TAX RESEARCH MEMORANDUM Tax research memorandum property transaction, adjusted basis

Tax research memorandum property transaction, adjusted basis

Mallinson Report and the Carsberg Report presented the valuation profession with a number of comprehensive and far reaching proposals. If implemented, would represent a significant change in the way in which many valuations and appraisal are to be undertaken, presented and justified. We discussed how these recommendations are incorporated into property investment analysis and the subsequent methods. A case of ownership interest is valued using conventional term and reversion approach and DCF. DCF is further discussed for it is better incorporated into the recommendations.

Discount Cash Flow (DCF) Techniques

DCF 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, it is likely that objective estimates of price could be built. The working party suggested in the Mallinson Report the need to develop common professional standards on the way DCF calculations are prepared and presented. DCF may therefore prove to be finger-grained versions of ARY, might improve accurary, and will certainly improve explicability.

For investment properties which are rarely traded and are of a particular or individual character, DCF might reach a figure for Defined Accounting Value. DCF can bring valuable insights, and is encouraged to be used the wider within a disciplined framework in the Mallinson Report.

Comparative Analysis Techniques

Comparative Analysis provide a figure on given assumptions at one point in time, for many purposes that the client wants. Valuation bears relationships with other prices and values in the property market, in other financial market, and to economic fundamentals-relationships which evolve over time. Measuring, explaining, and reporting such relationships may give clients considerable insight into the implicaionts of the valuation. The use of such material can aid the valuation process itself, giving an insight into worth certainly and, with development, also price. Understanding it may still help a valuer, particularly in a rapidly evolving market. Time-series of data about property are now emerging of sufficient length and reliability to enable worthwhile observations to be made.

Pricing Structure

Many investors actually reach their decisions on price at the strategic level. There are two generalised techniques: building total return from an index-linked bond yield and building from borrowing rates. They are useful checks on other methods, and give clients comprehensive insights into price.

Profits or Accounting Methodologies

Public houses commonly trade in the open market are valued by reference to trading potential, the turnover and profit that is being achieved, or can be expected to be generated from the property. The valuation is driven by strong property elements and business ...