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
What is a fractional interest in land?
An interest in land other than fee simple. These include:
Leases issuing from fee simple
Leases issuing from the crown
What is leasehold and how can you value it?
Leasehold is having exclusive possession for the lease term
and you can value leasehold interest by the amount an existing lease can sell for in the open market.
It is a diminishing asset that will cease at lease expiry. To work it out you PV the profit rent over the remaining term of the lease. (Market rent - the actual rent = profit rent)
Where can you find out details about heritage listed properties?
Heritage Register on Heritage Victoria’s website
How do you determine discount rate?
Risk free bond rate plus a risk premium (should reflect overall risk, opportunity cost and inflation)
How do you derive a cap rate?
Analysis of sales
What is a section 173 agreement?
Its an agreement under the planning and environment act that is registered on title and it can control or restrict how land is used. I believe it is usually between council and an authority whereas a covenant can be done by any land owner.
What is fair market value?
The price that would be received to sell an asset in an orderly transaction between market participants at the valuation date.
It is a basis of value used in financial reporting when a market value cannot be determined because there is no established market for the asset.
What are the 5 code of ethics?
Professional Behaviour
Professional Competence
Integrity
Conflict of Interest
Confidentiality
How has the Hawthorn Retail market been?
Reports like Fitzroys have stated that its comeback well with some of the lowest vacancy rates in a while. Below the long-term average. particularly food and beverage places. My experience and talking with agents shows that good stuff is doing well, typical incentives are about 3 months, but smaller stuff and strata, like my subject property are taking their time to sell.
How has Craigieburn Residential market been?
Boomed like everything after covid. Had some continued growth which is now beginning to slow. Land rates for vacant properties have fallen. Once again, good stuff sells well, other stuff can take a bit of time.
How has Ringwood Industrial market been?
Strong, no incentives. Very little for sale and lease boards. Agents told me they are having little trouble selling or leasing, unless theres something wrong with it.
What is a section 173 agreement?
Allows a responsible authority to enter into an agreement with owner of the land for areas covered by a planning scheme. Instrument that is listed on title.
What IPMS are used for Office, Residential, Industrial and Retail?
Office - IPMS 3 (internal dominant face of the external walls)
Resi and Industrial - IPMS 3A
Retail adopt PCA of GLA and GLAR (internal finished surface of the wall)
