Can sustainability be included into property valuations?
In real estate transactions, valuers play a key role; especially, in providing independent opinions on the value of properties, providing confidence to buyers, sellers or lenders. In fact, any person or business that owns, develops or occupies a property relies on a valuer’s expertise in order to make informed decisions.
A valuer can provide formal and reliable valuations that are used by investors, banks, lenders, funds, property companies, public sector and individuals.
Complex valuations require extensive knowledge and skills to ensure that all features and issues relating to a particular property are covered and acknowledged in the final figure. Taking into account new features, such as energy performance of buildings can be a real challenge. Valuers need to determine the impact of value and how to assess that.
Bax & Company, with our Sustainability Masterplanning tools, are working with the Royal Institute of Chartered Surveyors in enhancing the methodology for assessing the value of energy efficiency renovations, to better guide valuation professionals in valuing sustainable properties. By coordinating groups of experts, carrying out advanced regression analysis, organising valuer roundtables, and conducting interviews with investors and lenders in key markets across Europe; we are looking at what energy efficiency criteria can — and should — be included in property valuations. Resulting evidence and insights into sustainable property valuation will provide input to RICS specialists and update existing guidance materials.
While there is some evidence of energy performance being valued in recent market transactions — mainly through brown discounts — there is an expectation that medium or long term market standards may change, increasing the risk for lenders and investors. These findings have already been included in RICS’ Red Book and encourage valuers to consider Energy Efficiency as a factor that may influence real estate value.
The overall expectation is that by providing better guidance, energy performance of dwellings will get more attention from valuers, and evidence of its contribution to value will be recognised more quickly. This, in turn, may lead to accelerated investments in building energy efficiency.