How to value a care home: methods, adjustments and selling

This guide is for owners thinking about selling a residential or nursing home, operators weighing up a purchase, and anyone who needs to understand why a lender's valuation of a home came back where it did. It explains the method specialist valuers use, the adjustments that move the figure, how the buyer's lender shapes the price you can achieve, and how a sale is usually run. Smart Funding Solutions is a broker, not a lender: we arrange funding for care home buyers, and for owners refinancing before or after a sale, from around £10,000 to £500,000+, with larger facilities available in suitable cases. For the wider picture of borrowing in the sector, see our care home finance hub.

01Why a care home is not valued like other property

An office or a warehouse is valued mainly by its rent: what a tenant would pay to occupy it. A care home rarely has a market rent to point to, and its worth depends almost entirely on what the business inside it earns. The same building can be worth very different sums depending on whether it is full, well rated and staffed sensibly, or half empty under an action plan. Surveyors therefore treat care homes as trade-related property, valued with the business, the registration and the fixtures and fittings together as a going concern.

That is why valuation reports for care homes are produced by surveyors with a healthcare specialism, and why a lender will not accept a general commercial valuation. The headline figure is usually described as market value of the home as a fully equipped operational entity, having regard to its trading potential. Lenders also ask for further figures on special assumptions, which matter just as much when a buyer comes to borrow.

02The profits method, step by step

1. Establish the income a home of this type should earn. The valuer looks at registered beds, how many are usable as single rooms, current and historic occupancy, and weekly fees by payer: council-funded residents, self-funders, NHS-funded nursing care and residents on NHS Continuing Healthcare, whose eligibility is set out in the national framework for NHS Continuing Healthcare and NHS-funded nursing care.
2. Build a cost base for a hypothetical operator. Staff costs come first, then food, utilities, insurance, repairs and a central management charge. The test is what a reasonably efficient operator would spend, not what the current owner happens to spend.
3. Arrive at fair maintainable operating profit. This is the sustainable profit before rent, finance costs and depreciation that the home can be expected to generate year after year.
4. Apply a multiple. The valuer capitalises that profit using a multiple drawn from sales of comparable homes. Better located, purpose-built homes with strong ratings attract higher multiples; tired conversions and homes in areas with low council fees attract lower ones.
5. Cross-check. The result is compared with a value per registered bed from similar transactions and with what the building would fetch if the business closed. RICS sets out how valuers should select and weight evidence in its professional standard on comparable evidence in real estate valuation.

03Adjustments that move the figure

Most of the gap between an owner's expectation and a valuer's number comes from normalising the accounts. Common adjustments include:

• Owner and family wages. An owner who works as unpaid manager makes the home look more profitable than it would be for a buyer, so the valuer substitutes a market salary for a registered manager. The reverse applies where family members are paid above market rates.
• Agency spend. Persistent reliance on agency nurses and carers may be treated as part of the sustainable cost base unless there is evidence it is falling.
• Rent and finance costs. These are stripped out, because the buyer will have its own funding and may buy the freehold.
• One-off items. A legal dispute, a major repair or a short spike in occupancy is removed so it does not distort the trend.
• Fee uplifts. Annual council fee increases and wage rises do not always line up. A valuer will look at how recent uplifts compared with the rise in the National Living Wage, not just at the latest fee letter.

04Illustration: how normalisation changes value

Illustration. The figures below are hypothetical and rounded for clarity; they do not describe a real home or a real valuation.

Step	Amount
Profit before rent and finance shown in the owner's accounts	£400,000
Less: market salary for a registered manager the owner does not draw	(£50,000)
Less: central management charge a group buyer would bear	(£30,000)
Add back: one-off roof repair expensed in the year	£20,000
Fair maintainable operating profit	£340,000

The adjusted profit is £60,000 lower than the owner's own figure. Because value is profit multiplied by a market multiple, that difference is magnified several times over in the final number. The lesson for a seller is to prepare accounts that show a realistic cost base years before going to market, rather than to argue about adjustments after a valuation report lands.

Most of the gap between an owner's expectation and a valuer's number comes from normalising the accounts.

05The physical building still matters

Trading drives value, but the building determines how long that trading can last. Valuers and buyers look closely at:

• the share of single rooms with en-suite wet rooms, which self-funders and commissioners now expect
• room sizes, corridor widths, lift access and whether residents can move around safely
• fire safety, including compartmentation, fire doors and whether sprinklers are installed
• whether the home is purpose-built or a converted period house with limited scope to modernise
• space for extension, parking, and the state of kitchens, laundries and plant

A home that trades well today but would need heavy investment to stay compliant will have that cost reflected in a lower multiple or a deduction from value.

06What lenders check in a buyer's valuation

Your sale price is only achievable if a buyer can fund it, and most buyers borrow. Lenders instruct their own panel valuer and ask for several figures, not one:

• Market value as a going concern on the basis of actual trading.
• Market value with vacant possession, assuming the home has closed and the registration has lapsed. This shows what the lender would recover if the business failed, and for a converted house it can sit far below going-concern value.
• Value on a special assumption of a reduced trading level, which some lenders request to see how far value falls if occupancy dips.

The buyer's borrowing is then limited by both the loan to value and how comfortably trading profit covers repayments, as our page on care home mortgages explains. A sizeable gap between the going-concern and closure values usually means a larger deposit, which narrows the pool of buyers.

07Selling a care home: the practical route

Confidentiality comes first. Word that a home is for sale can unsettle staff and residents' families, so marketing is normally done discreetly, with buyers signing non-disclosure agreements before they see trading figures.

The structure of the sale affects the timetable more than anything else. If the buyer acquires the shares of the company that holds the registration, the provider stays the same and only changes to directors and managers need to be notified. If the buyer acquires the home's assets, the buyer must register as a new provider before it can operate, and completion has to wait for that. CQC explains what triggers a new application and what can be handled as a notification in its guidance on making changes to your registration. Staff transfer to the buyer under TUPE in either case, which buyers will price into their plans.

Part of the price is sometimes deferred, either because the buyer's lender will not fund the whole amount or because the parties disagree about future trading. Our guide to vendor finance and deferred consideration covers how that is usually documented and secured.

08Documents buyers and valuers will ask for

Due diligence, and the valuer's inspection, will usually cover:

Gaps in any of these slow the sale and give the buyer room to renegotiate.

09Where we fit in

We do not value care homes; that is the job of a specialist surveyor. Our role is on the funding side. For buyers, we approach lenders on our panel with appetite for healthcare property and present the purchase with the trading evidence they will need, as set out in our guide to buying a care home and our wider page on acquisition finance. Where a manager or management team is buying the home from its owner, management buyout finance applies. For owners who want to improve trading before a sale, or who are holding a home with costly short-term debt, our page on refinancing a struggling care home sets out the options. The lender always makes the decision. It is free to enquire; any broker fee is disclosed separately before you proceed.