Mar 24

How To Value Your Property Correctly

Regardless of the state of the property market and whether you are a new or experienced investor, achieving a high property valuation is important.
Before refinancing your property it is essential to get the highest valuation possible, as your refinance will be based on that amount. This process can seem daunting, but with the right information, preparation and presentation it could be easier than you think.

Important Foundations When Valuing Your Property

Before I take you through my process of getting accurate valuations on my properties, there are three things you should keep in mind.

1. Valuing your property can sometimes be a dark art

Even if the process I outline here works most of the time, it has to be said that getting the right valuation can sometimes seem like a dark art.

Sometimes you can get a low valuation for seemingly no reason. Whereas other times you could end up getting a higher valuation than originally planned.

So use the steps I will give you as a guide rather than a hard and fast rule.

2. This Article Is Primarily For Property Investors Valuing Their BRR

This article is primarily written for property investors looking to either invest using the Buy Refurbish Refinance (BRR) strategy or through flipping properties. If you're here for any other reason, feel free to stick around as some of these tips may help you as well, but make sure to navigate to the relevant parts.

3. Do your due diligence correctly to avoid being overly reliant on the valuation

One of the key parts in getting a good valuation for your property is to avoid being reliant on it in the first place. You want to be as conservative as possible with the due diligence on the property before you even commit to the project. Make sure you do every possible check before you submit your offer. If you enter the deal knowing you've covered the worst-case scenario, there will be fewer nasty surprises later when the valuer gives you their valuation.

To make sure you enter the deal with your backside covered, you can grab my book which details deal analysis much more comprehensively than I can do in this blog. Or you can follow the brief bullet points below of how to de-risk your investment:

  • Estimate the numbers on your deal based on your worst-case scenario, not your best-case scenario. This means that the deal should still be acceptable even if the valuer down-values the property or you have to sell for less than originally intended.

  • Always invest in the right locations (nearby amenities, schools, low crime, economic growth, etc.). There's an old saying in property that is starting to sound like a cliché: "Location, location, location". But it has become a cliché for a reason. Ignore it at your own risk.

  • I aim to leave no more than £5,000 in the deal after refinancing at the worst possible revaluation. This means that you limit your loss if the valuer gives you a nasty surprise.

  • To follow up on the last point. I look for a return on the capital I leave in the deal (ROCLI) of  50% or more. You can calculate this number with the simple formula:

Said differently: It should not take me more than two years to make my money back from the property. If it will take me longer than two years, I’m not so keen.

What are the steps to get the best valuation for your property?

Once you have these nuggets in mind, you should be well suited to follow these next steps to get the best possible valuation for your property.

Step #1. Understand the methods of the surveyor and replicate

When the valuation surveyor comes around to look at the finished property, there's one thing that you can be sure about. They are not there without a clear structure to follow. For their quotes to be taken seriously by lenders, all valuation surveyors need to give a clear explanation for their valuation. That's good news for you and me because it means that there's at least some method behind that madness that we could replicate. Nothing can go wrong if you follow their strategy right?

Figuring out the end value, using their method is best done in the due diligence phase before you submit your offer.

Their method mainly relies on looking at comparable sold properties prices. Then they will estimate the value of your property based on the comparison with similar ones nearby. Here are the criteria they use for comparable properties: 

  • Comparable properties should have been sold as recently as possible. Preferably within the last 6 months.

  • The comparables should be as nearby to your property as possible. No more than 2 miles away.

  • The condition should be comparable

  • The type should be comparable (terraced/detached etc.)

  • Comparable size (in square meters or square feet)

  • Look at comparable properties that have had a sale agreed, but yet to be completed

  • Look at similar properties that are listed for sale

Finding comparables that fit the criteria, can be tricky because of the delay in updating the sales data, online. The best way to find comparables is through Rightmove's sold data. 

You should aim to find at least 3 good comparables of what your property would look like in its fully refurbished state. Nothing less, nothing more. If you cannot find this, you should definitely not skip the next step. 

