Do you see a duck or a rabbit?

23rd June 2021

This image serves as a great intro to my article this week:


We just received a valuation report only for a portion of a building we purchased for clients about a year ago.  The block was purchased for £1.2M, and consisted of 6 flats and a commercial unit.  The valuation came back at £1.5M, for the flats alone; valuing them at £250K a piece.

The reason for valuating a portion of the building and not the whole is twofold.  One is this portion of the building will be an investment, generating a steady stream of cash flow for the long term.  Two, there will be no commercial element to it.  Therefore, a long term finance product suits this segment of the investment.  The part left over, includes the ground floor commercial, the air rights, and the rear of the building, all ripe for development.  The ground floor, has planning already; the rear and the uppers will be hopefully getting permission shortly; we would be looking to add a further 6-8 flats.  When this occurs, we will be applying for a development loan to carry out the works, this will be more expensive than the investment portion, and therefore its best to separate the two.

The valued portion of the property consists of six two-bedroom flats, recently refurbished, albeit a little small at about 480 sq. ft. each, though within the council guidelines.

The valuation describes them as one bedrooms, ignoring the open plan kitchen with lounge  area, and instead assuming one of the bedrooms to be a lounge.   The rental is listed as £1,000pm per property.

We have an issue with this valuation.  We cannot change the square footage of the properties, that is fixed.  The properties in our eyes are two bedrooms, and in the eyes of the valuer they are one bedders.  Therefore, who is correct in this situation?  I would suggest that we try to look at the issue impartially, and let the market decide.

The role of a valuer is simply to gauge how the market would view the properties, and more importantly, how much they would pay for them.

And the market has spoken!  Two of the flats have rental offers and are in the process of being agreed, as 2 bedrooms, and with a rental of £1,400pm.

This is 40% higher than the valuer has assumed.  Should the valuation of the individual units increase by 40%?  If so, it would value them at £2.1M, but valuations aren’t calculated like this.  However, if it is producing 40% more rental, the value of the underlying asset should have an enhanced valuation.

Valuing a property based purely on the square footage is a common rule of thumb way to value properties in Central London.  However, this says nothing about the views, ceiling heights, and direction of the properties etc., and therefore, needs to be assessed with this context.

Rest assured, we will be going back to the valuer once both the tenancies have been signed and sealed.

Suresh Vagjiani

We offer a total solution, which includes finding you a property, arranging the finance, organising the refurbishment/development where necessary, letting it out and managing the rental.

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*Image history Weisstein, Eric W. "Rabbit–duck illusion"MathWorld


Suresh Vagjiani
Suresh Vagjiani
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