How a property valuation works, step by step

Every time I hand over a valuation report, I know it lands with someone who is making an important decision: taking out a mortgage, dividing up an inheritance, selling the family home. That is why it is worth explaining — plainly, and without the usual jargon — what actually sits behind that figure.

I will explain it the way I would to a client sitting across the desk from me. A valuation is not magic, an arbitrary opinion, or "whatever the valuer reckons it's worth". It is a piece of technical work — with a method, a regulation behind it and a long list of checks that almost nobody sees. Understanding how it works lets you read the report with a sharper eye, and saves you a few nasty surprises.

What a valuation is — and isn't

A valuation is a technical, reasoned estimate of what a property is worth on a given date. That last bit — "on a given date" — matters more than people think. A home's value is not a fixed number carved in stone; it is a snapshot of the market at the moment the report is drawn up. What it was worth in 2021 is not what it is worth today, and today's figure may not hold a year from now.

A few misconceptions are worth clearing up straight away, because I run into them constantly:

• A valuation is not the price you will sell for. It is a reasoned opinion of value; the sale price is set by the market, by how keen the seller is to close and by the negotiation.
• A valuation has nothing to do with the cadastral value. The Cadastre (Spain's catastro) exists to work out taxes, and it almost always sits well below what a property is really worth.
• And the valuation your bank orders is there to protect the bank, not you: it tells the lender how much it could recover if it ever had to repossess. Whether that matches what you are paying is a separate question.

Why valuations are commissioned

By a wide margin, the most common reason is a mortgage: the bank wants to know what security it is lending against. But valuations crop up in plenty of other situations, each with its own wrinkles:

• Inheritances and gifts — to split assets between heirs or settle tax on a figure that will stand up.
• Separations and divorces, when the home has to be allocated or bought out.
• Court cases, where the report may end up in front of a judge and has to hold its ground.
• Private sales, simply to check whether the asking price is sensible before you sign.
• Company accounts, compulsory purchase, insurance, and so on.

The purpose is far from a formality, because it dictates which rules apply and, sometimes, which method. A mortgage valuation follows very strict rules; a valuation for a private sale has rather more room.

Who can value — and under what rules

In Spain, mortgage valuations are signed off by valuation firms licensed and supervised by the Bank of Spain, under Order ECO/805/2003 — effectively the bible of the trade. It sets out the methods, what the report must contain and even how the underlying data has to be evidenced. For other purposes — an inheritance, a court case, advising a private client — a qualified professional (an architect or a building engineer) can issue the report independently, applying the same criteria even when the job does not go through a firm.

My advice to anyone commissioning a valuation: always ask who is signing it, with what qualification and to which standard. A report done properly hides none of that.

The process, from the inside

This is the part that tends to raise eyebrows, because people picture valuing as turning up, having a quick look round and jotting down a number. If only. Here is what actually happens.

1. The instruction and the paperwork

It all begins with documents. Before I even set foot in the property, I pull the Land Registry extract (the nota simple) — who owns it, what floor area is on record, whether there are charges or mortgages — along with the Cadastre data and, depending on the case, the title deeds, plans or planning details. This is where things start to surface: floor areas that do not tally, a terrace someone glazed in without permission, a storeroom that exists on paper nowhere. Plenty of valuations get awkward before I have even visited.

2. The inspection: what I am actually looking at

The inspection is the heart of the job, and it has nothing to do with admiring the kitchen. I check that the property matches the paperwork — which, believe me, it does not always — I measure or confirm the floor areas, and I weigh up what genuinely drives value: aspect and natural light, the floor it sits on and the views, the state of repair, the quality of the finishes, the real age and any refurbishment, whether there is a lift, and the condition of the building and its common areas. I photograph everything, because the report has to stand up on its own, without anyone else ever having set foot inside.

The things owners rarely think about, and that move my figure: an awkward layout, damp painted over the week before, a façade with a costly repair bill on the way, or that "extra bedroom" that is really a windowless box room.

3. The checks

Back at the desk, I cross-check what I saw against the Registry, the Cadastre and the local planning rules. Does the registered area match reality? Is the home legal, is it non-conforming, does it have unauthorised work? Is anything charged against it? When something does not add up, it is not brushed under the carpet — it goes into the report as a condition or a caveat. Those warnings, which plenty of people skim past, are sometimes the most valuable thing in the document.

4. The valuation methods

Here is where it gets properly technical. There is no single method: you choose according to the type of property and the purpose, and often you combine them.

• Comparison method. The usual one for homes. You find similar properties sold or on the market nearby (we call them comparables) and adjust their prices to the property in hand — for floor area, floor level, condition and the rest. The skill is not finding comparables; it is knowing which to throw out and how to adjust the ones you keep. One badly chosen comparable poisons the whole report.
• Cost method. It works out what it would cost to build the property today (land plus construction) and takes off depreciation for age and condition. Handy for industrial units, one-off buildings, or wherever comparables are thin on the ground.
• Income method. For property that earns money — a let shop, a block of flats on rent. You derive the value from the income it produces. It is the method that comes closest to how an investor actually thinks.
• Residual method. The most technical, used for land and development. You start from the value of what could be built and strip out costs and profit until you are left with what the land is worth today.

5. Adjustments and judgement

This is where the craft lives. Two valuers working from the same comparables can land on slightly different figures — not because one is wrong, but because valuing carries an element of reasoned judgement. How much do I take off for a dark, ground-floor flat? How much does a recent full refit add over one that is "about fifteen years old"? The regulation sets the frame; experience fills it in. Which is why I am wary of anyone offering a valuation "in five minutes, online" — an algorithm has never climbed up to look at the damp on the ceiling.

6. The report

What comes out is a document that pulls it all together: the property's details, the documents reviewed, the description, the photos, the method used, the comparables and the workings, the conditions and caveats and — last — the value. A good report is not the one with the biggest number; it is the one that justifies the number it gives. If someone challenges it, everything is there to back it up.

What makes a property worth more, or less

In short, what really counts: location (always first), the genuine usable floor area, the floor level and aspect, the state of repair and any refurbishment, energy efficiency (more and more of a factor), the lift and the state of the building, and the legal and planning position. One that surprises people: a good layout can add more than a few extra square metres nobody quite knows what to do with.

How long a valuation lasts

A mortgage valuation expires six months after it is issued, by law. After that, the bank will want a fresh one. And even where it does not formally expire for other uses, remember that it reflects the market on one particular day: if a year or two has passed, that number no longer describes today.

In short

Behind the figure on a valuation sit cross-checked documents, an inspection done with judgement, a method chosen with care and a report built to stand up. It is not a sale price, it is not the cadastral value, and it is not a number plucked out of the air. It is a tool for making decisions on solid information — and, done well, that is exactly what it gives you.

This article is for general information only. It is no substitute for a signed valuation report, and it is not advice for any particular case; every property needs its own assessment.