Overview: The imprecise art of house valuation

We all read with interest a few weeks ago about the London estate agent who was ordered to pay the Queen's godson compensation after selling his home for £300,000 less than its "true" value.

On the face of it, most of us would sympathise with Michael Knatchbull when he found out, a day after selling his Notting Hill house for £1.5 million, that a house down the road had attracted an offer of £1.8m. No wonder, we might think, he hit the roof and refused to pay his estate agents, John D Wood, their commission.

This landed him in court where he admitted liability for the commission, but counterclaimed for damages for breach of contract and negligence against John D Wood. The tables were turned and the significant judgment was made.

But what should we make of it? John D Wood was refused leave to appeal and has reluctantly accepted the decision while asking Stanley Brodie, a senior QC, for his opinion. He summed up by regretting that it would not go to the court of appeal and that the judgment seemed "less than satisfactory".

Indeed, when anyone even remotely familiar with selling a property looked at the facts, they might also come to this conclusion. One of the first things a vendor learns is that valuation is not a science and the only thing that counts is the selling price. The temptation to value your homes according to what the guy down the road is asking is only useful up to a point. He might have a larger garden, a stunning interior and much else that your house lacks. Shadowing his price is more than likely to leave you without a sale at all. In Notting Hill, details of Knatchbull's four-bedroom mews house were sent to 290 potential purchasers and there were 27 viewings. An offer below the asking price was made, which was bumped up a week later. Significantly, two of those 27 made offers for the other mews house, which was on the market for £1.95m. If the houses were identical, surely both would have jumped at the chance of a £450,000 saving?

Other estate agents have expressed astonishment that the judge should have accepted a residential valuation on a pound per square foot basis.

While he rejected the charge of negligence, however, he held that John D Wood was in breach of duty in failing to tell Knatchbull about the other house, so denying him the chance of remarketing it and selling it for a higher price. The judge decided that Knatchbull had a 66 per cent chance of selling for around £1.7m had he withdrawn his property and remarketed it at a later date.

These are the sort of calculations we all do over the dinner table, but which take no account of the vagaries of the London property market. Another mews house in the same Notting Hill street has been on the market for more than a year, and is currently unsold for £1.475m.

The owner of that house might be entitled to feel that Knatchbull hasn't done too badly.