Why are valuers held in contempt (even by valuers)?

Over the years, I have noticed that Courts have a habit of “valuing the valuers”. In other words, they look at the witnesses whose evidence they are hearing, and try to come to a conclusion about the quality of the person giving that evidence: whether they are being truthful; whether they are being fair; whether they appear to be experienced; and so on. In fact, I have heard it suggested that Judges are experts in exactly that – that’s to say in assessing the veracity and usefulness of the witnesses they hear from. Many of them have long experience of doing it in Court and, before that, as advocates for parties in litigation.

By contrast, it seems to me, Tribunals tend to value the valuation evidence. I don’t mean the opinions put before them by valuers, but rather the background to the evidence – the quality of the transactions evidence and the material from which the valuers are working. If I am right about that, not only do Tribunals not value the valuers, they do not really even value the valuers’ evidence: they take an independent view of the material which underlies the evidence in preference to the evidence itself. In short, they tend to do the valuation themselves. Of course that’s a broad statement. Nonetheless, it is the main thrust of the experience that at least I have had of Tribunals. I’m sorry to say that actually it usually goes further than that: at bottom, members of Tribunals (and I mean both legal and valuation members) disregard the valuers and their evidence, extracting only from them and it the factual material from which they will do their own valuation. I don’t think it’s going too far to say that commonly Tribunals appear to have contempt for the valuers who come before them. They disregard them; they don’t believe them on the whole; and they just extract from what they hear what they find useful to form their own valuation opinion. Indeed, the concept of the expert valuation tribunal would appear to hint at this, even if experience did not. By referring to the Tribunal as an “expert” Tribunal, there is a strong hint that the Tribunal will make up its own mind, without much reference to the valuation opinions put before it.

Why is this, if I’m right about it? Why are Courts interested in the quality of the valuer and the valuation evidence he or she gives, whereas Tribunals appear to hold them and it largely in contempt?

For a partial answer to this question, see the article: “What is valuation, if anything?” This gives some admittedly extreme examples of why valuation outside the Courts and Tribunals can be so erratic as to make it almost completely useless (and note that there are two examples I take against myself in that respect). To consider further the “contempt” factor I suggest comes from the Tribunals, we might leave aside the Tribunals’ deliberations and consider property valuation in its wider sense. I suggest there is a spectrum of property valuations, ranging as follows. (Excuse my using “he” and “him”: it’s just for ease of expression).

1. Confirmation of the price just paid

The valuer simply confirms that he thinks the price just paid, or just agreed to be paid, for a property is OK. If that view is supported by nothing but the price just paid, it’s merely self-referential. The “What is valuation?” article gives an example. This is actually much more common than is generally supposed: the valuer simply takes the price paid or being paid; thinks about it; and comes to the conclusion it’s probably alright – alright perhaps by definition: if somebody is prepared to pay that price, then it must be the market price. Adjusting the figure upwards or downwards a little doesn’t make any difference, unless the valuer can find independent support for the price that has just been paid. To my mind this kind of valuation is worthless, except perhaps as an unreliable reflection of the instinct (or, dare I say, cowardice) of the valuer.

2. In line with lots of similar transactions

Probably the most common type of valuation is the one where a house or a flat has been sold, where such houses and flats are being sold very frequently, and it is therefore possible to corroborate the price paid, or being paid, with other transactions of a similar kind.

I’m not sure this counts as valuation at all: it is essentially research and mathematical analysis. The fact that many lending institutions now make use of automated valuation models (“AVMs”) tells us that human intervention – let alone specialist valuer intervention – is hardly required. All one has to do is to make a direct mathematical comparison with similar transactions in the locality, and one then has one’s answer.

3. Ditto, but with some valuer judgment

A variant of the mechanical method just described is where a valuer carries out the same exercise, but incorporating his or her judgement of the relative merits of the properties being compared. We are certainly starting to get beyond the point at which the valuation exercise is either meaningless or mere calculation, but we are not getting much beyond it.

