Give two benefits of the comparable method of valuation
Give two limitations of the comparable method of valuation
Suitability of the comparable
Availability of the comparable
When is the comparable method used?
1) Residential property with VP
2) Agricultural property with VP
3) Rent reviews on farms
4) Valuation of land for residential development
5) Tendency for freehold property not subject to leasehold interest
Traditionally valuation has been centred around the comparable method. Why do valuers need to be more alert now to all the methods?
Because the rural economy has changed and therefore valuers have had to change their approach to valuation problems. E.g. Renewable energy projects and growing range of commercial diversification projects
Changes in The rural economy have put what demands on valuers? Name 5
1) clients more interested in methodology
2) demand more comment within a report
3) valuation uncertainty
4) increased questioning of the implicit (investment) all risks yield investment type approach to valuation
5) in favour of an explicit DCF approach
What does the investment method of valuation assume
This method assumes a relationship between the rent for a property and the capital value.
Income (rent) from property is regarded as interest on capital
What is the formula for YP in perpetuity?
i being the yield/risk %
What is rack rent?
When is the residual method of valuation used?
For development sites - objective is to find the value of the site in its current condition
What is the problem with the residual method of valuation?
It is not that accurate as you can easily manipulate it to get the answer you would like
What does the profits method of valuation involve?
Capitalising the profits which the business located there may be able to sustain to find the property value.
When is the profits method used?
1) When direct comparison or investment method are unsuitable.
2) where the property primarily used for a particular trade in order to make a profit
Give 2 examples of when the profits method may be used
1) public house
2) petrol station
When is the Depreciated Replacement Cost (contractors) method of valuation used?
For property that is not usually sold in the open market
Method of last resort
Give 3 examples of property for echo the DRC method of valuations may be used
What is the DRC method of valuation?
Calculation of rebuilding of property with an allowance for the value of the site
Name 6 methods of valuation
5) depreciated replacement cost method
6) Discounted Cash Flows