valuation by noidarocker




It is usually market value of property, which can be
defined as “ money obtainable from a person or person
willing and able to purchase the property when offered
by the willing seller.
         Property valuation or land valuation is the
practice of developing an opinion of the value of real
property, usually its Market Value. The need for
appraisals arises from the heterogeneous nature of
property as an investment class: no two properties are
identical, and all properties differ from each other in
their location - which is one of the most important
determinants of their value.
 price It is the actual observable exchange price in the
            open market.
It is an estimation of the price that would be achieved if
were the property to be sold in the market.

It is a specific individual’s perception of the capital sum
that he would be prepared to pay for the stream of benefits
that he expects to produce by the property.
VALUATION          It is a method of determining price. It is
  quantification of an understanding of the market, legal
  impact , the availability of finance: an estimation in the
  market place
Valuations are required for many different purposes
ranging from open market transaction to compulsory
purchase. Method of valuation should not be dependent
upon the purpose of valuation. Various purposes are:
1. SALE REPORT: Most common purpose of valuation is
    sale. a valuation for purchase is, by its nature, an
    estimate of individual’s best bid and thus is a
    calculation of the worth.
2. ACCOUNTING PURPOSE: A more correct use is
    company accounts. majority of property owners have
    to prepare valuations of their properties for the
    purposes of their accounts. this is statement of
    company’s wealth at particular date.
3. LOAN SECURITY: Bank and other lenders commission
    the valuation for a loan. they require a market value
    on which they can judge the amount of loan based
    on “loan to value” ratio.
4. AUCTION RESERVE: When a company or public
    body is selling its assets by tender or auctions, they
    are obliged to only accept offers in excess of their
    valuation of the assets.
5. INSURANCE: All property should be insured in case
    of replacement. For insurance purposes the two
    normal basis of valuation adopted will be the cost of
    replacing the building in event of destruction.
6. TAXATION: Valuers frequently have to value
    property for the tax purposes.
7. COMPULSORY PURCHASE: principle compensation
    for the land and buildings taken is based on open 3
    market value
Each country has different culture and experience, which
will determine the methods adopted for valuation.
methods can be grouped as:
1. COMPARABLE METHOD: Used for most types of
     property where there is good evidence of previous
2. INCOME METHOD: used for: most commercial and
     residential property that is producing, future cash
     flow through letting the property.
3. PROFITS METHOD: Used for: trading purposes
     (other than normal shops) where evidence of rents is
     slight as they tend not to be held as investments.
4. RESIDUAL METHOD: Used for; properties ripe for
     development or redevelopment of or for bare land
5. COST METHOD: Used for: only those properties not
     bought and sold on the market and for technical
     (accounts and statutory) purposes only.
The salient features of the subject property
Based on these factors, the appraiser must identify the
scope of work needed, including the methodologies to
be used, the extent of investigation, and the applicable
approaches to value. The rule provided the explicit
requirement that the minimum standards for scope
of work were:

Expectations of the client and other users
The actions of the appraiser's peers who carry out similar
assignments The Scope of Work is the first step in any
appraisal process. Without a strictly defined Scope of
Work an appraisal's conclusions may not be
viable. By defining the Scope of Work an appraiser can
begin to actually develop a value for a given property
for the intended user, which is the intended use of the

Highest and best use
Highest and Best Use (HABU) is a term of art in the
appraisal process.
It is a process to determine the use of the property which
produces the highest value for the land, as if vacant.
There are four steps to the process. First, the appraiser
determines all uses which are legally permissible for the
property. Second, of the uses which are legally
permissible, which ones are physically possible. Of those,
which ones are financially feasible (sometimes referred to
as economically supported). Of those uses which are
feasible, which one and only use is maximally productive
for the site. In a simple context, the appraiser must do
this twice, comparing the results—as if
the land is vacant and in the as-is-improved state, taking
into account the costs of demolishing any existing
improvements. The outcome of this process is the highest
and best use for the site. An appraisal of market value
must explicitly assume that the owner or
buyer would employ the property in its highest and best
use, and therefore value the site accordingly.
Types of ownership interest

Implicit in the analysis of the subject property is a
determination of the interest in the property being
appraised. For most common
situations (e.g. -- mortgage finance) the fee simple interest
is explicitly assumed since it is the most complete bundle
of rights available.
Home inspection

If a home inspection is performed prior to the appraisal and
the information provided to the appraiser a more useful
appraisal may result should there be substantial defects in
construction or major repairs required. This information
may be particularly helpful if one or both of parties
requesting the appraisal may end up in possession
of the property as may be the case with property included
in a divorce settlement or judgment

approaches to value

There are three general groups of methodologies for
determining value.
These are usually referred to as the "three approaches to
value" which are generally independent of each other:
1) The cost approach
2) The sales comparison approach and
3) The income approach

cost approach

The cost approach was formerly called the summation
approach. The theory is that the value of a property can
be estimated by summing the land value and the
depreciated value of any improvements. The value of
the improvements is often referred to by the abbreviation
RCNLD (reproduction cost new less depreciation or
replacement cost new less depreciation). Reproduction
refers to reproducing an exact replica.
Replacement cost refers to the cost of building a house or
other improvement which has the same utility, but using
modern design, workmanship and materials. In practice,
appraisers use replacement cost and then deduct a factor
for any functional dis-utility associated with the age of the
subject property.
        The cost approach is considered reliable when
used on newer structures, but the method tends to
become less reliable for older properties. The cost
approach is often the only reliable approach when
dealing with special use properties (e.g. -- public assembly,
sales comparison approach

The sales comparison approach in a real estate appraisal is
based primarily on the principle of substitution. This
approach assumes a prudent individual will pay no more
for a property than it would cost to purchase a comparable
substitute property. The approach recognizes that a typical
buyer will compare asking prices and seek to purchase
the property that meets his or her wants and needs for the
lowest cost. In developing the sales comparison approach,
the state licensed real estate appraiser attempts to interpret
and measure the actions of parties involved in the
marketplace, including buyers, sellers, and investors.

The income capitalization approach

The income capitalization approach (often referred to
simply as the "income approach") is used to value
commercial and investment properties. Because it is
intended to directly reflect or model the expectations
and behaviors of typical market participants, this
approach is generally considered the most applicable
valuation technique for income-producing properties,
where sufficient market data exists to supply the
necessary inputs and parameters for this approach.


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