The following valuation approaches will inform the relevant stakeholders about the common understanding of the value contributing attributes of real estate and valuation standards.
Valuations of any type, whether undertaken to estimate Market Value or a definite Non-Market Value, require the valuer to apply one or more valuation approaches.
The term "valuation approach" refers to generally accepted analytical method- ologies that are of common use. In various States, these approaches may be referred to as "valuation methods". Market based valuations normally employ one or more of the valuation approaches by applying the principal of substitution, using market-derived data.
This principal holds that a prudent person would not pay more for a good or service than the cost of acquiring an equally satisfactory substitute good or service, in the absence of the complicating factors of time, greater risk, or convenience.
The lowest cost of the best alternative, whether a substitute or the original, tends to establish "Market Value".
- Sales Comparisons>
- This comparative approach considers the sales of similar or substitute properties and related market data, and establishes a value estimate by processes involving comparison. In general, a property being valued (a subject property) is compared with sales of similar properties that have been transacted in the market. Listings and offerings may also be considered.
- This comparative approach considers existing or potential income and expense data relating to the property being valued and estimates value through a capitalization process. Capitalization relates income (usually a net income figure) and a defined value type by converting an income amount into a value estimate. This process may consider direct relationships (known as capitaliza- tion rates), yield or discount (reflecting measures of return on investment), or both. In general, the principal of substitution holds that the income stream which produces the highest return commensurate with a given level of risk leads to the most probable value figure.
- This cost approach considers the possibility that, as a substitute for the purchase of a given property, one could construct another property that is either a replica of the original or one that could furnish equal utility. In a real estate context, one would normally not be justified in paying more for a given property than the cost of acquiring equivalent land and construction of an alter- native structure, unless undue time, inconvenience, and risks are involved. In practice, the approach also involves an estimate of depreciation for older and/ or less functional properties, where an estimate of the cost now unreasonably exceeds the likely price that would be paid for the appraised property. Non-market based valuations may apply similar approaches, but typically involve purposes other than establishing Market Value.
- An entity may apply a cost approach to compare the cost of other build- ings with the cost of a proposed building to the entity, thereby ascertaining the bargain of premium accruing a particular property at variance with the market at large. This application focuses on a particular property and what may be a non-market cost.
- An owner of land may pay a premium price for adjacent property. In applying a sales comparison approach to determine a maximum price that the owner is willing to pay for the adjacent land, a Valuer arrives at a figure that may well exceed its Market Value. In some States, such an estimate is called Special Purchaser Value.
- An investor may apply a rate of return that is non-market and particular only to that investor. In applying an income capitalisation approach to deter- mine the price that the investor is willing to pay for a particular investment based on the investor’s anticipated rate of return, a Valuer arrives at an esti- mate of Investment Value or Worth rather than Market Value.
- Depreciated replacement cost is an application of the cost approach used in assessing the value of specialised assets for financial reporting pur- poses, where direct market evidence is limited or unavailable.
- Each valuation approach has alternative methods of application. The Valuer’s expertise, practical knowledge, local standards, market requirements, and available data combine to determine which method or methods are applied. The reason for having alternative approaches and methods is to provide the Valuer with a series of analytical procedures which will ultimately be weighed and reconciled into a final value estimate, depending upon the particular type of value involved.
- Valuation approaches and methods are generally common to virtually all types of valuation, including real property, personal property, businesses, and financial interests. However, valuation of different types of property involves different sources of data that appropriately reflect the market in which the property (and/or service or business) is to be valued. For example, individual buildings are commonly sold and valued in the relevant real estate market whereas, the values of the shares of stock in a property company that owns a number of buildings are reflected by pricing in the relevant shares market.
Purpose of ValuationsBack
With dedicated professionals looking after your interests and with the support of our technical team, we are confident that UNIQueCO will be able to assist you with financial decision making positively impact the sustainability of your investment property.
South African property markets are buoyant and somewhat different from other international markets, although similar valuation approaches apply. In general, property types in the local market are characterised by historically European architecture, but has been adapted to fit domestic culture and environments.
Part of our investigations are to inform relevant stakeholders on the common understanding of value-contributing-attributes of real estate.
Commonly identified purposes for valuation are:
- Buying & Selling
- Auditing & Asset Registration
- Income Taxes
- Municipal Rates & Taxes
- Legal Assistance & Property Laws
- Estates or Sequestrations
- Equity & Shareholding Value
- Building Insurance Assessments
- Content Insurance Assessments
- Asset Registers
- Historical Valuations
- Rental Valuations
- Objections & Appeals
- Conditions Assessments
Prior site visits are necessary in order to identify the various value forming attributes that are related to the entire infrastructure and real estate.
The general benefits refers to the utility derived from occupying and run¬ning business operations on site, which contributes to the benefits of premises size, location, additional benefits and type. Unique benefits refers to special business-associated utility derived from being in a business or growing environment.
Therefore the following visits are essential in order to identify any project strategy:
- Physical Inspections
- Comprehensive applicable documentation
- Comprehensive management research
- Consultations with Management, Developers, General Professional
- Organizations & Valuers
UniqueCo Valuation MethodologiesBack
In order to determine the “unique” valuation methodology, the various general valuation concepts and principals need to be identified and motivated, with main consideration of the highest and best purpose, use and value.
The following basic concepts and principals apply to the determination of “MARKET VALUE”:
- Land and property concepts
- Real estate, property and asset concepts
- Price, cost, market and value o Highest and best use
- Other important concepts
- And the applicable valuation approaches
Highest & Best UseBack
Since the question arises clearly that “highest and best use” applies as a very important aspect to be considered in any study, we provide herewith a brief scope to the concept “Highest & Best Use”:
Land is regarded as a permanent asset, but improvements upon or to the land have a finite life.
Because of the immobility of land, each real estate parcel possesses a unique location. Land’s permanence also means that it will normally be expected to outlast uses and improvements, which have a finite life. The unique characteristics of land determine its optimal utility. When improved land is valued sep- arately from improvements to or upon the land, economic principals require that improvements to or on land be valued as they contribute to or detract from the total value of the property.
Thus, the “Market Value” of land based upon the “highest and best use” concepts reflects the utility and the permanence of land in the context of a market, with improvements constituting the difference between land value alone and total “Market Value” as improved.
Most properties are valued as a combination of land and improvements. In such cases, the valuer will normally estimate Market Value by considering the highest and best use of the property as improved.
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