Methods of Valuation

Question 1

What are the 5 steps to a Contractors Method of valuation?

Answer 1

1. Estimated Replacement Cost (ERC) - inc. site works and rateable P&M
2. Adjusted Replacement Cost - Adjust for age and obsolescence
3. Value of Site - add land values?
4. Decapitalisation - statutory decap rate 4.4% or 2.6%
5. review - stand back and look

Question 2

In short, what is the Contractors Method?

Answer 2

Assesses all the costs of providing a modern equivalent property, adding land and adjusting to reflect the age.

Question 3

What is the Receipts and Expenditure method?

Answer 3

Gross receipts - Expenditure = Balance

Estimate gross profits and deducting all working expenses

Question 4

What properties would be valued by Receipts and Expenditure?

Answer 4

Properties where comparable method cannot be used for income producing property such as:
- Hotels
- Pubs
- Petrol stations
- Golf courses (or other purpose-build sport facilities)

Question 5

What’s the first step in the R&E method?

Answer 5

Establish the Fair Maintainable Operating Profit, that would be generated by a Reasonably Efficient Operator, derived from an assessment of the Fair Maintainable Turnover

Question 6

When would you use the R&E method

Answer 6

When no comparable transactions are available and rental value is likely to be dictated by achievable profit.