Around the globe, where private property exists, there typically are real estate professionals that are in demand to perform the various duties required for every process in a real estate transaction. More specifically, real estate appraisers are in need to help in the valuation of those properties, so that the transactions are traded at a “trustworthy” price. The United Kingdom is among those countries where its citizens are allowed to buy and sell real estate, and therefore valuation methods are in place to assist in many real estate transactions. In the United Kingdom, there are five methods in determining the value of a piece of property.
In comparing the United States to the United Kingdom, private property rights differ slightly. In the United States, people have a right to own their own property in a fee simple absolute ownership, which is the highest form of ownership that can be attained besides “allodial” ownership which is "land which is absolute property of the owner, real estate held in absolute independence, without being subject to any rent, service, or acknowledgment to a superior.” In the United Kingdom, however, the land is not owned by any individual, rather it is owned by the “Crown.” This does not mean the Queen herself owns the land, but means the royal hierarchy passed down through generations are the owners of the land. This “Crown” ownership does not allow all individuals to own property as a freehold estate, but does allow people to purchase the trust in the property along with certain rights of usage and length.
Even with the difference in ownership types between the United States and the United Kingdom, there is still a need to determine what a home or parcel-trust might sell for in a market; thus, there still exists a real estate market in the United Kingdom. The five methods in use for property valuation in the United Kingdom are: 1.) comparable method, 2.) investment/income method, 3.) accounts/profits method, 4.) development/residual method, 5.) contractor's/cost method. Each of these methods share steps or processes that appraisers use in the United States.
In the United Kingdom, the “comparable method” is similar to the sales comparison approach in the United States, which uses previous sales data. The “investment/income method” is a way of determining cash flow for rental properties, but is dissimilar to the income approach because it uses a type of comparison method. The “accounts/profits method” is used for certain properties such as hotels and restaurants, by taking a three year average of income statements arriving at an appropriate yield. The “development/residual method” is used for development, and also for vacant land. And finally, the “contractor's/cost method” is similar to the cost approach, and is used for construction costs, insurance loss, etc.
Even though there are differences in the trading of property between the United States and the United Kingdom, there remains a need for appraisers and appraisal methods for both countries. The need of appraisers is proof that there is indeed a market for real estate . Each country has slight variations in their methods, but in the end both have a structured process for the valuation of property, regardless of how it is owned.
Real Estate Appraisal