GLOBAL - Investors have been warned they should ensure firms delivering their valuations take all possible scenarios and evidence into consideration when valuing a property, as leaving certain criteria out could be seen as distorting the market.
"I think it is dangerous for any valuer to ignore transactional evidence because they feel it is a silly investment decision," said Neil Turner head of property fund management at Schroder Property, in response to comments made at the recent IPD European Investment conference in Barcelona.
Gernot Archner, business manager at Frankfurt-based real estate valuation advisory firm BIIS had argued that valuers should not take into account transactions which are not considered to be based on sound investment decisions but Turner responded by claiming valuers should focus on trying to deliver as realistic a valuation as possible, and that means including transactions in today's market conditions.
"Investors make good and bad investment decisions all the time and the valuer's job is to track these transactions to arrive at open market values," Turner told IPE Real Estate.
"However, if we are talking about one or two deals that represent a very small part of the market, then of course it is the valuer's prerogative to attach less weight to these transactions. But to ignore something, because in the valuer's view it is a poor investment decision, I think is a dangerous route to take."
Jose Luis Pellicer, recently appointed associate director of research at AEW, echoed the sentiment.
"When German valuers saw transactions taking place at yields of 5% and 6%, they appeared to have said ‘that's not the market so we won't value at that level' i.e. they have the prerogative to decide what is transaction evidence and what is not. If it is too bubbly, they do not seem to consider it," said Pellicer. "If this is the case, I believe they should not call their valuations ‘market valuations', but something else.
"German valuation firms often consist of one sole practitioner who value large chunks of German open-ended funds portfolios. This is potentially dangerous, given that the well-being of their business depends on keeping one client happy," he claimed.