Every valuer will be familiar with the maxim that “valuation is an art not a science”. Many of their clients will have heard this too, but may less familiar with the different types of valuations that can be obtained; for example, for mortgage, insurance, probate, tax and other purposes.
Phimister v DM Hall LLP [2012] CSOH 169 highlights the difference between a mortgage valuation report and a development appraisal. It underlines the importance of obtaining proper professional advice and commissioning a development appraisal before buying land for development purposes.
The claimant was a fisherman who dabbled in property development. He sued his valuers for professional negligence in respect of a mortgage valuation relating to a farmhouse and buildings in Aberdeenshire. He complained that the sales particulars described the land as comprising approximately 1.12 acres. However, the site extended to no more than 0.66 acres, which rendered the development that he was planning unviable. He claimed that the valuers should have checked the area themselves or, at the very least, warned him that the site appeared smaller than was claimed.
The Scottish Court of Session ruled that a mortgage valuation report provides a valuation for mortgage purposes. In such cases, the main value lies in the buildings and not in the size of the plot. Consequently, a mortgage valuation is not the appropriate tool to assess development potential.
The court rejected the buyer’s argument that the discrepancy in size ought to have been obvious and exonerated the valuer on the ground that he would not have been looking at the land “through measuring eyes”. The court was not persuaded that a surveyor carrying out a residential mortgage valuation on a site with buildings standing on it would necessarily have been expected to notice that the site was considerably smaller than 1.12 acres. Lord Glennie accepted that the discrepancy would not have been obvious because of the topography and buildings, and because the site boundaries were unclear in some places.
The valuation report stated that “it is understood that the site extends to approximately 1.12 acres”. The language used made it clear that the valuers had not measured the site themselves. Their understanding was based on information provided to them and nothing in the language of the report could reasonably have caused anyone reading it to conclude that the valuers were putting their own seal of approval on the measurement that they had been given.
The terms and conditions in the report also made it clear that a mortgage valuation report “is not a survey”. The buyer had not asked the valuers to report on the area of the site and did not inform them that he was interested in the land for development purposes. He had purchased a property that was worth approximately what he paid for it and could have sold it on without loss, since that was its market value.
Surveyors will welcome the decision, but could avoid arguments by adding a rider to valuation reports, where appropriate, stating that they have not measured or otherwise assessed the area of the property that they are valuing.
Allyson Colby, property law consultant