As a Chartered Surveyor, and RICS Registered Valuer, I have to commit to a minimum of twenty hours continuous professional development (CPD) each year (and, additionally have to demonstrate fifty hours across a two-year period as a Chartered Town Planner). Since 2013 I have done in excess of 230 hours CPD across my areas of work as well as improving my qualifications – so, you know I am up to date!
Last week I did an RICS Academy online course which focused on Integrating Sustainability into Valuation Practice and it was, I must admit, more interesting and eye opening than I expected. If any of my fellow RICS members are reading this – I would well recommend it, you can find it by logging into the RICS academy and it’s free! It is key to remember that sustainability is part of the Red Book.
Valuing sustainability is effectively applying quantitative evidence and qualitative judgement (which is ultimately required in all valuation assignments) to value-influencing features. We can improve market efficiency by providing accurate information to the market. It falls, therefore, to decide what a well-informed buyer would account for within the market (the valuation does not need to be for a sale to consider this, the definition of Market Value assumes an arm’s length transaction etc. in ascertaining value). Quite often though, there is a lack of evidence or data relating to sustainability which can leave a requirement for judgement as to impact on value.
In integrating sustainability into valuation we, as valuers, have a duty to reflect the market and make clients aware of any risks. Valuations are important. They underpin financial decision making at key stages of a property’s lifecycle from development and management to sale and taxation. The role of a valuer is an information manager and we can use data to assist clients. We do not make the market, but our advice and services can most certainly influence the property market (often in highly non transparent property markets, too!). Many arguments used in negotiations between transaction parties are usually based upon advice given by valuers acting on both sides.
IPPC (2014) figures show that the built environment/buildings accounted for:
- 32% of global final energy use;
- 19% of energy related GHG-emissions;
- 33% of black carbon emissions.
These figures, honestly, surprised me. It is stated that these figures have the potential to double by 2050 if we carry on as we are. That said, since 2014, there has been an increasing awareness of a need for change and improvement. We should be looking to improve energy performance.
In valuation, with information such as Energy Performance Certificates (EPCs) it is important to assess the extent a property meets sustainability criteria/level requirements. We can then arrive at a view as to how this impacts on value – how would a well-informed purchaser take account of such information in considering an offer price? This will vary according to property type and intended use.
Sustainable features across all sectors can result in health gains, lower operating costs and more. A good EPC rating could assist property value, but it should be remembered that an EPC is an asset rating. The behaviour of occupants will dictate the level of actual consumption and energy consumption links to direct operational/running costs and stability of cash flow.
There are many, many factors to take into account in determining the value of a property but is evident, to me, that sustainability, whilst already a consideration, has strong potential to become a bigger influence on value than it is currently. I believe it will be on the radar of clients and property owners with increasing levels of information and awareness surrounding property transactions. This is demonstrated (in a previous news post from me in early December 2019) in similar matters such as a requirement for landlords and sellers to declare where there are high levels of air pollution from this year. People are using the information out there to make their decisions.
We already have to provide EPC information as part of lettings, and sales, and regulation is constantly tightening. Properties which may be unable to comply, or which can only comply at a cost, may start to see a negative impact on value and become obsolete. This is a risk factor which valuers should take into account (or at the very least discuss in relation to their opinion as to value). Properties which are able to comply and demonstrate energy efficiency, or do so relatively simply, are already starting to command premiums. As a result of this it is paramount that the profession is up to date, and asking for the right information, to correctly contribute to the market, complete formal valuations and identify opportunity for the built environment to improve.
As previously stated, valuation underpins financial decision making at key stages of a property’s lifestyle. This can, and will, apply to anyone from a homeowners considering household improvements to an investor looking at a new development project. Good advice is key, as are appropriately qualified professionals who remain up to date, to assist you on your journey regardless of the size of your project or objectives.