Day of Conveyancing Highlights 2015 - Law Soc · · 2015-11-06Day of Conveyancing Highlights 2015...
Transcript of Day of Conveyancing Highlights 2015 - Law Soc · · 2015-11-06Day of Conveyancing Highlights 2015...
Day of Conveyancing
Highlights 2015Valuation Advisory Services
6 November 2015Principles of Property Valuation. Is it an Art or Science?
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Real estate touches everyone's’ lives.An illustration of activities in a day.
Home Car, Bus, Train
Tuition Centre
Work Shopping Holiday
Home
Price /
Rental
Parking
cost
Tuition
fees
Operating
Cost
Cost of
goods and
services
Cost of
hotel stay
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What is Valuation?
Art
Science
• Knowledge or system of knowledge covering general truth
• Operation of general laws especially as obtained and tested through scientific method
source: www.merriam-webster.com
• Art or process of valuing
• Estimated or determined market value of a thing
• Judgment or appreciation of worth
• Skill acquired by experience, study or observation
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Definition of Price, Cost and Value
Price
• Amount asked
• Amount paid for good and services
Cost
• Price paid for good and services
Value
• An estimate of worth of good and services
• At given time
• Defined parameters
Price
CostValue
Asking Price/Purchase Price
Assessment Historical
Source: SISV
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What is Valuation?
What it is not
• It is not just a mathematical process
What it is
• It is both an art as well as a science
• Process requiring:-
- Understanding valuation concepts and principles
- Observation of trends
- Analysis of trends
• It is the process of assessing the market worth of a property at a particular moment in time
for a specific purpose
• It has to take into account all the features of the property and all underlying factors of the
market
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Roles of Valuer
• Interpret market
• Specialists
• Independent assessment
• Work impact on the financial system
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Types of Values
Market Value
• A willing seller; willing buyer
• A reasonable period for the whole process
• Buyer has no special interest
• That both parties to the transaction had acted knowledgeably, prudently and without compulsion
• Highest & best use concept
Existing Use Value
• Similar to market value
• Existing use for future
• No development or redevelopment value
Forced Sale Value
• Similar to market value
• Limited time for marketing and sale
Reinstatement Value
• Cost of reconstructing building in a condition equal to its condition when new.
• No better or more excessive
• Includes allowances for professional fees
Each value has its specific function
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Determinants of Property ValuesNot just a mathematical process
Micro Factors
(General)
Micro Factors
(Specific)
Types of
Property
Macro Factors
• Location
• Accessibility
• Age
• Design and Quality
• Size
• Use
• Facilities
• Status of repair and
maintenance
• Ambience
• Neighbours
• Fittings and Fixtures
Residential • Economic
• Political
• Geographical
• Legal
• Government
Policies
• Time Element
• Pedestrian flow and catchment area
• Design and layout
• Tenant mix
• Management
• Particular floor and location
• Frontage
Retail
• Prestige
• Proximity of relative uses
• Running costs
• Window
• Flexible layout
Office
• Practicality
• Adaptability
Industrial
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Valuation ProcessSystematic and thorough
Stage 4
Analysis &
Reporting
Taking instructions:
• Identify property
• Purpose of valuation
• Date of valuation
• Schedule an
appointment for
inspection
Stage 1
New
Valuation
assignment
Stage 2
Site Inspection
Stage 3
Data
Collection
Obtaining data:
• Title search
• Planning guidelines
• Rental data
• Floor plans
• Comparables
Visiting actual site:
• Subject property
• Surroundings
• Photographic
evidence of physical
condition of subject
and comparables
Analyzing data:
• Determinate value
using one or more
methods
• Prepare valuation
report.
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Methods of ValuationThe different approaches are usually independent of each other.
Direct Comparison
• Recent sales of comparable properties in the vicinity
• Due adjustments will be made for differences between the subject property and the comparables in terms of location, tenure, size, shape, design and layout, age and condition of buildings, dates of transactions and other factors
Income Approach
• This method takes into consideration the gross annual rental and of the outgoings such as property tax, ground rent, promotion and maintenance charges.
• The net annual income is then capitalized at a rate we consider appropriate from our experience and knowledge of similar properties in order to reflect the certain and potential risks acceptable to a prudent investor.
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Methods of ValuationThe different approaches are usually independent of each other.
Residual Approach
• Estimation of the open market value of the proposed development assuming it is completed
• Various estimated costs of development such as construction costs, professional fees, financial and holding charges on the land and construction, developer's profit, cost of sale, promotion and legal fees are deducted
• Arrive at the residual value which a prudent developer could afford to pay for the site with all its potentialities.
Depreciated Replacement Cost
• Land Value + Replacement cost of building
• Deductions are made for the age, condition, economic or functional obsolescence and environmental factors etc; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.
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Purpose of ValuationIt is the fundamental of real estate-related transactions.
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START
Purposes
• Public Offering (IPO)
• Merger & Acquisition
• Balance Sheet
• Sale & Purchase
• Mortgage / Financing
• Rental Reviews
• Stamp Duty Tax
• Fire Insurance
• Property Tax
• Compulsory Acquisition
• Valuation
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Valuation – Challenges
Issues
• Valuation Parameters- Highest and best use definition
- Selection of comparable (rent or capital value)
- Method of valuation
• Quality of Information- Verification and validation
• Regulations- Valuation Standards and Practices
- Policy Changes
- FRS
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Conclusion
“Man is unique not because he does science, and his
is unique not because he does art, but because
science and art equally are expressions of his
marvellous plasticity of mind.”
Jacob Bronowski, The Ascent of Man
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Art or Science
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References
• www.merriam-webster.com
• Singapore Institute of Surveyors and Valuers (SISV) – Valuation Standards and Practice
Guidelines (2015 Edition)
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