Introduction
Sadly you often hear of banks asking for a valuation based on a “forced sale” or on the special assumption that the period allowed for marketing is restricted. More so, we have seen valuers providing valuation reports on this basis as a matter of course even if the bank hasn’t requested it. In both cases, for Chartered Surveyors using the RICS[1] Valuation Standards[2] (The Red Book) this is simply wrong. Use of the term “forced sale value” was proscribed by the Red Book in the 1990s. Furthermore, the Red Book has long stated that a special assumption simply referring to a time limit for disposal without stating the reason would not be a reasonable assumption to make, and therefore a breach of the standards.
In this article, we examine the reasons for this requirement and discuss the practicalities of responding to a bank request to provide a valuation on the basis of a restricted marketing period.
RICS Valuation Standards
The RICS’ stance dates back to problems that emerged due to the decline of UK property values in the 1990s following the popping of the 1980s balloon. This not only saw a significant rise in insolvencies and sales by or on behalf of lenders, but also litigation around those sales. This litigation confirmed that a lender, or receiver appointed by them, has a duty of care to the borrower, any guarantors or other creditors. They must act reasonably and obtain the best price possible in the circumstances. They are not free to impose arbitrary restrictions on the sale process without good reason.
Answering such a question also produces practical problems for the valuer. First, is the stipulated time limit reasonable or not? Second, if it is not reasonable, what metrics can be used to provide a reliable estimate of the price that could reasonably be expected? Finally, is a valuation on this assumption relevant to any foreseeable situation which the lender may find themselves in, and the associated risks to lender and valuer of inappropriate reliance on such a figure.
Market Value
