Many people assume that there is one type of property valuation. That is when an agent assesses your property and provides you with a figure. However, there are several different types of property valuation, and the type you need is entirely dependent on its purpose. For example, selling your family home is not the same as valuing an estate for HMRC.
In this guide, we cover the formal valuation approaches, purpose-built valuations, and how to determine which applies to you.
What is a property valuation?
A property valuation is a professional assessment of the current market value of a property. The valuer analyses the property in terms of size, age, location and condition. They will also factor in comparable sales that have recently taken place in the area, as well as current market conditions, and features of the property.
There are two kinds of valuations that are undertaken by two different types of professionals. With this in mind, it is important for homeowners to know and understand the differences.
A RICS-registered chartered surveyor will produce a formal report that can be used in court, meet the requirements of HMRC, and be used for any form of lending. An estate agent will perform a
market appraisal which is predominantly less formal but based on local knowledge regarding what buyers will pay for property in the area. Essentially, one is registered and auditable while the other is practical and market-driven.
The five recognised methods of property valuation
RICS sets out five methods of property valuation in its professional standards. A surveyor will select the method that best fits the property and the circumstances:
1. Comparative method
This is the traditional method of residential valuation, and forms the basis of nearly every estate agent appraisal ever written. The valuer identifies recent sales of comparable properties in the area, and then adjusts for any differences between them.
The key to whether a comparative valuation is successful comes down to local knowledge. Two roads in South West London which are practically indistinguishable on a map could achieve a £100,000 price gap because one falls into a desirable school catchment. An agent who has lived and worked in the area for years will understand these micro-differences.
2. Investment method
If you have a rental property, the investment approach is typically the way that your property would be valued if you were to sell. This is a valuation that is based on the income that the property generates: current rent, comparable rental yields in the area, and projected future income discounted to today's value.
This approach is dependent on interest rate changes and rental demand. As rates go up, yields trend downward and values may come down too. For London landlords, staying up-to-date with these factors is part of asset management.
3. Profits method
The profits method is designed for businesses such as pubs, hotels, care homes, and restaurants. As opposed to residential properties, truly comparable trading properties are rare. The surveyor will look at business turnover, deduct operating costs and arrive at a fair maintainable profit figure. If you own a commercial or mixed-use property, this is an important method to understand.
4. Residual method
The residual method addresses how much a piece of land or a building where redevelopment is indicated is worth. The calculation is straightforward in principle: work out the value of the completed scheme, deduct the costs of the scheme, and the remainder is the land value. In London, this technique comes up more regularly than homeowners may expect.
5. Contractor's (cost) method
Also known as the depreciated replacement cost approach, this is the method used when no comparable properties exist. It estimates how much it would cost to rebuild the property from scratch, then makes a deduction for age and dilapidation. Surveyors use it for unusual or specialised buildings where comparables are almost non-existent such as churches, purpose-built schools, and historic structures.
For residential homeowners, the contractor's method is seen mainly in insurance valuations, where the insurer needs the replacement cost rather than what the property would sell for.
Types of property valuation by purpose
The five valuation methods relate to how a property is valued. It is equally important to determine the purpose of the valuation.
Market valuation
This is the most common reason for a property valuation. This kind of valuation gives an idea of what your home could sell for on today's market. Estate agents offer these valuations for free as it is part of the process of securing your business. RICS surveyors offer these reports as a professional, paid-for service.
At Aspire, we have been valuing homes in South West London for more than twenty years and have experience from Wandsworth and Fulham to Parsons Green and Streatham. Our
expert valuation is based on real transaction data from the roads we cover every day.
Mortgage valuation
Your lender will instruct a mortgage valuation before granting a mortgage. It is a brief, surface-level report that is intended to establish that the property provides adequate security for the loan. However, this report does not cover damp or structural problems.
If you are purchasing a property, it's worth paying for an independent survey alongside.
Red Book valuation (RICS)
The Red Book, named after the actual red binder which previously housed the RICS Valuation Standards, is an independently regulated valuation standard. It follows specific inspection, analysis, and reporting procedures and can only be signed off by a registered RICS surveyor. Red Book valuations are recognised by courts, HMRC, housing associations, and lenders.
You will often require a RICS valuation for shared ownership staircasing, repaying Help to Buy, legal disputes, or situations demanding a fully compliant and independent opinion.
Probate valuation
If an individual dies owning property, a probate valuation establishes the home's market value at the date of death. This figure is then used as part of the inheritance tax calculation which is currently 40% on everything above the £325,000 nil-rate band.
The figure cannot be inflated or the estate will pay too much; too low and HMRC will launch an enquiry. The government advises hiring a surveyor, and for best results, one should instruct a knowledgeable local estate agent to give an independent market appraisal at the same time.
Matrimonial valuation
In cases of divorce or separation involving jointly owned property, an independent matrimonial valuation is needed to ensure a fair division of assets. Typically, one valuer is mutually agreed upon and the report is submitted directly to the Family Court.
Other specialist valuations
- Shared ownership / staircasing: Buying additional shares in a shared ownership home requires a valuation at current market rates.
- Help to Buy repayment: Selling or repaying a Help to Buy Equity Loan requires a valuation — you owe 20% of the current value, not the original price.
- Capital gains tax: Selling a property that is not your main residence may require a formal valuation for CGT purposes.
- Insurance rebuild: Different from market value, this estimates the cost of rebuilding from the ground up. It keeps your buildings insurance accurate.
- Lease extension: Leaseholders extending their lease need a valuation to work out the premium owed to the freeholder.
How to choose the right type of property valuation
In most cases, matching your circumstances to the right valuation is fairly straightforward:
- Selling: A market valuation from a local estate agent. Book a free valuation with Aspire and we will visit at a time that suits you.
- Buying with a mortgage: Your lender handles the mortgage valuation. Budget for a separate, independent survey.
- Probate: A formal RICS probate valuation, ideally supplemented by a local agent's market appraisal.
- Divorce: An agreed, independent matrimonial valuation from a RICS surveyor.
- Tax matters: Red Book valuation from a RICS-registered valuer.
- Shared ownership staircasing: RICS valuation as specified by your housing association.
- Just curious: A free, no-obligation market appraisal from your nearest Aspire branch.
Frequently Asked Questions
What are the 5 types of valuations?
The five methods specified by RICS are comparative (for residential dwellings), investment (for rental income properties), profits (hotels, pubs, and similar businesses), residual (land with development potential), and the cost method (for specialist buildings that cannot be valued by sales comparison).
What are the methods of property valuation?
Property is valued either by a formal method (the five above) or by purpose such as market, mortgage, probate, matrimonial, Red Book, shared ownership, Help to Buy, insurance rebuild, and lease extension. The method a surveyor will choose depends on the property and the reason the valuation has been commissioned.
How much does a property valuation cost?
Market appraisals by estate agents are normally free of charge. RICS Red Book valuations tend to be in the range of £250 to £500 for a typical residential property. However, the cost varies with size, complexity, and purpose of the valuation. Mortgage valuations will usually be bundled in with your lender's arrangement fee.
What is the difference between a survey and a valuation?
A valuation provides an indication of the monetary value of a property. A survey provides a condition assessment. They answer different questions: one about money, one about the building itself. Some RICS products (such as a HomeBuyer Report) provide both a valuation and a condition assessment.
Get your property valued by a local expert
It all begins with understanding the property and the people who live in it. With more than 20 years' experience covering South West London, our in-depth local knowledge is reflected in the reliability of our figures. For a free, tailored, street-level
expert valuation contact us today.
Book your free expert valuation or call your nearest Aspire branch to have a conversation with one of our team.
