Valuation uncertainty and the<i>Mallinson Report</i>

Abstract

This paper addresses uncertainty in valuations in relation to the issues raised by the Mallinson Report . It shows that valuers have approximately 1 chance in 10 of achieving values within +/- 5% of the mean value. This improves to 1 in 5 if the range is increased to +/- 10%. These figures are, however, based on average properties within each sector and are probably much lower than generally believed. Valuers may, however, achieve better or worse performance when considering individual properties. In an ex ante framework it is shown that the main influence on variability in valuations switches from growth to total returns as capital values decline. Improving the standard error of forecasts can lead to a significant improvement in the uncertainty of valuations. This points to the need for better research. The levels of valuation uncertainty reported in this paper do not imply any inefficiency in the way valuations are prepared. Differences of opinion are important in order to encourage the development of an active property market. Valuation uncertainty as identified in the Mallinson Report is not, therefore, a serious issue. A more serious problem concerns errors in valuation.