Week 4 - The valuation process ch 7+8 Flashcards
what is the valuation process
systematic set of procedures a valuer follows to provide answers to clients questions about real property’s value
purpose of the valuation process
To develop an opinion of a certain type of value
Market value Investment value Insurable value Assessed value Condemnation value Salvage value
what is market value
the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after property marketing wherein parties had each acted knowledgably, prudently and without compulsion”
Common assumptions:
An informed buyer and seller
Rational or prudent behaviour by both buyer and seller
No undue pressure on either party
A reasonable time is allowed to find a buyer
what does arms length mean
Free of interference
Non-biased
Unrelated
Unemotional
Without compulsion
common interests in property
Fee simple interest
all interests, benefits, and rights inherent in the ownership
Partial Interest
Divided rights in real estate that represent less than the whole
Specialized fractional interest
Condominiums
Leased fee interest (commercial property)
an ownership interest held by a landlord
Leasehold interest (commercial property) an ownership interest held by the tenant
Who needs property valuations
Property investors For making investment decisions, Financial reporting Property occupiers Mortgage purposes Insurance companies What is the cost of replacement if properties are damaged/destroyed Banks To provide mortgages Developers What is the value of development sites? Government Tax purposes, rating purposes, property acquisition
What is the valuation process (eight steps)
- ) Identify the problem
- ) Scope of work determination
- ) Data collection and property description
- ) Data analysis
5) Site value opinion
6) Application of approach
7) Reconciliation of value
8) Report of defined value
ISDDSARR
explain the identification of problem step (1) in the valuation process
Establish client’s objectives Use of the valuation purpose date of opinion relevant characteristics of property assignment condition - hypothetical or extradtionary
Purchase price Taxation Mortgage Compensation Financial reporting Define type of value and state effective date As of the effective date Identify the characteristics of property Specify the property rights involved and identify the rights of ownership Assumptions and limitations
explain step 2 - scope of work determination
- the type and extent of research and analysis on the assignment
extent to which the property is identified, inspected, data researched and analysed
explain step 3 Data collection + property description
1.market area data:
general characteristics of submarket
2.Subject property data:
subject characteristics of land use and improvements, personal property etc
3.Comparable property data:
sales, listings, offerings, vacancies and depreciation of comparable neighbouring properties
explain step 4 ‘market analysis’
two components 1.) market analysis: demand studies supply studies marketability studies
2.) Highest + best use (of the land) analysis
Site as though vacant
ideal improvements
property as improved
2 main reasons for highest + best use analysis
to identify similar comparable properties with similar land capabilities when consider as ‘vacant and improved’
and to decide which of the following options should be persued:
maintain improvement as is
cure items of deferred maintenance and retain improvements
Modify improvements (renovate, refurbish)
demolish the improvements
> sometimes heritage overlay and zoning restrict/govern HBU
explain step 6 land value opinion
for many valuations a SEPERATE valuation of the land is required could include: direct comparison extraction allocation subdivision land residual (most often with HBU)
Direct comparison is usually most reliable indicator to value land
explain reconciliation step 7 of valuation process
2 or more value indications derived from market data are resolved into final market opinion, which may be final range of value or single estimate
Explain step 8 report of defined value
valuation report is a tangible expression of the valuers work.
The report may be communicated to the client orally or in writing
reflects value derived from the reconciliation of value indications
