Simple comparison in property valuation involves greater complexity than some may assume – and it’s getting harder.
Comparison is the lynchpin of all valuations. In property, we use the term ‘comparable’ to describe the transaction of a sale or letting of a similar property in a similar location on similar terms and, ideally, within a recent timeframe. But comparison is much more than that. We also look at other signposts to gauge the market. This might be asking price information for similar assets or enquiry details of potential purchasers or a host of other indicators within a hierarchy. Not all comparison is equal, and the property profession recognises that some evidence is more useful than other information.
Indeed, some commentators categorise the veracity and reliability of comparison data by referring to it in grades of ‘hard’ and ‘soft’ information. Hard information is the data on the comparable sale of a similar property where all information is available. This could be a previous deal that the valuer personally negotiated or, more likely, file information from a colleague in the investment team. The important factor is that every aspect of the deal (lease length, lease incentives, side-deals, rent-free periods and so on) is available for the valuer’s inspection. Soft information, on the other hand, is where the valuer needs to rely upon the reports and commentary of a third party. This could be directly from a conversation with a colleague from another firm or even reported information in the public domain from a database (such as CoStar or EGi), an index or a published magazine. The point is that soft information is one step removed from the valuer and, no matter how good the source has been at ensuring all the salient details are correct, the valuer cannot check those facts directly. It is the equivalent of hearsay in law. And within each category, the usefulness and reliability of the information has a hierarchy.