Have you ever received a real estate valuation report and felt that it did not reflect the true value of your real estate? Or how can a simple mistake in estimation significantly affect your investment decisions? Real estate valuation is a precise process based on clear criteria. Many errors in real estate valuation can lead to poor financial decisions. 

In this article, we will look at the most important real estate valuation Mistakes according to the guidance document for addressing professional errors in valuation reports issued by the Saudi Authority of Accredited Valuers.  

What are the types of professional mistakes?

The accuracy of valuation reports directly affects financial and investment decisions, and any inaccuracy can lead to incorrect conclusions and real risks. The following are the most important professional mistakes in valuation: 

Systematic errors:

These errors pose a high risk to the accuracy of the valuation and lead to wrong financial decisions. The valuer must adhere to international valuation standards and conduct periodic reviews of the valuation work to ensure its accuracy and quality. The most important examples of such errors are: 

• Choosing an inappropriate valuation method, using the cost method instead of the market method. 
• Applying unrealistic or unsupported assumptions in the valuation process.
• Failure to comply with international valuation standards in the valuation process. 
• Failure to document the assumptions used or to distinguish between general and specific assumptions. 
• Failure to correctly or adequately define the scope of work results in a lack of clarity and documentation of the boundaries of the valuation assignment. 
• Failure to specify the value basis used or selection of a basis that is inappropriate for the valuation. 
• Failure to specify the value hypothesis or selection of an incorrect value hypothesis.
• Failure to specify the type of report or submission of an inappropriate type. 
• Failure to mention the restrictions that protect the rights of the valuer or failure to specify who can rely on the report. 

Data errors:

These are errors that occur when collecting inaccurate, incomplete, or outdated data or misinterpreting data, as accurate data is the basis of a reliable report. Examples of such errors include: 

• Collecting incorrect or incomplete data. 
• Using outdated data that does not reflect the time frame of the assessment. 
• Misinterpretation of available data. 
• Failure to verify the accuracy of the data used in the valuation. 
• Error in identifying the asset being valued, whether in the description or on maps. 
• Lack of input into the valuation process and reliance on the result alone. 
• Failure to mention the technical specifications of the real estate, such as the condition of the asset and its useful life. 
•  Failure to take environmental and economic factors into account in the valuation.

Analytical errors:

These are errors that occur during the data analysis process using mathematical and statistical models to arrive at a value. Examples of such errors include:

• Errors in calculations and the use of equations. 
• Use of analysis techniques that are not appropriate for the asset being valued. 
• Inconsistency in the use of analytical models in valuation reports. 
• Misjudgement of risks by inaccurately presenting the discount rate in cash flows, or by not taking market or economic risks into account in the valuation. 
• Failure to specify the nature or source of information in a real estate valuation model. 
• Failure to clarify the research and investigation work in the valuation process. 
• Failure to specify valuation methods or the use of inappropriate methods. 
• Failure to document market comparisons or use of inappropriate comparisons. 
• Failure to provide comparative market support for the market rent estimate of the asset, and failure to document valuation inputs such as income projections, discount rates, and capitalisation rates.
• Failure to support the inputs used in the cost approach, such as failure to provide detailed comparative data for the land value estimate, or failure to account for economic and functional obsolescence.

Documentation errors:

These are errors related to incomplete documentation, poor record keeping, or deficiencies in the supporting documentation for assessment reports, which negatively affect their credibility and reliability. Comprehensive and accurate documentation is essential to ensure the quality of reports and their compliance with professional standards. These errors include: 

• Failure to provide all necessary documentation to support the assessment, such as contracts, legal documents, ownership details, and maintenance records for the asset.
• Failure to adequately clarify the assumptions and methods used, such as not mentioning the valuation methods chosen or the reason for choosing them, and a lack of transparency about the financial or market assumptions used.
• Failure to keep organised records to preserve information, exposing it to damage or difficulty in accessing it. 
• Failure to obtain signatures, such as the valuer’s signature or required approvals. 
• Failure to record or document communication with clients during the valuation. 
• Failure to clarify the valuer’s independence, such as not accurately identifying the client or target users, and not having the certified valuer sign or mention the licence number on the report.
• Mentioning only the date of the report without referring to the date of the valuation or the date of the inspection, with no distinction between the date of the valuation and the date of issuance of the report or the date of commencement of work.

Interpretative errors:

These are errors that arise during the interpretation of financial and analytical data on assets, which may result in inaccurate valuation reports and financial and investment decisions that are not based on reliable facts.

•  Inaccurate interpretation of financial results, unrealistic expectations, or failure to distinguish between temporary and permanent effects.
• Generalising results using limited data or applying the results of a particular sector to other sectors.
• Overreliance on financial models without considering realistic constraints and assumptions.
•  Concluding on value without providing sufficient explanation or support for the reasons that led to this conclusion.
•  Providing analyses that are not supported by sufficient logical explanation or adequately justified.

Fixing valuation mistakes is key to improving the quality of valuation reports, which is important for making sure the valuation is accurate and reliable. If you don’t fix these mistakes, it could mess up your financial and investment decisions. 

Your choice of a certified real estate valuer is another factor that contributes to the quality of the valuation. Aain Real Estate is one of the most important real estate valuation companies in Riyadh, with extensive experience in the field of real estate valuation, and is certified by the Saudi Authority of Accredited Valuers. 

In conclusion:

the accuracy of real estate valuation is not a luxury, but a basis for making sound investment and financial decisions. Avoiding professional mistakes and ensuring that you rely on a certified real estate valuer  guarantees you a documented and reliable report that reflects the true value of your real estate.

If you are looking for experience and high professional standards, Aain valuation is one of the leading real estate valuation companies in Riyadh, accredited by the Saudi Authority for Accredited Valuers, where we put our knowledge and experience at your disposal to ensure a fair and accurate valuation that supports your investment success.