Valuation Flashcards
What are the five methods of valuation?
- Comparable
- Residual
- Investment
- Profit
- Depreciated Replacement Cost
What is the comparable method?
estimates value through analysing recent market transactions of similar properties
What makes a good comparable?
Hierarchy of Evidence
Category A
Category B
Category C
What is Category A of the Hierarchy of Evidence?
Direct comparables
What is Category B of the Hierarchy of Evidence?
relies on general market data that provides guidance and is not a direct indication of value
Provide an example of when it would be appropriate to use a Category B comparable?
Special purchasers
What is a Category C of the Hierarchy of Evidence?
other sources that rely on wider data to provide an indication of value
e.g transactional evidence from other property types & locations
What is a Hierarchy of Evidence?
A weighted system to allow comparables to be ranked in terms of relevance
Best Quality Comparable?
Exact evidence from Land Registry of the last sold figure
Good Quality comparable?
Recently sold similar nearby properties
Ok quality comparable?
further afield properties
What other considerations are required in the Hierarchy of Evidence that may impact value?
Location
Size
Date Sold
Condition
Property Type
Tenure
Energy Efficiency
When would you use the Residual Method?
When there is development potential
When would you use the Investment Method?
When there is an income stream to value e.g rent
When would you use the Profits Method?
When there is a specialist trade related property e.g hotel
the value is dependent on the profitability of the business
When would you use the Depreciated Replacement Cost Method?
method of last resort used for specialist properties where the value is based on the cost of buying the site and building - the depreciation and deterioration e.g church
What are the three approaches to valuation?
- Income
- Cost
- Market
What is the Income Approach?
Converting the current cash flow and future cash flows into capital value
What Methods of Valuation use the Income Approach?
Investment, residual & profit
What is the Cost Approach?
Refers to the cost of the asset by purchase or construction
What Methods of Valuation use the Cost Approach?
Depreciated Replacement Cost
What is the Market Approach?
uses comparable evidence
What are the FOUR basis of Value?
- Market Value
- Market Rent
- Investment Value
- Fair Value
What is the definition of Market Value?
the estimated amount for which an asset would exchange on the valuation date between a willing seller and a willing buyer after proper marketing
what is the definition of Market Rent?
the estimated amount for which an interest in property would lease for on the valuation date between a willing buyer and a willing seller
What is the definition of Investment Value?
the value of an asset to a particular owner or prospective owner for an individual investment or operational objectives
what is the definition of Fair Value?
Price that would be received to sell an asset or pair to transfer a liability in an orderly transaction between market participants at the measurement date.
Primarily used for accounting purposes
What are the FOUR types of sale?
- Private Treaty
- Informal Tender
- Formal Tender
- Auction
