Real Estate Management

Real Estate Management

For the variety of clients, it is the valuer's responsibility to make (1) Calculations of a notional transaction price constructed in a universal, formal, widely understood, and wherever possible realistic manner. (2)Calculations of the price for which a property might actually be traded if put to the open market in a manner and timeframe prescribed. (3) Calculations of price in special circumstances. (4) Calculations of worth to be compared with price. (5)Calculations of stable, long term value which exclude the volatility of day to day market prices which are set at the margin and heavily influenced by short term factors. (6)Calculations for use particularly within financial statements in non-market situations which do not purport to reflect either price or worth, for example depreciated replacement cost. To achieve this valuation basis, the valuer needs to know the purpose for which he requires the valuation (Stated in Mallinson Report, 1994). Only by knowing this, will the valuer be certain which valuation basis is appropriate, or what additional information the client needs.

In addition, it is common rule that a 'valuation' obtained for one purpose cannot be used for another; otherwise, it will expose the valuer to quite unjust criticism. Therefore, it is quite clear that there should be a mandatory obligation on the valuer to seek the purpose of the valuation and record this in the Memorandum of Instructions.

It was argued strongly by both valuers and clients contributing to the Reading/Trent Report (2000) that some interaction was essential to the production of high quality valuations. Clients often have information which is critical to the valuation and which they alone can provide economically to the valuer.

From the client's viewpoint, it is an important opportunity to understand the valuer's viewpoint and evidence and to use that information beneficially. The clients are being able to use their auditors to provide consulting advice. The auditor, who has a high level of knowledge of the business, would be able to achieve cost effectiveness. Simplistic methods are usually used by the valuers in the all-risks yield approach. Thus a market price is analyzed using a method with the minimum number of assumptions, and that valuations are built by the same method in order to ensure consistency. All-risks yield method of valuation is a perfectly valid comparison approach for assessing the market value of investment properties and owner-occupied or vacant properties where the market is led by investors. It was commonly adopted before 1990.

Discount Cash Flow (DCF) Techniques is widely used and especially for addressing worth. They have the advantage of being explicit and appear logical. However, there are difficulties in their production at present through lack of market knowledge of the variables being used. Explicit DCF calculations are not an appropriate method of valuation to price, especially where comparable evidence exists of capital values.

However, if DCF are widely and consistently used as a method of analysis and of estimating worth, and if the results are retained and built into a substantial database available to the profession, ...