The Comparative Method Flashcards
What is the most reliable method of valuation?
Direct capital or rental comparison under the comparative method
This is the primary method of valuation and should be used whenever possible
What is the comparative method restricted to?
. The capital and rental valuation of residential property
. Rental valuation of retail, office and industrial premises
. The capital value of owner-occupied retail, office industrial premises
What makes a comparable comparable?
If there are similarities such as:
- physical characteristics
- location
- Use
- tenure (and lease terms of appropriate)
- time scales - static or fluctuating market
How can comparables be analysed?
Rental price or capital price per square meter then Applied to the subject property
How many comparables are appropriate?
All comparable evidence available, however lenders usually require three
Why are comparables needed in any transaction?
As the price may be distorted by ;
. The seller or lessor not being willing
. The transaction not being arms length
. The property not being subject to proper marketing
. A purchaser or tenant having a special interest
. One or both parties not acting knowledgeably, prudently and without compulsion
What are the types of comparable evidence?
- non transactional evidence (properties on the market)
- transactional evidence (sold properties)
Where are sources of comparable evidence?
- own/office records
- for sale/to let boards
- Agents / Valuers(must ask the right questions)
- Land registry
- various websites
- Estates Gazette Interactive (EGI)
- Focus / CoStar
What can throw comparables out?
- transactional evidence where the vendor wanted a quick sale
Further enquires should be made to agents to check the circumstances and verify credibility
Once comparables have been assembled they should be adjusted for?
. Physical characteristics . Location . Use . Tenure . Time scale
The greater the adjustments that have to be made, the less comparable a transaction is.
Therefore the greater the uncertainty and greater opportunity for error
What are the comparable evidence adjustments referred to?
- Interpolation
- Extrapolation
What is interpolation and extrapolation?
Interpolation is calculating or, plotting on a graph, a value that lies BETWEEN two extreme points and is considered PERMISSIBLE
Extrapolation is calculating or, plotting on a graph, a value that lies OUTSIDE two extreme points and is considered DANGEROUS
However as Valuation is an opinion extrapolation is acceptable when interpolation is not possible as long as there is a trend in value from which to extrapolate
What is zoning?
Zoning is a standard method of measuring retail premises to calculate and compare their value.
What effects zoning?
Shops on a short distance apart can vary considerably in RV because of vital differences in their position which can affect pedestrian flow past the shop such as:
- near to adequate and easy car parking or public transport
- position on intersecting roads
- widths of pavements and streets
- corner occupations
What does the zoning method apply?
It allows for progressive decrease in value from the front of the retail unit to the rear based on a £ per unit of area. It is now common practice to divide the shop into three consistent zones of 6.1 meters depth.
The valuation of the shop is based on what measurement?
Net Internal Area (NEA)
How many zones are commonly used?
Some Valuers use two zones and a remainder but three zones (a,b & c) plus a remainder appear to be more common in practice, it really depends on the depth of the unit
Zones are usually halved back
Zone A being X
Zone B Being X/2
Zone C being X/4
Remainder being X/8
The floor areas are expressed in terms of Zone A (ITZA)
What is first floor accommodation commonly zoned as?
X/10
Where do complexities arise in calculating zoning?
- Return frontages
- ## Two road frontages
What is the longest time period before a valuation date that a transaction could be accepted as being comparable?
. Depends on the property and the market conditions
What do you understand by the expression ‘weighting of comparable evidence’?
What you attach the most weight to comparables having the greatest similarity to the subject property
What do you understand by the expression hierarchy of evidence?
Ranking comparables by transaction type such as open market letting, lease renewals
How would you arrive at the market rent for the first floor of a retail unit?
X/10 if retail, if storage/staff Accommodation use different rate
How would you arrive at the market rent of a retail init with a return frontage?
Make an uplift to the zones to which the zone return frontage extends
How would you value a shop unit for rent review with frontages on two roads I.e it is a through unit?
Zone back from both frontages
What are the principles as defined within the “comparable evidence in property valuation information paper” ?
. Acquiring a number of comparables . Searching for similar properties . Recent transactions representive of the current market . Verifiable . Consistent with the local market
What is the hierarchy of evidence as defined in the “comparable evidence in property valuation information paper”?
- very similar property, marketed with offers with all accurate information however a binding contract has not been entered
- recently completed transactions of identical property for which full and accurate information is available
- recently completed transactions of other similar property which full and accurate information is available
- recently completed transactions of similar property for which full data may not be available, but for which sufficient reliable data can be obtained
- information from published sources or commercial databases
- historic evidence of the same or similar properties
- other indirect evidence
- transactional evidence from other property types and locations
- asking prices
What item is the most important to value?
Location - proximity to schools, employment, transportation, shopping, places of worship, golf courses etc
