How a pub is valued

Going concern versus bricks and mortar

There are two ways to think about what a pub is worth. The going-concern value treats the pub as an operating business: it reflects the income the pub generates, the goodwill of an established trade and the property combined. The bricks-and-mortar value is the bare building with no trade, which is usually lower for a well-trading pub and can be relatively higher for a poorly trading one, especially where the building has obvious alternative use. Specialist valuers report both, and lenders watch the relationship between them, because the wider the gap, the more of the value depends on the pub continuing to trade well.

This is a guide to how a pub is valued for buying, selling and lending. It is not about the price of a pint. A specialist RICS valuer with licensed-trade experience carries out the work, following RICS guidance on trade-related property, of which pubs are a classic example.

Because pubs are treated as trade-related, the valuer assesses a reasonably efficient operator running the pub, not the actual owner's particular skill or neglect. That hypothetical-operator approach is why a tired, underperforming pub can still hold value, the potential is there, and why an exceptionally well-run pub is not valued purely on one licensee's results. It also explains why a lender's valuation can come in below an optimistic asking price built on a single strong year.

Fair maintainable trade

Central to a pub valuation is the fair maintainable trade, often shortened to FMT: the level of turnover a reasonably efficient operator could expect to achieve, having regard to the local market and the physical pub. The valuer does not simply take last year's figures. They strip out one-off items, adjust the licensee's drawings and any non-market arrangements, and consider the trend across several years and the strength of the local competition. The result is a sustainable, defensible level of trade rather than a flattering or depressed single year.

From the fair maintainable trade the valuer works down to the fair maintainable operating profit, or FMOP, the profit a reasonably efficient operator would retain after the costs of running the pub at that level of trade. FMOP is the pub equivalent of the profit measure lenders size debt against, and it is the engine of the valuation. The cleaner and more consistent a pub's accounts, the easier it is for a valuer to support a strong FMOP, which is one reason well-kept records are worth as much as a tidy cellar when it comes to value.

The wet and dry split and barrelage

A valuer reads the make-up of the trade as closely as the total. The wet and dry split, the share of turnover from drinks versus food and accommodation, tells the valuer how the pub earns its living and how secure that income is. A wet-led pub depends on drink volume and the local community; a food-led, or dry-led, pub depends on its kitchen, its reputation and often a wider catchment. Barrelage, the volume of beer sold, is a long-standing measure of a wet-led pub's health and a useful cross-check on the wet turnover.

The split also affects how a lender views risk. Food-led income can carry higher staff and input costs and depends on the kitchen running well, while wet-led income is steadier to operate but more exposed to long-term shifts in drinking habits. A diverse pub earning from drinks, food, accommodation and events across the whole week is generally read as more resilient than one reliant on a single source or a single busy night.

The multiplier and the going-concern value

To turn maintainable profit into a value, the valuer applies a multiplier, sometimes called years' purchase, to the fair maintainable operating profit. A higher multiplier, and so a higher value, is applied to a strong, well-located, freehold, free-of-tie pub with secure and growing trade; a lower multiplier to a tired, secondary or constrained pub. The choice of multiplier is where judgement matters most, because it reflects how dependable and how transferable the income looks to a buyer and a lender.

The valuer triangulates this income approach with evidence from comparable pub sales and a sense-check against the bricks-and-mortar value and any alternative-use value the building might have. Where the alternative-use value, for example as a home or for another commercial use subject to planning, exceeds the trading value, that can put a floor under the price but also flags that the pub may be worth more closed than open, a point both buyers and communities watch closely.

Why a lender's valuation can differ from the price

A common surprise for buyers is that the lender's valuation comes in below the agreed price. This happens because the valuer assesses fair maintainable trade in the hands of a reasonably efficient operator, not the optimistic forecast in a sale particulars, and because the valuer is cautious on behalf of the lender, who must be able to recover the loan if things go wrong. Where the valuation is lower than the price, the loan is sized against the valuation, so you either contribute more deposit or renegotiate.

It also explains why the same pub can attract different valuations from different valuers and lenders: judgements on maintainable trade, the appropriate multiplier and the effect of any tie all involve a view. A specialist licensed-trade valuer with strong sector evidence produces a figure a lender trusts, which is one reason we steer cases to lenders whose valuers know the pub market the property sits in.

How the valuation feeds the loan

A lender instructs a specialist valuer and lends a proportion of the going-concern value, typically up to around 60 to 70% on a well-trading freehouse. Where the gap between the trading value and the bricks-and-mortar value is wide, the lender treats the difference as risk and may lend more cautiously. The valuation also informs the affordability test, since the same fair maintainable operating profit that drives the value must cover the loan repayments with headroom. Value and affordability together, with the lower limit winning, set the loan.