Urban Planning - Uations

Module I: Overview of Valuation
REAL ESTATE VALUATION
Module I: Overview of valuation

What is value/valuation?,
Related terms,
Purpose of valuation,
Investigation and Analysis ,
What is value/valuation?,
Valuation has often been defined as the art and/or
science of estimating values. We will come to see why
this has been a common perception of the profession;
more formally however:
Valuation means the provision of a written opinion as
to capital price or value, or rental price or value, on any
given basis in respect of an interest in property, with or
without associated information, assumptions or
qualifications. However, it does not include a forecast
of value.
Valuation is simply a model to try to determine price.

Value is the end result. It is the quantification of an
understanding of the market; the legal impact; the
physical constraints; the planning regime; the
availability of finance; the demand for product and the
general economy all influence the value of property.
Thus, in the property market, what is often called a
valuation is the best estimate of the trading or spot
price of a building/land.
In a perfect market then, where all investors have the same

information and the same requirements, price and worth should
be the same figure.
However the property market is not perfect and there is a natural
divergence between the two figures in certain markets. Indeed,
depending upon the type of property, the valuation model may have
its origin in comparing previous sale prices and thus deriving an
investment value (value in exchange) by reference to observed
payments in the market. Whereas other properties, which do not
transact sufficiently often to produce reliable comparable
information, need to use valuation models which reflect the thought
process of the principal players; this relates to worth (value in use).
Introduction
Estimating the value of a
real estate is a key element
to real estate financing,
listing for sale, property
insurance, investment
analysis, and taxation. For
most instances, figuring the
asking price of a property is
the typical application of a
real estate valuation.
However, the methods and
basic concepts remain the
same for any application.
Value
Value is defined as the present worth of future
benefits from owning the real estate property.
Most goods are consumed quickly, but the
benefit of owning real estate is realized over
many years.
Therefore, a valuation takes into consideration
the social and economic trends, environmental
conditions, and government regulations.
Value
The four elements that determine value are:
1
Utility the capability to satisfy a future owners needs

and desires
Demand the need or desire for ownership supported

by access to finances that satisfy the need
Transferability the ease by which the ownership can

be transferred
Scarcity the finite supply of similar properties
Appraisal Method Approaches

Cost Approach
Appraisal
Methods
Income Capitalization Approach
Gross Income Multipliers
Appraisal Methods
1) Cost Approach
The cost approach estimates the value of areal estatethat has been
improved by additional buildings.
This method separates the value of the land and the buildings, taking
into account the depreciation.
The estimates are combined to determine the value of the entire
property.
The cost approach assumes that a reasonable buyer would not spend
more for an improved piece of real estate than it would cost to buy a
bare lot and build a comparable building.
This method works well when the property is a type that does not
come to the market frequently, such as a church, school, government
building, or hospital.
Appraisal Methods
2) Income Capitalization Approach
The income approach represents another common method
of real estate appraisal.
This considers the relationship between the net income of
a property and the rate of return that an investor seeks.
Generally, the income capitalization approach is used to
put a value on income producing properties including
office buildings, apartment complexes, and shopping
centres.
This type of appraisal is straightforward when the
property has consistent and predictable revenues and
expenses.
Appraisal Methods
3) Gross Income Multipliers
The gross income multiplier method is used to
value a real estate that could become a rental
property, such as single-family homes or
duplexes.
The GIM method relates the expected rental
income to the sales price of the real estate.
For residential properties, the gross monthly
income is considered.
For industrial and commercial properties, the
gross annual income is considered.
THE PURPOSE OF VALUATIONS

Valuation matters. It underpins a major proportion of financial decisions in
mature economies, especially where it serves as collateral for loans or as an
important element in the published company accounts. Failure to ensure assets
are properly valued risks financial exposure for wide range of stakeholders:
Banks that use property as collateral for loans;
Shareholders that have invested in quoted companies and the companies
themselves that become vulnerable to take-overs and asset stripping if the
properties they own are not regularly and correctly valued in the balance sheet;
House-buyers;
Future pensioners whose savings are invested by funds;

Whole economies that depend on stable banking systems.
An estimate of value may be required for a number of
purposes. Several are common and provide what is often
considered the bread and butter of valuation firms. Others
are specialist in nature and require the skill and training of
the valuer to be directed towards the specific nature of the
valuation process and interest being considered.
Requests for valuation will include the following:

Sale
Purchase
Mortgage
Insurance
Lease/Rental
Financial Reporting
Statutory Purposes
Probate
Property Tax
Land Acquisition
Rent Restriction
Transfer Tax
Hotel Incentives
Other Purposes of Valuations

Investigation and Analysis

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Module I: Overview of Valuation

REAL ESTATE VALUATION

Module I: Overview of valuation

Valuation is simply a model to try to determine price.

In a perfect market then, where all investors have the same

Utility the capability to satisfy a future owners needs

Demand the need or desire for ownership supported

Transferability the ease by which the ownership can

Scarcity the finite supply of similar properties

Appraisal Method Approaches

Income Capitalization Approach

Gross Income Multipliers

THE PURPOSE OF VALUATIONS

Future pensioners whose savings are invested by funds;

Requests for valuation will include the following:

Other Purposes of Valuations

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