The truth about property valuations

At its core, the shallow, formal dealings of the property game seem to completely disregard what makes a pub the hub of a community before it goes on the market.

Although it should be unsurprising that perceptions of worth are so different whether you are the buyer or seller, it is, nonetheless, unsettling when the two clash at the point of a sale.

Sadly, for all of the heart that beats in a pub, on paper it remains only the sum of its parts... and it is exactly this sum — the price of the property — which causes so many freeholders to fret.

Leaving a pub behind can be more stressful than simply moving house. It isn’t just a transaction or an exchange of assets, the pub represents many people’s whole livelihood as well as their place of residence.

When the property agent steps foot through the door, maximising value and a seamless process are all anybody can hope for, but what can be done to make that happen?

A question of multiples​

With this in mind, I find myself standing outside a 15th century village pub in the West Sussex countryside.

It’s a charming destination pub according to The Michelin Guide but is equally popular with locals coming in for a drink in the charismatic flagstone bar area, which sits separate to the ample-sized restaurant. Located in an affluent area, this is clearly not a cheap asset and one that has been cultivated over a long period of time.

Next to me is Andrew Moore, director of Christie + Co, with more than 30 years’ experience as a property agent. It’s not the first time he’s visited this pub so I don’t quite witness the scope of his analytic eye but when I ask him how long it usually takes to value a property his answer comes as a shock.

“By the time I view a property for the first time, a few minutes,” he says candidly, before elaborating when my eyebrows rise, “The truth is, for every property we value, once we have the background information on the business and property, there is quite a simple equation we use.

“It starts with knowing a pub’s bottom line, which is then multiplied by what we call the property’s ‘multiple’ — together, that gives us the property’s value.”

I wonder if he’s over simplifying for my benefit but, as he takes me through Valuations 101, the process becomes apparent.

A ‘multiple’, I learn, is any plus-point that will help sell the property: how the business is run, the condition of the pub, along with the more obvious factors of location, goodwill, size of property (number of covers/renovation potential/number of rooms)and size of land (outside trading/car park/out buildings).

As we take a look around the pub, Moore goes into more detail about the property: “This site is a property agent’s dream. It has an excellent reputation for its food offer and the business has a high turnover, it’s well maintained and the owners have reinvested in the business with the likes of a complete rewiring of the property.

“Along with that, the bar area is unique and the huge car park has plenty of renovation potential for something like expanding the kitchen and then increasing the amount of covers in the restaurant — it’s the perfect investment for a small to medium-sized corporate chain.”

With this established, the property is given a very respectable multiple of 7 (however, if this property is in the sought-after nearby area of Tunbridge Wells, you could be looking at an 8).

Knowing your numbers​

The next part of the equation relies on good accounting — a property’s bottom line, known as ‘operating profit’ in the past, is calculated based on yearly turnover plus any profits, operation costs and other expenditure (such as leased items).

Knowing these individual figures is an absolute must going into a property valuation and, as Moore admits, an agent’s number one pet peeve.

“When people glaze over at the mention of turnover and ‘op-co’, you know you’re in for a more difficult process,” he explains. “For those who simply aren’t good at the numbers, it’s imperative they have an accountant and liaise with him regularly.”

As we sit down with the pub’s owner, an experienced publican ready to take a step back from the on-trade, Moore seems pleased to see an extensive list of accounts. It makes what comes next a simple task...

Pitching price​

The discussion turns to guide price with Moore proposing the property enters the market just below £1m to encourage competitive bidding — he points out that psychologically, a seven-figure sum often causes potential buyers to shy away.

It’s a sticking point. The owner is keen to sell for no less than £1.25m.

“There are two sides to the coin and no perfect formulae,” Moore admits, “It really comes down to whether you want to weed out the riff-raff and deal with those who are genuinely interested or see if you can drive the price up by capturing multiple buyers’ interests.”

“Agents fall out with clients because they think we have some kind of magic formulae to sell. It doesn’t work that way: all agents have sold rubbish in the past and struggled to sell some of the best assets. In the end, it’s up to you (nodding at the owner) how you enter the market.”

Moore explains the next stage — from the time the property goes onto the market to the moment the keys are handed over — should take roughly three to four months.

Patience is required but Moore is confident that a buyer for such an exemplary property won’t be hard to find.

Agent’s advice​

Agents and pub owners sometimes have a difficult relationship; quite understandable given the responsibility on an agent’s shoulders to deliver for a publican. But when it’s time to call last orders for the final time, perhaps an eye on their thought process can make all the difference in making a sale.

Here's Moore’s top tips:

• Confidential marketing​ — concern about losing staff and a disgruntled team put many people off the idea of overtly advertising the sale of their pub. Taking staff into your trust may feel like a leap of faith but the truth is pubs are sold as a going concern and new owners will need staff to continue. With the unpredictability of the property market, you need any help you can get to make a sale.

• Reinvesting in the property​ — whether you’re about to sell or thinking towards the future, reinvestment in the pub is an absolute must. Whether this is being vigilant with the property’s maintenance or finally getting round to redoing the bathrooms, short-term cost may prove invaluable at the point of sale.

• Focus on the bottom line​ — one of the first things agents look at when calculating a property’s multiple is the bottom line. A well-run pub is always going to be a more attractive prospect so controlling costs, working on improving turnover and being smart about wage costs are all things worthy of close attention.

• Know your accounts​ — any business that is ready to sell must have its accounts in order because, without them, the agent simply cannot value the property.

• Stock valuation on completion​ — often overlooked, owners should value any remaining stock on completion of any property deal to avoid potentially losing a sizeable amount of money.