The Comparative Method

Question 1

What is the most reliable method of valuation?

Answer 1

Direct capital or rental comparison under the comparative method

This is the primary method of valuation and should be used whenever possible

Question 2

What is the comparative method restricted to?

Answer 2

. 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

Question 3

What makes a comparable comparable?

Answer 3

If there are similarities such as:

• physical characteristics
• location
• Use
• tenure (and lease terms of appropriate)
• time scales - static or fluctuating market

Question 4

How can comparables be analysed?

Answer 4

Rental price or capital price per square meter then Applied to the subject property

Question 5

How many comparables are appropriate?

Answer 5

All comparable evidence available, however lenders usually require three

Question 6

Why are comparables needed in any transaction?

Answer 6

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

Question 7

What are the types of comparable evidence?

Answer 7

• non transactional evidence (properties on the market)

- transactional evidence (sold properties)

Question 8

Where are sources of comparable evidence?

Answer 8

• 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

Question 9

What can throw comparables out?

Answer 9

• transactional evidence where the vendor wanted a quick sale

Further enquires should be made to agents to check the circumstances and verify credibility

Question 10

Once comparables have been assembled they should be adjusted for?

Answer 10

. 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

Question 11

What are the comparable evidence adjustments referred to?

Answer 11

• Interpolation

- Extrapolation

Question 12

What is interpolation and extrapolation?

Answer 12

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

Question 13

What is zoning?

Answer 13

Zoning is a standard method of measuring retail premises to calculate and compare their value.

Question 14

What effects zoning?

Answer 14

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

Question 15

What does the zoning method apply?

Answer 15

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.

Question 16

The valuation of the shop is based on what measurement?

Answer 16

Net Internal Area (NEA)

Question 17

How many zones are commonly used?

Answer 17

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

Question 18

Zones are usually halved back

Answer 18

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)

Question 19

What is first floor accommodation commonly zoned as?

Answer 19

X/10

Question 20

Where do complexities arise in calculating zoning?

Answer 20

• Return frontages
• ## Two road frontages

Question 21

What is the longest time period before a valuation date that a transaction could be accepted as being comparable?

Answer 21

. Depends on the property and the market conditions

Question 22

What do you understand by the expression ‘weighting of comparable evidence’?

Answer 22

What you attach the most weight to comparables having the greatest similarity to the subject property

Question 23

What do you understand by the expression hierarchy of evidence?

Answer 23

Ranking comparables by transaction type such as open market letting, lease renewals

Question 24

How would you arrive at the market rent for the first floor of a retail unit?

Answer 24

X/10 if retail, if storage/staff Accommodation use different rate

Question 25

How would you arrive at the market rent of a retail init with a return frontage?

Answer 25

Make an uplift to the zones to which the zone return frontage extends

Question 26

How would you value a shop unit for rent review with frontages on two roads I.e it is a through unit?

Answer 26

Zone back from both frontages

Question 27

What are the principles as defined within the “comparable evidence in property valuation information paper” ?

Answer 27

. Acquiring a number of comparables
. Searching for similar properties 
. Recent transactions representive of the current market
. Verifiable
. Consistent with the local market

Question 28

What is the hierarchy of evidence as defined in the “comparable evidence in property valuation information paper”?

Answer 28

• 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

Question 29

What item is the most important to value?

Answer 29

Location - proximity to schools, employment, transportation, shopping, places of worship, golf courses etc