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Paper eres2015_75:
Pricing to Market - Property Valuation Methods revisited.

id eres2015_75
authors French, Nick ; Laura Gabrielli
year 2015
title Pricing to Market - Property Valuation Methods revisited.
source 22nd Annual European Real Estate Society Conference in Istanbul, Turkey
summary Since the global Financial Economic Crisis (FEC) hit the world markets in 2007/2008, the role of property valuation has been under greater and greater scrutiny. __The process of valuation and its quality assurance has been addressed by the higher prominence of the International Valuation Standards Council (IVSC). This is a significant initiative worldwide.__However, there has been little written on the appropriate use of valuation approaches and methods in market valuations. __Since the publication of the IVSC Valuation Standards, there is now a hierarchy of valuation definitions. These are determined by the International Valuation Standards of the International Valuation Standards Council (IVSC, 2013). In order, there are Valuation Approaches, Valuation Methods and, as a subset of the methods, techniques or models. The IVSC recognises three approaches (Income, Cost and Market) that are all based on the underlying economic principles of price formation. The appropriate basis will vary depending on the purpose and nature of the valuation. Each of these principal valuation approaches includes different detailed methods of application and within these methods, there are different models. It may seem to be unnecessarily precise and a simply a question of semantics but it is important to have an understanding of where valuation models, as discussed in this paper, fit within the process of valuation. __The hierarchy within the IVSC standards follows the convention noted below:__APPROACHES (IVSC Para 56)_1. Income_The income approach provides an indication of value by converting future cash flows to a single current capital value._2. Cost_The cost approach provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction._3. Market_The market approach provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available.__METHODS_1. Comparable Method (Market)_2. DRC/Construction Method (Cost)_3. Investment Method (Income)_4. Residual Method (Income)_5. Profits Method (Income)__TECHNIQUES (IVSC Para 61) _For example, with the Investment Method, the valuer can choose an implicit or explicit model. e.g. Implicit Capitalisation vs. Explicit DCF_Income capitalisation (implicit), where an all-risks or overall capitalisation rate is applied to a representative single period i
keywords Property Valuation, aluation Models, Valuation Approaches, Valuation Methods, Market Value
series ERES:conference
type paper session
email nick.french@brookes.ac.uk
discussion No discussions. Post discussion ...
ratings
session Real Estate Valuation
last changed 2015/07/08 18:06
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