General/Definitions Flashcards
Market Value
the estimated amount for which a property should exchange hands on the date of valuation between a willing buyer
and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion
Freehold value
A freehold interest is the highest form of ownership available in property. A freehold interest is one which is of unlimited duration.
This form of ownership is also called a lessors interest if a lease is held on the property
Leasehold Value
This type of ownership is also described as a lessee’s interest and is to last a fixed or ascertainable period
Salvage Value
The value of a property, excluding land, as if disposed of for the materials it contains, rather than for continued use without special repairs or adaptation. It may be given as gross or net of disposal costs and, in the latter case, may equate to net realisable value
Marriage Value
When referring to compensation is where there is an overlap between the freehold property valuer and the lessees interest because they are paying a lower than market rent. This marriage value is often apportioned 50%. The government cannot pay less than the market value so someone must receive it.
Market (Direct) Comparison Approach
This method seeks to determine the value of a property from transactions of similar comparable properties.
Summation (Cost Approach)
The cost approach estimates the market value that is developed by computing the current cost of replacing a property and
subtracting any depreciation costs, which is then added to the value of the land (as if it was vacant)
Capitalisation Approach
Determining the Net (?) income of a property and dividing this by an appropriate yield (from comparable sales) to give the value.
DCF Approach
Permits valuer to examine in detail, the anticipated rental return of each individual tenancy projected over a selected time frame, which is then brought back to a current day value of those future cashflows to give a value
Limitations of DCF Approach
Discount rates may have a high degree of subjectivity, involves a lot of ‘predictions’ into the future which can impact on its accuracy
Discount rate
is the inverstors required rate of return, taking into account opportunity cost, inflation and certainty of payment (risk)
Non conforming use
Is where the existing use is prohibited by the planning scheme, but it existed before the controls prohibited it to be there. The existing use will cease if the property is not used for more than 2 years or if the majority of the building is destroyed (50%+)
Depreciated replacement cost
In the absence of comparable sales, valuer can consider what it would cost to replace the improvements and apply a discount rate to reflect the depreciation. (often used for hospital, church etc)
Fire services levy
Calculate based on Council CIV rates - funds are used for vital equipment, fire-fighters etc, every victorian property owner contributes
What is fee simple interest in land?
It is freehold land - the ability to have absolute tenure and freedom to dispose at will
