An understanding of the interplay between cost and value in surveyor professional negligence and misrepresentation cases, or any other cases around building or land defects, where the measure of damages is diminution in value, is important.
Cost and value are not the same but are intrinsically linked in such cases.
One cannot assess diminution in value without having an appreciation of the physical costs of remedy and to do so would be to value in only partial sight and without full knowledge and this would not meet a fundamental pillar of Market Value.
It is common for a purchaser to have a building survey prior to purchase and for any defects raised in the survey to be subject to a costing exercise. This is natural and orderly and is in pursuit of the purchaser acting knowledgeably with due diligence.
The same fundamental process should occur when assessing diminution in value. One cannot value in a silo as to cost as this would not replicate the market.
It is common for diminution in value to be at a lesser sum than total cost in all but extreme cases.
In my experience this normally fits into a range of between 50-80% of cost, however where multiple building defects are considered this should be assessed on an item by item basis each having its own cost to value ratio applied.
The more serious issues such as subsidence, for example, have a higher tariff or weighting between 80-100% and in some cases above 100%, reference here the Large v Hart case.
It is important for the valuer to measure the total diminution in value once this exercise is conducted through a prism of realism, i.e does the final diminution in value figure (the difference between the A valuation – unfettered – and B valuation – fettered) feel comfortable when set against the unfettered Market Value, often the purchase price.
This is where instinct and experience is important in order to acid test and cross check and apply proportionality.
For example, I recently was asked to provide diminution in value evidence for a fraudulent misrepresentation case that involved undisclosed subsidence, where conceivably the full extent of remedial works would have been on some estimates 60-70% of the unfettered Market Value/ Purchase Price.
Instinctively I recognised that this would produce too large a diminution quantum at 100% cost and this could not be right. Taken at this sum the fettered or diminution Market Value would have been less or close to site value.
Thus, proportionality needed to be used to pare back the remedial scope in order to find a solution that achieved a cost to value economy; this would was a market reflective approach.
There is no substitute for experience in diminution in value cases which require both a methodical approach and a valuers’ instinct.
Further, where both cost of remedial work and valuation expertise are required then the valuer must be proficient in both disciplines to be able to accurately compute the diminution in value.
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