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What is the true value of a property?

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22/01/2015

What is the true value of a property? When considered practically, the logical approach would be that a property is worth however much people are prepared to pay for it. This was considered in the recent case of Ludsin Overseas Limited v Douglas John Maggs [1].

The case was heard in the High Court Chancery Division on appeal from the High Court Bankruptcy Division where Mr Maggs’ solvency had been considered. A person can only be in bankruptcy if at least some of their debt is unsecured and they cannot afford to pay their debts as they fall due. The issue that brought the case before the Court was a consideration as to whether debt owed by Mr Maggs to Ludsin of over £350,000 was wholly secured as it was registered as a final charging order on a property owned by Mr Maggs (the Property). The charging order in favour of Ludsin ranked third in priority behind a fixed legal charge and a prior final charging order on the title to the Property; therefore, in order for the debt to be fully secured, the Property needed to be worth in excess of £2.9 million.

The Court suggested that an independent valuer should be instructed to provide an open market valuation of the Property. RICS instructed a single joint expert who undertook the valuation in January 2014 and concluded that the Property was worth £3.35 million. On this basis, the Court concluded that the debt was fully secured.

The decision was appealed by Ludsin who argued that the Judge had mistakenly treated the open market valuation as the appropriate valuation for assessing whether or not the debt was adequately secured. Ludsin argued that a valuation of a sale on a forced basis would have been more appropriate than an open market valuation. Further, the Property had been reported as being 10,800 square feet in the valuation, yet when the Property was marketed it was revealed as covering only 5,166 square feet. Ludsin argued that the valuation therefore could not be accurate.

The valuer, however, refused to amend his valuation, insisting that the price stated was a true reflection of open market value. The Property was placed on the market for sale in April 2014 for £2.5million. Marketing generated very limited interest and by the end of July 2014 only one offer had been received for the Property which was in the sum of £1.5million and was subsequently increased to £1.615million. Due to the lack of interest in the Property the asking price was lowered to £1.95million in September 2014 and further in October 2014 to £1.7million.

After six months marketing at asking prices of between £2.5million and £1.7million no-one had come forward to purchase the Property at a price which provided any security for Ludsin’s debt.

In the appeal Ludsin questioned how the Property could possibly be worth £3.35 million when after a six-month period of marketing by a reputable agent no-one had offered even £2 million for the Property.

In considering the value of the Property the Judge concluded that “the best indication of the value of an asset at any particular time is what someone will pay for it after reasonable attempts have been made to sell it”.

This case is illustrative of the point that provided receivers and lenders carry out a sufficient period of marketing they are unlikely to be subject to criticism if a property is sold for a price which is considerably lower than the price at which it was valued as the true value of a property is only what people are willing to pay for it.

[1] [2014] EWHC 3566 (Ch)