of properties is difficult to come by in Spain. The Survey Spain Network of twelve Chartered Surveyors around Spain has the advantage of our reliable records of the thousands of our own building surveys, valuations and assisted sales conducted over the past eight years, which have enormously augmented our bank of knowledge. Many of our valuers have personal records that extend many years further back.
It is common knowledge that the property market can vary enormously depending on considerations of location, which can be as specific as on which side of the street the property stands or even which view is obstructed by trees or not. In all markets, the best properties in each range will sell, judged by location, quality and price. Even now, there is competition for these. On the other hand there are others for which no prudent, knowledgeable buyer can be found at any price.
So, what is value? Value, like beauty, is in the eye of the beholder and every property is ultimately worth only what a prospective buyer is prepared to pay for it.
© Campbell D. Ferguson, FRICS, is a chartered surveyor in Spain. His company Survey Spain Network arranges valuations and surveys anywhere in mainland Spain, the Balearic and Canary Islands, and Gibraltar.