What it is
A commercial property valuation is a professional opinion of what a property is worth, or what rent it could achieve, on a stated date and for a stated purpose. The most common basis is market value, defined in the RICS Valuation – Global Standards (the Red Book) as the estimated amount for which an asset should exchange between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing and where the parties each acted knowledgeably, prudently and without compulsion.
Market rent is defined in similar terms for a lease. The valuer must also state any assumptions and special assumptions, because they can change the figure.
When you need one
- Buying, selling or refinancing a commercial property.
- Secured lending, where the lender requires a valuation from a regulated valuer.
- Company accounts, tax, shareholder or partnership matters.
- Rent reviews and lease renewals, where market rent is needed.
- Disputes, insolvency and estate matters that need an independent figure.
What the surveyor does
The valuer confirms the purpose and basis of value, inspects the property and checks its tenure, lease terms, floor areas and condition. They then analyse comparable market evidence.
For income-producing property, the investment method is commonly used. In its conventional form the valuer capitalises the net rental income using a yield derived from comparable evidence; a discounted cash flow can be used as an alternative. For property valued on its trading potential, such as certain leisure or care uses, a profits method may be appropriate. The valuer chooses the approach that suits the property and purpose, and must explain the choice.
A valuation is an opinion at a point in time. Values can move with the market, so the report states its valuation date.
What you receive
- A written report stating the basis of value, the valuation date and the figure.
- A description of the property, tenure and tenancy information relied on.
- The assumptions and special assumptions applied.
- A summary of the evidence and reasoning behind the opinion.
Typical process
- Tell us the property, the purpose and who will rely on the report.
- We confirm the scope and the information we need, such as leases and accounts.
- The valuer inspects and researches the market.
- The report is issued, and you can ask the valuer questions about it.
Frequently asked questions
What is the Red Book?
RICS Valuation – Global Standards, known as the Red Book, sets out the standards RICS members and regulated firms follow when carrying out valuations, incorporating the International Valuation Standards.
Is market value the same as the price I paid, or the sale price?
Not necessarily. Market value is an estimate on a stated date and basis. A price actually achieved can differ.
Does the report depend on the purpose?
Yes. The purpose affects the basis of value, the assumptions and the content, so it needs to be agreed before the valuer starts.
Can a valuation be used by someone else?
Only if the instruction allows it. Reliance on a report by third parties, such as a lender, should be agreed at the outset.
Sources and further reading
- RICS: Valuation standards (Red Book Global Standards)
- RICS: Red Book Global Standards incorporating IVS (PDF)
- RICS: Comparable evidence in real estate valuation (PDF)