Step #2. Get as many opinions as you can

In property, a second opinion is really worth it. You want to get as many opinions as you can when estimating the future value of your property. In this case, agents are your best friend because they will know the local property market inside and out (or so they should).

You would want to complete this step even if you found enough information on Rightmove, because agents may know more information than what you could see immediately on Rightmove. Here are the important points to remember when getting the opinion of agents.

  • Make sure to ask at least 3 agents what your property would be worth in a "done-up" condition.

  • Again, this could be done seamlessly in the due diligence phase.

  • The best way to get an accurate estimation from the agent is to ask what they would be able to sell the property for if you let them represent it after refurbishing. 

Once you have looked at three comparables and received the opinion of three agents, you should have a good estimation of what the valuation will be after refurbishing.

But it is of course not your opinion or due diligence that matters. It will be up to the surveyor to agree with you. That is why the next steps could make or break your final evaluation. So make sure you read on.

Step #3. Prepare for the revaluation

Now that you have done the due diligence, submitted your offer, closed the deal, and completed the refurbishments, you are just one crucial step away from getting your dream valuation. This is where you need to truly shine:

  • Make sure refurbishments are completely finished.

  • Have professional cleaners clean the entire property.

  • Do not ask builders about this as they will be likely to do a sub-par job.

  • Prepare a valuation pack for the valuer (should include before-after photos and photos of comparables)

  • Be on-site with them or have someone you trust accompany them. The more they like you, the easier it will be for them to value the property higher.

They say preparation is key, but it means nothing if you don't turn up when it matters. To learn more about how I handle my revaluations, be sure to check out my eLearning for BRR. In the next step, you will see how to interact with the valuer to make sure they see you and the property in a favourable light.

Final Step. Revaluation time is game time. Make sure you perform

As mentioned, interacting well with the valuer can be vital to get the best valuation. The last thing you want to do is to insult them or give them a bad impression. So when the survey is taking place, make sure you or your investor friend is there to take the surveyor around (see my personal branding book to learn how you can build your network of investors). Here are the steps I follow personally when interacting with the surveyor:

  • Arrive before the surveyor (certainly do not arrive later than them)

  • Be friendly and show your personality

  • Gauge what kind of personality they are and adapt your own personality to theirs

  • DO NOT tell them what you think the value should beA surveyor is normally quick. So do not worry if it only takes them 5 to 20 minutes to do the job

  • Sometimes, the vibe can be good enough for you to ask them how much they think it is going to be worth. Don't ask this question if it doesn't seem like they're the type to answer.

Once you have completed all these steps it's time to relax and await the physical valuation. Hopefully, by then you would have read my guide to property investing and been conservative enough with your numbers to cover the worst-case scenario. If not, take a deep breath and remember that you still have another exit strategy. 

If the valuation is too low to consider a remortgage, you can choose to sell the property as a flip. As long as you have done a good job with the refurb, and invested in a good area, people will generally be willing to pay more than the valuation.

Understand That Property Valuations Can Be Unpredictable

If you follow all of these steps, you will be well on your way to getting your ideal valuation. However, sometimes the valuer will consider a range of other questions that we don't have control over.

This is where your initial preparation is key. Expect the worst, but hope for the best. If the surveyor down-values your property,  remember that you will get a better idea for each valuation you attend. I have included line-by-line detail of one of my previous valuations on my eLearning platform.

This will help you share some of my own experience with these valuations and can help you get a better feel for how to predict your own valuation.There's currently a 45% discount on my BRR course, which goes through all the details of minimising your risk with valuations.

Hopefully, this article has given you strategies to prepare your property for refinance. As said before, obtaining a pre-estimated valuation is critical in ensuring not only a smooth but also a profitable exit strategy.

An efficient refinance process often depends on the quality of your property’s pre-estimated value and how well the market is currently performing.

For more lovely property reading, make sure to check out my book on Amazon

Also, feel free to dive through the golden nuggets of my various ebooks here.

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Tej Singh
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