I think I know the answer to this. It is a (black) art. But it does have a bit of science (maths) behind it. It is not a precise science.
When I was doing some research last year with the University of Nottingham, I was surprised about how they scrutinise quite scientifically their work. They test, test and test again. They want to find precise answers. It is a very scientific approach.
Valuation is not.
My Institution have announced that in 2013 they will issue a re-written Red Book. The Red Book is our bible – which applies mandatorily to much of the valuation work I undertake. It is prescriptive to the extent that it covers the process of valuation and sets out some key principles. It is useful in setting a standard.
But the latest changes could be interesting. There is a suggestion that the Banks are unhappy that we didn’t spot the crash – or at least alert them to the fact that the market was over-heated. It looks like the ‘new’ Red Book will ask for more commentary and more scenario building. Future value prediction could be asked for. And this is what I am worried about.
I am not a mind reader. A valuation is a snap-shot. It is an opinion on a given date. There are lots of assumptions. Quite a lot of our reports are taken up with them. Some clients ask me why the reports are 20 pages long – they want the 2 pages with the description and ‘number’ on. The rest is academic! When I started out, we used to provide a 2 page ‘valuation certificate’. I’m not suggesting that we return to those days, but our reports are going to get longer. The only true value is when a property sells – willing buyer, willing seller et al. On other occasions we are giving an opinion.
My concern is that we are moving away from opinion. As I have said before, people pay me for my opinion – not my doubts. Somehow, I think such change might raise lots of doubts?
Valuing resort marinas is especially tricky. The mix of what is typically there is almost always different from your general marina. Larger resort marinas will have parking ratios that are far greater than the market and this often results in relatively few buildings on the site compared to typical marinas. There’s more possibility that a portion of the site (especially if it’s used for parking) can be turned into additional residential lots for the community, which requires a whole other type of analysis above and beyond just a marina valuation. There may be few buildings that are leased, so the market value for the unique building mix may be difficult to determine. The tenancies are different and rarely comparable to another facility. For instance, it may be a requirement that a person be a member in a golf course or community and even then, the fees charged could be hefty. Another example is the type that collects mainly or exclusively transient dockage fees. They do it because they can, unlike most marinas that only have a small portion of the docks available for transients, if any. Although there isn’t the boat repair or boat sales operations to value, resort marinas generally have very few competitors in the same class. A true comparable may be a hundred miles away.