Residential Valuation Theory and Practice

Citation

Mackmin, D. (2001), "Residential Valuation Theory and Practice", Property Management, Vol. 19 No. 4, pp. 352-354. https://doi.org/10.1108/pm.2001.19.4.352.1

David Jenkins, Stuart Gronow and various members of the University of Glamorgan research team, have been closely linked with the theory and practice of Residential Valuation for a number of years. Several research papers have been published in this general area emanating from theoretical and empirical research undertaken at Glamorgan and covering “intelligent systems”, “house value models”, “knowledge‐based valuations”, “expert systems” and “valuation systems”. This short A4 publication draws on these researches and on a wider literature review. In format it is very much a research paper motivated by four distinct perspectives: professional, consumer, social and academic. As such it considers the current practice of residential valuation, the critical link with the needs of consumers of valuation services and changes in social needs and explores the author’s observation that academics wonder “why practitioners do things the way they do and fail to use a variety of other means that academics have had time to ponder but never use in anger”.

In many respects, it is a good re´sume´, providing a good literature review of where the subject of residential valuations now stands in practice terms and academic terms. In terms of where practice may go next, the book is less clear, although there are plenty of clues as to David’s own thoughts on the matter. There is, for example, an early recognition that millions of residential valuations are required annually but, in outlining some of the improvements that might be possible in using Direct Capital Comparison (DCC) and in considering the potential of mass appraisal techniques, or indeed of relying on data relating to the whole market rather than the current dependence on the best most recent known comparable, a lack of consideration is given to the practicalities and costs of implementation. David suggests in his preface that the concerns of the book are with the purposive (what for) and the motive (so what). However, this reviewer, notwithstanding the quality of the critique of DCC, was left with some doubt as to whether these concerns are properly addressed from the point of view of the valuers of residential property faced with the prospect of millions of low fee valuations to be completed annually.

Following a preface and brief introductory chapter, there are five distinct chapters. Chapter 2 provides a thorough review of the traditional DCC valuation approach as described in standard texts, as practised in UK and as analysed by the Glamorgan research team and others. UK texts are compared unfavourably to US texts but the author has missed the opportunity to provide his own comprehensive view of how DCC should operate and provides a very limited view of whether American practice could be transferred to the UK marketplace. The view that a method of market valuation which cannot function properly when a market collapses is a faulty method is not supported nor is any evidence provided to suggest that any of the improved techniques described in Chapter 4 would have any more success, under such conditions, of establishing market value as defined by the RlCS. There are other comments in this chapter which question the validity of DCC in the property market without addressing the fundamental issue in all markets; namely, that a market value per se can only be determined if there is sufficient market evidence. The author is on stronger ground in exploring the market’s lack of knowledge of the impact that different attributes have on value, but the market research in this area stated to have “proliferated in recent years” is unreferenced in the book.

Chapter 3 considers the supply of valuation advice and again provides a good review of the impact that deregulation of financial services, negligence and the professional bodies have had on the service provided by residential valuers.

Chapter 4 and the Appendix explore the use of “expert” databases and software as means of improving DCC, or at least of overcoming some of the criticisms set out in the earlier chapters. The early part explains the usefulness of the database developed by the Glamorgan team. It then explores the use of Multiple Regression Analysis and the statistical techniques for mass appraisal of residential property. The early chapters provide the background for this section, which is potentially the most important for valuers, especially those operating for the larger mortgage lenders whose databases could provide sufficient data to develop such techniques. Here again, there is the suggestion that these techniques could be used during a slump in the market to assess market value when there are insufficient transactions to use DCC, but if used for this purpose they might provide opinions of what values might be in a “normal” market, but that is a different question to what would the property sell for today, i.e. at a time when there are too few sales to actually establish any pattern of values. No amount of sophistication will produce a supportable opinion of something (MV) which cannot be tested. Hence, it is difficult to judge how more “right” these alternative methods would be in non‐normal market conditions.

Chapter 5 provides a brief review of valuation practice in the public sector covering the “right to buy” public‐sector housing, council tax valuations and the asset valuation of social housing. This chapter is more an observation on the practice and processes used in these areas rather than an academic exploration of the improvements that might be possible.

Chapter 6 provides a conclusion and a summary of recommendations made by researchers at Glamorgan for consideration by professional bodies and government agencies.

Overall the book provides a useful overview of the theory and practice of residential valuations and the areas of research undertaken by the Glamorgan team. It provides a number of insights into the methodologies that could be used to provide opinions of sustainable value should they ever be considered to be meaningful measures of value. A book for the library and the academic rather than one of immediate use for the practitioner who, on current fee levels, will have to continue to rely on his best‐shot opinion based on a DCC approach with limited comparable evidence.