Reflecting sustainability in property valuation – a progress report

Abstract

Purpose The purpose of this paper is to report on the findings of a survey conducted by the Royal Institution of Chartered Surveyors (RICS) to discuss the extent to which qualified valuers have adapted their valuation practices in the light of guidance published by RICS in respect of sustainability and commercial property. The findings are placed within a wider debate between assessment of market value and investment value (worth). Design/methodology/approach The paper is a theoretical discussion incorporating the results from an empirical survey of valuation practitioners. Findings The paper reveals that guidance published by RICS in 2011 has achieved limited, but variable, impact in terms of impacting on valuation practice due to a combination of factors including lack of knowledge of the guidance, non-requirement of clients to request sustainability reporting within valuations, paucity of data. It found that where worth (investment value) is required, sustainability factors are more likely to impact the calculation than where an estimate of market value is prepared. The paper identifies theoretical problems and practical barriers hindering an integration of sustainability aspects into valuation practice. Research limitations/implications The empirical work was conducted prior to the embedding of guidance within the mandatory provisions of the “Red Book”; the study therefore reports on a direction of travel rather than the current position. The implications for research are the requirement to enhance data capture and to seek ways to break down the barriers to more comprehensive integration of such data so that worth and market values may begin to converge. Practical implications The paper has practical implications for both the education of valuers which is proposed through the RenoValue project discussed in the paper and for the RICS in monitoring progress towards more specific integration within valuers’ calculations. Further, the paper identifies that clients and lenders have a key role to play through the instructions given to valuers. Social implications There is now widespread recognition that properties which are not resource efficient and which are not equipped to flex to changing occupier needs may not currently be “future proofed” in investment value terms and are likely to see value erosion over time. Further, buildings have a key role in terms of climate change policy. Whilst new buildings can be mandated to meet improved efficiency standards, the ways in which buildings owners can be encouraged to upgrade will be important moving forward. One way is through a value chain response. Originality/value The survey is the most comprehensive investigation of valuer’s practice in relation to sustainability and the assessment of market value and worth undertaken. This provides a unique insight into the effectiveness of professional guidance and enables an informed discussion as to appropriate ways to enhance guidance moving forward.

The Relevance of EPC Labels in the Spanish Residential Market: The Perspective of Real Estate Agents

“…Such "sustainable" developments attract young highly educated households. From the perspective of property valuation, Michl et al [34] found that only 2.2% of surveyed UK's RICS valuers collect and use energy performance information in their analyses, while this figure increased to 21.1% in Germany. The authors conclude that there is a perception among some professional groups that collecting and analysing sustainability-related data can be avoided until there is "enough" empirical evidence [on the price effect].…”

The initial impacts of Minimum Energy Efficiency Standards (MEES) in England

“…Specific guidance was issued to valuers and asset managers in the UK in 2018 (RICS, 2018[a]) in advance of MEES' implementation. Previous studies of valuation practice have revealed little evidence that energy and sustainability matters were routinely integrated into practice (Michl et al 2016;Sayce, 2018;Warren-Myers, 2018;Le and Warren-Myers, 2019). Therefore, valuers were asked to comment on whether MEES had impacted their processes and practice.…”

The wandering energy stars: The challenges of valuing energy efficiency in Australian housing

“…However, this study also identified considerable inadequacies and inaccuracies of knowledge. As explained by Warren-Myers [7,8] and Michl et al [6], adequate and accurate knowledge of sustainability factors and tools is required to enable correct and reliable measurement and comparison. Historically, the focus has been on the commercial sector, with limited research examining the residential valuation sector's knowledge, considerations and utilisation of industry tools and benchmarks.…”

“…Valuers have a pivotal role in providing a broad range of stakeholders with estimates of value. In the residential context, they sit at the junction of developers/builders, finance, real estate agents and the purchasing market [6]. Consequently, understanding valuers' perspectives for value relationships with energy efficiency in the home is an important factor for driving energy efficiency initiative adoption within the residential property market.…”

“…This perspective has subsequently supported a detailed level of quantitative and empirical research examining the relationship between energy efficiency, ratings and value in both commercial and residential property [5]. Yet, detailed analysis of valuers 1 considering energy efficiency and ratings in practice (predominately commercial property) have identified low levels of engagement and knowledge by valuers across the United Kingdom (UK) and Europe [6] despite specific guidance notes provided by the Royal Institution of Chartered Surveyors on how to assess sustainability, and in the commercial valuation sector in Australia [7,8,9]. This is the first study that investigates residential valuers practising in Australia and explores their knowledge, understanding and consideration of energy rating tools and energy efficiency per se in the practice of valuation for residential property.…”