Every valuer is aware of the quote in Marson v Hasler1, where a valuer said he didn’t belong to the “Analytical School” of surveyors, but regarded himself as belonging to the “Forty-years-man-and-boy school”:

[The Tribunal] had every respect for able and practical surveyors who belong to the latter ‘School’, but the fact should be recognised that when a member of this ‘School’ finds himself unable to agree values with an equally able and practical member of the ‘Analytical School’ then on a reference to the Lands Tribunal, the latter surveyor is apt to have the easier passage. The reason for this quite simple, the Tribunal reaches its decisions on the evidence presented and although it does of course draw on its own skill, that skill is applied not to the valuation of the subject property but to weighing the evidence given – a process conveniently described as ‘valuing the valuations’ (and which may involve also ‘valuing the valuers’). Opinion evidence, if it is to be certain of carrying weight, needs not only to be based on factual evidence but also to be demonstrably so based. Factual evidence bearing on the value of any land commonly takes the form of comparables: and the purpose of analysing the comparables is to enable unlike features to be identified and distinguished and to enable like features to be compared. In other words, from the view of an objective observer, the application of judgement by a valuer gains some respect but does not win the day, relative to an analytical approach to the problem.

4. Difficult valuations but with lots of subsidiary data

Valuations where multiple factors can affect the outcome disproportionately tend very quickly to fall into category 5 below. However, if we have a lot of reliable evidence of yields in investments and ERVs, or of the sales and cost components of a residual valuation, then we may be able to produce a reasonably reliable valuation for a given property. Actually, I have my doubts about whether the evidence usually gets that far, but one can accept it is at least theoretically possible to fall short of category 5.

5. Really difficult valuations

This is where one is valuing something reliant on small variations in multiple factors which have a dramatic effect on the bottom line. I rather defy any valuer to produce a really reliable prediction of how such a property might sell. Anyone who has spoken to an auctioneer will be aware that, despite the auctioneer’s extensive knowledge, it will very often be difficult to predict what price will be paid in the auction room, for better or worse.

6. No evidence at all

In the case of unique properties, I strongly suspect that the ability to predict accurately the value of a property is almost completely lost. See again the examples given in the “What is valuation?” article.

Once one moves away from the merely mechanical forms of valuation, it would seem to me that an expression of range rather than absolute price would be a very healthy thing. It would show, for example, how very large the range would be for certain kinds of property. It is therefore regrettable that Red Book forbids the use of ranges.

There are exceptions for exercises which are essentially valuation analysis – the analysis of a matrix of fact and legal principle, which enables one to apply comparative factors to a valuation for presentation to a Tribunal or a Court. Leasehold enfranchisement consists largely of such exercises, as does valuation for dilapidations claims. No doubt other analytical comparisons would also be approached in that way. The debate between the parties is often in a narrow range, well within the margin of error in normal valuation.

One can start to see why it is that, for every other kind of valuation, lawyers in particular are sceptical about the merits of valuers. They will never say so, for fear of giving offence. In my experience, many lawyers seem – again, without ever expressing it explicitly – to take this to the point of doubting anything that valuers say is really worthwhile. It is perhaps a consequence that the President of the Supreme Court, Lord Neuberger, once expressed the view that valuers should not be required to give independent evidence in Court, but should be allowed to become advocates for the position of their client. It also explains why, in many situations, the Court is more interested in the facts of the case than in the valuers. An example I was involved in was Bruntwood2, where it was obvious that the Judge first wanted to know what everyone was thinking at the date of valuation, before coming to a conclusion about whether there had been diminution in value. Only having satisfied himself that there had been, did he turn to the valuers for quantification.

Here is the hard part: somewhere in their subconscious, valuers know all this. They have often expressed a view and found it to be wrong. They have often taken a position relative to other valuers they are negotiating with. They have often found themselves tending towards a valuation which suits their clients. They have uttered a valuation, knowing in their heart of hearts that it doesn’t mean much. It also explains why valuers often get cross and defensive: they know the valuations to which they speak are often built on sand. So do not be surprised if Tribunal members are among those who are most contemptuous of valuation evidence they receive. The lawyer members are sceptical for the reasons suggested above. If anything, valuer members are more sceptical. It would also not be surprising then for Tribunals to be more concerned to minimise areas of dispute and review other Tribunal decisions than to address the valuation evidence that comes before them.

There might be ways to improve the situation, but that’s a subject for another day.

[1] Marson v Hasler [1975] 1 EGLR 157

[2] Bruntwood 2000 First Properties Ltd v British Telecommunications plc [2008] (unreported)