Valuing commercial property accurately and without conflict of interest is important if every stakeholder is to receive a fair deal. Common commercial property valuation errors such as neglecting to create a Terms of Engagement document between the valuation provider and the client are easily avoided. Here are five errors to prevent to ensure valuation proceeds smoothly:
Neglecting to draw up a Terms of Engagement document
This crucial document clarifies the roles and responsibilities of each party in a commercial property valuation. The Terms of Engagement document should be thorough. It should include key information such as the type of property, the address, the date of valuation, and any special considerations that should be made in the valuation.
Ignoring a conflict of interest
In commercial property valuation, the valuer performing the appraisal is legally required to act impartially and in the client’s best interest. Valuers cannot ignore any conflict of interest such as having financial ties to the property itself or having any undeclared biased interest in an outcome of the transaction.
Not having the necessary area or subject knowledge to perform accurate valuation
A property professional who is untrained in valuing properties in a specific category (such as commercial or mixed-use) will not have the necessary understanding of the industry.
Similarly, it’s important for a valuer to understand the market in the area where the valuation is carried out. This ensures that the professional performing the appraisal has a clear perspective and can make judgments backed by sound knowledge and localised understanding.
Commercial property valuers not specifying the limitations of due diligence
Where expensive commercial properties are involved, valuers need to specify the limitations of their due diligence. This is crucial for securing indemnity insurance. Properly identified due diligence limitations help to prevent inspections and investigations showing up the individual who performed the valuation or their employer, the property valuation provider.
Not having recognised accreditation to value commercial or industrial property
Every practising commercial property valuer in South Africa is required to register with the South African Council for the Property Valuers Profession. Much can go wrong when an individual who does not have the required skills or accreditation is entrusted with a valuation instruction.
Valuer competence is pivotal since a sub-par valuation reflects badly not only on the individual but their employers too. Because residential and commercial property involves entirely different legal and practical considerations, valuers who work with commercial property need the relevant experience and training. Property service providers that use untrained, non-specialist valuers open themselves up to legal repercussions.
The most common commercial property valuation errors can all be avoided. Choose commercial property experts who have the necessary training and experience to perform accurate, impartial valuations.
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