Valuation & Appraisal
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Residential | Commercial | Industrial | Hospitality We provide bespoke property valuation advice across a comprehensive range of specialist sectors for lenders, funds, property companies, private individuals
- Commercial & Office Buildings
- Mixed-use Developments
- Shopping Malls
- Retail / Shops
- Labour Accommodation
- Mixed-use towers
- Under construction projects
- Master plan development Land
- Vacant Lands
- Individual Apartments
- Villas and Villa compounds
- Factory building
- Distribution depots
- Industrial land
- Factory sheds
- Storage and Distribution
- Industrial Units
- Manufacturing plants and, Industrial plants
- Business hotels
- Leisure hotels
- Serviced apartments
Leisure & entertainment
Family entertainment centres
There are five methods of valuation which have been recognised for a century and a half or more. The principles on which they are founded have not changed, although there have been some developments of detail.
- The five methods are:
- The Comparable approach (Market Approach)
- The Investment approach (Income Approach)
- The Residual approach
- The Profit Approach
- The Cost Approach.
The Comparable Approach (Market Approach)
Comparison can be defined as ‘the act of comparing’ and to compare as ‘to examine in order to observe resemblances or differences. The valuer isolates those characteristics of the object to be valued which in his view affect the value and then seeks another object of known, or ascertainable, value possessing some or all of those characteristics with which he may compare the object he is valuing. Where no directly comparable object exists, the valuer makes allowances of one kind or another, interpolating and extrapolating from his given data.
The Investment Approach (Income Approach)
This method rests on the thesis that the capital value of real estate property will relate directly to the income that it generates or is expected to generate cash flow. Values in the market will vary with:
- The quantum of income;
- The quality of security of the income;
- The duration of the income;
- Expectation about the future trends in the income.
The Residual Approach
This concept is employed in valuing building land/ development property, where a logical approach to land value is to estimate the ‘output’ value in terms of the price which can be expected for completed buildings and to deduct ‘input’ costs, such as site preparation, building costs, fees and finance charges.
There are various reasons why the direct comparison is inappropriate for the development property/land, such as Site and subsoil conditions, and the use and intensity of Proposed development vary between sites. For example, land use may be for offices, shops or shopping malls. Also, allowable heights vary, and range from the ground floor to hundreds.
For these reasons, the comparison is impracticable in many instances.
The selected valuation methodology considers the property from the point of view of the entrepreneur developer, whose reasoning may be hypothesised as ‘My bid for the land in its present state would be the market value after development, less the total of all costs, with a profit margin for own risk and reward’
The Profit Approach
valuation based on business profits is called in the RICS Valuation Standards ‘Trade-related Properties’. The land and building element is not separately valued because the premises are rarely sold except with the business continuing.
It is likely that if the business was not continuing, the value of the premises would be lower to take account of the need to re-establish the customer base.
Trade-Related Property means that the premises fully fitted out, furnished, stocked, and the business will be sold with the benefit of any goodwill it has accrued.
This approach requires answering the following 4 questions to determine the expected profit margin and capital value:
- What is the likely level of sales I can expect having regard to past records, trends and possible improvements in operation?
- What will be the cost of purchases, and all the various operating costs?
- What money will I have to employ in the business by way of working capital?
- How will I finance the purchase, and what return on capital do I need to cover capital costs and provide for a reasonable reward and risk in bad as well as good years?
The Cost Approach.
An approach that indicates value by using the economic principle that a buyer will pay no more for an asset than the cost to obtain a similar asset of equal utility, whether by purchase or construction. The relationship between the cost and value is rarely direct.
The cost approach will not normally be applied except where there is no market evidence, and/or profits and cash flows cannot reliably be determined.
This method does not reflect the Market Value, has limitations and is unsuitable for secured lending purposes; nevertheless, this method may be required by the financial initiations credit departments as a part of the risk assessment process.
It is properly treated as part of a test of the financial potential, risk, and financing required. All of this, which is part of the due diligence process, is aimed at testing the assumptions underlying the project.
The value of real estate investment is a subtle combination of several distinct features, the precise effect of each on the particular investment being a matter of mature judgement. Factors that impact real estate values depend on real estate asset class, whether residential, industrial or commercial. Some of those factors are:
- Location and accessibility
- Quality and specification
- Sustainability traditional
- Condition (Shell and core, furnished)
- Operational expenses (I.e., Cleaning, utilities, security, periodical maintenance)
- Ownership type/quality
- Quality of lease terms and conditions (lease term, maintenance obligations, rent reviews, lease termination)
Property Valuation is a combination of both art and science. There are 7 (Seven) essential steps to value an asset.
- Determine client needs, requirements and gather documents
- Identify valuation purpose and intended users
- Check Conflict of interest and pervious involvement
- Singing terms of engagement
- Conduct due diligence and inspection
- Determine valuation method and market research
- Deliver report and discuss valuation
The job of a valuer is not simply to provide the client with a correct opinion of value. The valuer’s job is to provide a valuation opinion, which demonstrates to be reliable because it has been arrived at by following a comprehensive, structured, analytical, calculated and reasoned approach.