Valuation

"An estimation of something's worth, especially one carried out by a professional Valuer"
Oxford English Dictonary.

There are 5 methods of Valuation and the type or types chosen by a Valuer to value a property will depend upon the type of property and its unique circumstances. With the exception of The Contractor's Method / Depreciated Replacement Cost, the other methods of Valuation are aiming to ascertain a property's Market Value (freehold with vacant possession or freehold subject to stated unique occupation circumstances) or a property's Market Rent.

People often refer to an "Insurance Valuation" This is not a recognized method of valuation but is, as its correct title suggests, a Reinstatement Cost Assessment and is best carried out by a Chartered Quantity Surveyor. We can however provide a reasonably accurate assessment adopting the cost of building from the BCIS (Building Cost Information Service) of the RICS.

Unless specifically instructed all Valuations are prepared in accordance with the RICS Valuation Standards issued by the Royal Institution of Chartered Surveyors (The Red Book) which defines Market Value and Market Rent as follows:-

Market Value

'The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion".

Market Rent

'The estimated amount for which a property should, or space within a property, should lease on the date of valuation between a willing lessor and a willing lessee on appropriate terms in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion".

Methods of Valuation

• The Comparison Method

Self explanatory, always used where evidence is available.

• The Latent Value / Residual Method

For property where there is development potential and given assumption circumstances, the value of the land or land and buildings can be ascertained or the profit where the value of the land or land and buildings is known.

• The Profits Method

This produces a Market Rent to which the comparison and or investment method may be applied. It is used for business premises which have a turnover and is essentially an analysis of the accounts to ascertain a notional fair Market Rent. (Pubs, Grocery Stores etc)

• The Contractor's Method / Depreciated Replacement Cost

This method is used for types of property which seldom change hands and for which there are few comparisons. Churches, Power Stations, Schools Hospitals etc.

• The Investment Method

This method is used when there is an actual , notional or potential Market Rent. A market investment return yield is ascertained via the Comparison Method. This yeild when divided into 100 provides a rent multiplier ( Years Purchase ) to produce the capital Market Value.

Within this method there are;

1. Conventional Investment Method (explained above)
2. Layer / Hardcore Method
3. Discounted Cash Flow Method
4. Net Present Value Method
5. Internal Rate of Return Method