RICS Draft Guidance Note: Japanese knotweed and residential property, 1st edition

7 The effect of Japanese knotweed on residential value

7.1 The purchaser with 'full knowledge'

The challenge for the professional valuer is to establish the extent to which a potential purchaser, in full knowledge that a property is, or perhaps was previously, affected by Japanese knotweed will seek to reduce their bid for the property compared what they would have bid if the property had not been affected. The expression 'full knowledge' in this context includes a proper understanding of all implications that flow from the presence of Japanese knotweed. This reflects the Red Book Global Standards definition of Market Value, which requires the assumption that 'the parties had each acted knowledgeably, prudently and without compulsion'.

A proportion of the prospective purchasers who discover that a property is, or even has previously been, affected by Japanese knotweed may withdraw from the purchase, resulting in a reduced level of demand. Others may seek a reduction in the purchase price, the amount of which will be influenced by a number of factors. Significantly, some of these factors are not considerations when dealing with 'normal' building defects and valuing a residential property when Japanese knotweed is involved needs to properly reflect all of these influences.

Unlike normal building defects, Japanese knotweed poses a number of particular problems for the homeowner and the current public perception can mean that when properties are affected by Japanese knotweed the impact in the marketplace can be out of all proportion to the cost of remediation. When instructed to value a property affected in some way by Japanese knotweed, therefore, the valuer must not take a simplistic approach if the assessment is to accurately reflect the impact of Japanese knotweed in the market. The cost of remediation is clearly one important factor but it is inappropriate to reflect only the cost of remediation in the valuation.

An alternative means of assessing the impact of Japanese knotweed on the value of a property might be to apply a 'standard percentage reduction in value'. However, without a justifiable evidence base, such a crude approach should not be followed because it does not adequately reflect the differing effects of the many variables that may need to be considered in each individual case.

7.2 Fully reflect all potential implications

When a valuer is considering the degree to which Japanese knotweed has reduced the value of a property, whether advising a lender, a prospective purchaser or as an expert advising a party to litigation, there are a number of factors to take into account. If each of these elements is considered in turn and their cumulative impacts are applied to the open market value of the defect-free property, the result will be a reasoned and more objective indication of possible diminution in value than only using the cost of remediation or applying the crude percentage reduction referred to at section 7.1. Five factors are listed in a 2017 paper titled Assessing diminution in value of residential properties affected by Japanese knotweed. The world of Japanese knotweed has moved on since 2017 but the principles outlined in the paper are still relevant. The five factors are:

  • impact in the market prior to remediation
  • restrictions on use of the property
  • impact during remediation
  • impact of infestation present on adjoining land
  • post-remediation impact on future saleability.

Potential purchasers of more desirable and exclusive properties are less likely to be deterred by an infestation than those seeking to purchase more standard properties where many similar alternative properties without an infestation may be available in the market. The proportional effect on the value will, therefore, differ, depending on the type and quality of the property.

A prospective purchaser who fully understands the problems that Japanese knotweed can cause will want to consider the remediation options and their implications for occupation. This includes the extent of any disruption caused by the remediation regime and any restrictions that the remediation regime might impose on use of the garden or other parts of the property. If the infestation is restricted to a very limited area there may be little or no practical impact on the use of a garden, for example, but in other cases a significant part of the garden may be unusable.

A particularly problematic issue is that of infestations on adjoining land, over which the owner of a purchased property is likely to have no control. The prospective purchaser will want to consider whether an adjoining infestation is extensive or limited; in close proximity or distant; whether there is a serious or limited risk that the adjoining infestation will spread onto (or back onto) the purchased property; and the likelihood of the adjoining owner(s) undertaking effective remedial action on their own land.

A prospective purchaser with full knowledge will also be aware that even after remediation works, when the time comes to sell the property being purchased, the presence of Japanese knotweed must be declared on the Law Society Property Information Form TA6. Current experience indicates that due to the stigma that Japanese knotweed often generates in the public perception there may also be a residual impact at the time of a resale, even when there is an effective Japanese Knotweed Management Plan in place. This should be significantly less than at the time of purchase and the impact on value will tend to decrease over time but a valuation should consider the effect this stigma may have by reducing demand and impacting on the price potentially achievable. The degree of impact will again be influenced by the type of property, the type of remediation undertaken and the period since remedial work was completed.

7.3 Consider the wider market

Totalling the impact of each of the five individual factors and adding that to the cost of the remedial works will give an indication of the amount by which a prospective purchaser with full knowledge might wish to reduce a purchase bid for the property, compared with its infestation-free value. This theoretical figure would reflect not only the cost of remediation but also all of the implications for occupation and eventual resaleability, together with an assessment of the risks associated with any infestation on adjoining land, over which there is likely to be no control.

Having reached this point, the valuer should then take a step back and consider this assessment in the light of the wider market. Is this figure a realistic assessment of what the prospective purchaser with full knowledge would actually be able to pay or are there other factors in the market that should also be reflected? Is it, for example, a booming market with a shortage of properties, which might reduce the negotiating power of the purchaser, or is the market flat and providing the purchaser with strength in negotiation?

The valuer should also consider whether, and at what level, a vendor might decide to withdraw an affected property from the market, undertake and pay for the remediation themselves and then re-market the property, rather than settle at a disagreeably reduced selling price. Assessing the implications of this option requires assessing from the vendor's perspective many of the same implications as those facing a prospective purchaser, such as disruption during remediation, any infestation on adjoining land and the post-remediation impact on the revised asking price. Just as for a purchaser, a vendor assessment cannot only reflect the basic cost of remediation. Having undertaken this sense check, the valuer can then decide whether or not to adjust the theoretical reduced purchaser bid and finalise a valuation that fully reflects the presence of Japanese knotweed in the market at that time.

In his judgment on the case Ryb v Conways Chartered Surveyors and Others [2019] (Unreported), HHJ Luba QC described the difference between the market value of a property without Japanese knotweed and that same property where Japanese knotweed is present, as being 'the sum representing the discount on the otherwise market value which the buyer could reasonably have sought and the vendor ought reasonably to have agreed' (see Hardwicke (2019): Oh, that Knotweed! Sorry, didn't I mention it?). It is this figure that valuers should be seeking to identify.