Yesterday’s publication of the new RICS Professional Standard for Existing Use Value (EUV) should bring renewed clarity to busy practitioners.
The update is timely. It has become apparent to me, as a Valuer advising a number of public sector clients and an expert supporting many audits, that the existing definition and associated commentary in the RICS Valuation – Global Standards, UK National Supplement lacked clarity and is often misinterpreted.
We are seeing a wide variety of approaches and outcomes that often lose sight of the very principles behind the EUV’s original aim and purpose, often compounded over time when Valuers may not take the opportunity to refresh their approach or revisit the UK Supplement.
For example, while there may be any number of interpretations of the EUV definition, a common theme that often stands out is practitioners mistakenly adopting a vacant possession approach in preparing their valuation. This leads to the inevitable inclusion of voids and sometimes holding and letting costs which result in values being understated. This is more akin to an exit value or Market Value approach (in the absence of alternative uses) and misses a fairly fundamental point that EUV is meant to reflect the remaining service potential of the asset to the occupying entity.
The new Professional Standard, which reflects the specialised nature and relative complexity of the methodology, is not a short read. However, the authors – of which I am one - and the wider working group have tried very hard to explore the common misinterpretations from both a valuation and audit perspective and provide a framework to explain and reaffirm the underpinning principles around the definition of Existing Use Value (which itself has not changed).
The aim is more consistency in approach and, hopefully, less volatility in valuation outcomes to this specialised area of valuation, particularly for the public sector, of which it is a mainstay.
As a Professional Standard, the new guidance on EUV is neither a mandatory Valuation Technical and Performance Standard (VPS) nor is it (intentionally) so prescriptive as to take the emphasis away from individual judgement and subjectivity, which to my mind, remains the key ethos for any Valuer.
What it does hope to achieve, however, is a better understanding of the definition and the creation of a clearer pathway along which the Valuer should travel, drawing their own conclusions as they go from the valuation inputs and market data available to them.
Even with this more transparent wrapper, though, the definition of EUV does, in my view, remain a specialist form of valuation and any Valuer accepting instructions to advise clients in this regard, and those clients seeking to appoint Valuers, should ensure they are familiar with the new Standard as a guide to best practice.
For all Valuers, it provides an excellent opportunity to refresh their knowledge of EUV and reset their approach to this type of valuation, if appropriate. It should also reduce the risk of misinterpretation and provide both clients and auditors alike with the ability to be more vigorous in their challenge and critique of EUV methodology and outputs.
Finally – importantly - the new Standard continues to promote the need for dialogue with the client, as there are many inputs and parameters to a EUV valuation where they will need to make the decision upon which the Valuer should base their view. Therefore, it is incumbent on the Valuer to not only understand their role in the process but also to ensure their client properly understands their own obligations to the Valuer. This also needs improvement, but it is another area where a well-informed Valuer can make a significant difference.