The value of your share in a property company depends on the value of the building. Understanding how valuers reach that number helps you judge any investment.
Who values property
Formal valuations in the UK are usually carried out by RICS Registered Valuers following the RICS Valuation Global Standards, often called the Red Book.
The comparable method
Used mainly for homes. The valuer looks at recent sales of similar properties nearby and adjusts for size, condition and location.
The investment method
Used for income-producing commercial property. The valuer capitalises the rent at a yield taken from comparable investment sales. Higher-risk income attracts a higher yield and therefore a lower value.
Other methods
Development sites use the residual method, and specialist buildings may use profits or depreciated replacement cost methods.
Why it matters to fractional investors
Share prices in a property company are normally linked to its net asset value: the property value less any debt and liabilities. Ask how often the property will be revalued and by whom.
This guide is general information, not financial, tax or legal advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser.