A combination of changes in accounting legislation and rising property activity is driving an increase in demand for valuations, according to a leading firm of Chartered Surveyors.
But Colin Garvin, Director of Professional Services at Garness Jones, adds that some property owners may unwittingly be falling foul of regulations introduced three years ago by not having valuations done as often as they should.
Sean Maloney of 360 Chartered Accountants confirmed that the Financial Reporting Standard FRS 102 requires investment properties to be revalued annually, at each reporting date – generally considered to be the end of a financial year. Colin added that the changes introduced by FRS 102 could be particularly relevant to investment properties which are part of a pension portfolio.
Under FRS 102, it is the responsibility of the directors to ensure that they use the most appropriate valuation technique to establish a fair value of the investment property.
A valuation technique would be expected to arrive at a reliable estimate of the fair value of a property if it reasonably reflects how the market could be expected to price the asset, and if the inputs to the valuation technique reasonably represent market expectations and measures of the risk return factors.
It is recommended that at each reporting date a company holding investment property engages a professional independent valuer, who has recent experience in the location and class of the investment property being valued, to obtain a valuation that can be reflected in the accounts to give a fair value of the investment property. As auditors, where it is applicable, we have seen these requirements and we have requested valuations as part of our audit testing.
Colin added that these definitions are close to those of the RICS for market value and the process required by Red Book valuations carried out by RICS Registered Valuers. He said his team at Garness Jones have noticed an increase in valuations, particularly with pensions administrators, over the three years since FRS 102 took effect. But he added that some people may not be having valuations done as often as they should, and he warned that pensions are not the only factor.
Requests for valuations are coming from accountants and financial advisers but it is still likely there are more needed than are actually being done. Changes in accounting standards, such as FRS 102, can require valuations to be carried out more frequently.
Other benefits to making sure a property’s valuation is up to date and accurate include business planning and relocation as well as loan security, influencing credit ratings and guide figures for insurance purposes.
There has been a change in the market in recent years. Some values are increasing, properties are generally selling more easily but the supply is quite restricted because there has not been enough building in the last 10 years or so. Some people are sitting on old values in their funds but getting a valuation is a relatively quick process.