Is property valuation an art or a science? If it is an art, how much reliance should be placed on its conclusions? If it is a science, how well do those who use it understand it? These questions have been given new urgency by a study from professors at Reading University's School of Land Management and at the Department of Surveying at Nottingham Trent University who have examined how the commercial property market is affected by the work valuers do.
The research, sponsored by the educational trusts of the Investment Property Forum, the Royal Institution of Chartered Surveyors and Jones Lang LaSalle, tackles the thorny question of whether investors in property can influence independent valuations.
The question goes to the heart of the one facet of property that clearly identifies it as a distinct asset class - the ability to clearly measure rates of return and performance.
Valuations are so central to investors' understanding of property that they form the basis of fee scales for managers of property portfolios and are the benchmark against which quoted property company share prices are measured.
Jeremy Newsum, chief executive at Grosvenor Estates, the property company of the Duke of Westminster, suggests that the ability of clients to influence valuations is worrying for investors in quoted property companies. A remedy, he suggests, is rotating valuers, say, every three years. "When it comes to valuers," Mr Newsum says, "all will do the job utterly properly and all will come up with different opinions."
The Reading and Nottingham University research suggests that a change of chartered surveyors is an opportunity to knock back the values assigned by predecessors.
Appointing a new team every three years could have a significant impact on valuations in the long term. But there is likely to be resistance to such a move from chartered surveyors and their clients.
Michael Mallinson, former head of property investment at Prudential Portfolio Managers and the man charged with rewriting the RICS Red Book in 1994, points to the cost of frequent switches. Fees to valuers, he says, have fallen sharply over the past decade and clients are unlikely to want to bear the extra cost.
In their study, profs Andrew Baum, Neil Crosby, Paul Gallimore, Patrick McAllister and Adelaide Gray draw an analogy between the role of valuers and that of auditors.
"There has been considerable controversy in the auditing industry regarding client influence on auditor behaviour, with special attention paid to the conflicts of interest present when the auditing firm provides additional non-auditing services," the report notes.
Alan Carter, real estate securities analyst at Credit Suisse First Boston and a critic of the net asset value-based valuation models for quoted companies, says valuers would have more credibility if they were required to act more like auditors.
"They don't have to be reappointed by shareholders every year and they don't have to come to the AGM to answer shareholders' questions," Mr Carter says.
MARTYN Jones, national audit technical partner at consultants Deloitte & Touche, notes that the UK has led the way in requiring maximum disclosure about the relationship between quoted companies and their auditors. Companies must disclose the value of audit fees paid, along with the value of non-audit work done by the accounting firm.
That way, investors can make their own judgments about whether the consulting work undertaken for the company outweighs the value of the audit work, and whether it influences how the audit is conducted and reported.
The ability of valuers to earn large fees from clients for non-valuation work has not escaped the RICS, whose rules make a distinction between the role of "external" valuer and "independent" valuer, the latter performing valuation work only.
But a quick study of property company reports and accounts for the UK's largest property companies - Capital Shopping Centres, British Land, Slough Estates and Pillar Properties - shows a preference for the former.
Would investors form a different view of each company's valuation if it knew more about the relationship between it and its valuers?
What if shareholders had the opportunity to question valuers annually about their valuation approach?
Mr Jones says he is not clear about what such measures would do for the image of valuers, but is sure about the effects on auditors. "They have added to the view of the professionalism of the industry," he says.
