The importance of consistency (and therefore standards) in valuation, a lesson from Donald Trump

There was an excellent article in the weekend edition of the Financial Times by Stuart Kirk, an opinion piece, “Trump is right on asset prices” (October 6 2023). For those interested I do recommend the read. In this piece Mr Kirk quoted President Trump’s lawyer Mr Kise as saying: “There are many ways to value assets and all are accurate even if they give different results.” This was specifically spoken in rebuttal to claims against Trump’s claimed inflated property values. Property values being a passion of mine, of course!

As we were all taught, valuation is an art not a science but if we are consistent in how we value property I would like to think we would all come to a similar conclusion… hopefully.

Of course that will not always be the case, perhaps we are looking at a different definition of value, in my life I am often lead by that stalwart global definition of Market Value but invariably I am often asked to consider a number of special assumptions. I regular fixture is “Gross Development Value” and as such the most common Special Assumption passing across my desk is that all development works are completed, in line with the planning consent etc. etc. but for example perhaps we are to look at an enhanced scheme, this could have quite the impact on the residualised price and perhaps therefore the defined Market Value. Or in the case of development land, the exclusion of the planning consent or even the exclusion of hope. Such things make the job of valuation very difficult.

However, the intrigue that left me most bemused and curious enough to read the 35 pages of the evidence submitted in this was the claim that: “the calculation of square footage is a subjective process”. To be clear this was spoken by Mr Trump’s lawyer not Mr Kirk. I have come across subjective measurement before, whether it is to say something is approaching a certain size or perhaps the addition of balconies or garages into the total. Apparently however, some creative measurement turned “a 10,966 square foot triplex in Trump Tower into a pad three times as big”. This is where my surveyor’s hat kicked in and a feeling deep inside of me said, measurement surely is not subjective or at least not by that much! The RICS has published IPMS for this reason, to avoid subjective and inconsistent measurement. The purpose of which is to allow consistent valuation. If we all follow a standardised measurement, comparing on a like for like basis we should invariably reach similar conclusions.

Which moves us nicely onto the last point put forward my Mr Kirk’s opinion piece, the actual value. Let’s just say in the most extreme, the price stated was 3.7 times as much as the most expensive flat reportedly sold in New York at the time. The point, again, consistency, in this case in the evidence we use and how we analyse it. Of course, Market Value can be in excess of sales transactions out there, but in my experience it would be rare to be that different. The RICS is helpful again, by producing guidance on comparable evidence. That is not to say that we should not be led by our experience, that’s the reason we are commissioned after all.

So to the point and the conclusion of this piece, in no means to be political but to show that consistency is important in valuation. From the basis, the measurement and the evidence used and collected and how it is analysed. Consistency is the goal of guidance and the standards put forward by the RICS. As such if we are consistent, even though our valuations may be “subjective” or perhaps to be more liberal in my language “artistic” we can all reasonably come to a similar conclusion and avoid, claims of negligence and in Trump’s case subject to claims of fraud. To remember back to my APC, think of the headlines in the newspaper (or perhaps more appropriately the newspapers website).