Glossary of Terms forInternational Valuation Standards - IASB/C210 - IVSC... · • Property Types...

Glossary of Terms for InternationalValuation Standards

International Valuation Standards Committee

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International Valuation Standards, Sixth Edition

Glossary of Terms for IVS 359

Glossary of Terms for International ValuationStandards

The sixth edition of the International Valuation Standards com-prises

• Introduction

• General Valuation Concepts and Principles

• Code of Conduct

• Property Types

• International Valuation Standards:Introduction to International Valuation StandardsIVS 1: Market Value Basis of ValuationIVS 2: Valuation Bases other than Market ValueIVS 3: Valuation Reporting

• International Valuation Applications:IVA 1: Valuations for Financial ReportingIVA 2: Valuations for Lending Purposes

• Guidance Notes, of which there are elevenGN 1: Real Property ValuationGN 2: Valuation of Lease InterestsGN 3: Valuation of Plant and EquipmentGN 4: Valuation of Intangible AssetsGN 5: Valuation of Personal PropertyGN 6: Business ValuationGN 7: Consideration of Hazardous and Toxic Substances in

ValuationGN 8: Depreciated Replacement CostGN 9: Discounted Cash Flow Analysis for Market and Non-

Market ValuationsGN 10: Valuation of Agricultural PropertiesGN 11: Reviewing Valuations

• White PaperValuation in Emerging Markets

• Glossary


360 Glossary of Terms for IVS

International Accounting Standards referred to in the Glossaryare

• Framework for the Preparation and Presentation of Financial Statements

• IAS 1, Presentation of Financial Statements

• IAS 16, Property, Plant and Equipment

• IAS 17, Leases

• IAS 22, Business Combinations

• IAS 27, Consolidated Financial Statements and Accounting for Investments in Subsidiaries

• IAS 28, Accounting for Investments in Associates

• IAS 31, Financial Reporting of Interests in Joint Ventures

• IAS 32, Financial Instruments: Disclosure and Presentation

• IAS 36, Impairment of Assets

• IAS 38, Intangible Assets

• IAS 39, Financial Instruments: Recognition and Measurement

• IAS 40, Investment Property

• IAS 41, Agriculture

International Public Sector Accounting Standards referred to inthe Glossary include

• IPSAS 16, Investment Property

• IPSAS 17, Property, Plant and Equipment



Accruals forDepreciation

AccruedDepreciation

AdequateProfitability

Allowances made by accountantsas offsets to the original cost ofassets under the historical cost con-vention of some States, regardlessof the basis for such allowances.Accruals for depreciation are afunction of an accounting conven-tion and do not necessarily reflectthe market.

See also Accrued Depreciation.

Any loss in value from the estimateof total cost new. To Valuers,accrued depreciation is a functionof the market.

At a given time, the accumulatedamount of depreciation which hasbeen entered in the account for aparticular asset. Accrued deprecia-tion is calculated as the differencebetween the value of a new assetand the current appraised value ofthe subject asset.

Also referred to as “depreciation”.See Accruals for Depreciation,Depreciation.

When an asset has been valued byreference to DRC, adequate prof-itability is the test that the direc-tors/managers of the entity shouldapply to ensure that the entity isable to support the DRC estimate.Where the directors/managers ofthe entity find the DRC estimatefails to meet the test of adequate

General ValuationConcepts andPrinciples, 3.7


GN 8, 3.6



Administrative(Compliance)Review

AdjustedBook Value

Age-lifeMethod

profitability, the written down esti-mate represents the asset’s value inuse.

A valuation review performed by aclient or user of valuation servicesas an exercise in due diligencewhen the valuation is to be usedfor purposes of decision-makingsuch as underwriting, purchasing,or selling the property. A Valuermay, on occasion, perform anadministrative review to assist aclient with these functions. Anadministrative review is alsoundertaken to ensure that a valua-tion meets or exceeds the compli-ance requirements or guidelines ofthe specific market and, at a mini-mum, conforms to GenerallyAccepted Valuation Principles(GAVP).

The book value that results whenone or more asset or liabilityamounts are added, deleted, orchanged from the reported bookamounts.

A method of estimating accrueddepreciation by applying to thecost new of the property the ratioof the asset’s effective age to itseconomic useful life.

GN 11, 3.2

GN 6, 3.1


AgriculturalActivity

All RisksYield (ARY)

AllowedAlternativeTreatment

Appraiser

Annuity

Anticipation

AssemblageValue

Management of an enterprise forthe biological transformation ofliving animals or plants (biologicalassets) for sale, into agriculturalproduce, or into additional biologi-cal assets.

See Capitalisation Rate.

One of two options allowed underIAS 16,29 for measurement subse-quent to initial recognition of anasset. Also called revalued amountbasis (“an item of property, plantand equipment should be carried ata revalued amount, being its fairvalue at the date of revaluation lessany subsequent accumulated depre-ciation and subsequent accumulat-ed impairment losses”).

See also Benchmark Treatment.

See Professional Property Valuer.

A series of payments made orreceived at intervals either for lifeor for a fixed number of periods.

See Principle of Anticipation.

See Component Value, MarriageValue.

IAS 41,5



Assessed,Rateable, orTaxableValue

Asset

A value which is based upon defi-nitions contained within applicablelaws relating to the assessment, rat-ing, and/or taxation of property.

Although some jurisdictions maycite Market Value as the assess-ment basis, required valuationmethodology may produce resultswhich differ from Market Value asdefined herein.

The term, assessed value, is NorthAmerican usage; rateable value isCommonwealth usage.

i) A resource owned or controlledby an enterprise as a result of pastevents and from which some futureeconomic benefit(s) can be expect-ed to flow to the enterprise.Ownership of an asset is itself anintangible. However, the assetowned may be either tangible orintangible.

ii) A resource controlled by anenterprise as a result of past eventsand from which future economicbenefits are expected to flow to theenterprise.

iii) An item of property, plant andequipment should be recognised asan asset when:

a) it is probable that future eco-nomic benefits associated with theasset will flow to the enterprise;and

IVS 2, 3.7


IAS Framework,49(a); IAS 16,7



Asset-BasedApproach

AssetValuation

b) the cost of the asset to the enter-prise can be measured reliably.

The term is used to denote real andpersonal property, both tangibleand intangible. Ownership of anasset is itself an intangible.

See also Current Assets, Fixed orLong-term Assets, InvestmentAsset, Operational Asset,Specialised Asset, Surplus Asset.

An approach to value that exam-ines the balance sheet of the busi-ness that reports all assets, tangibleand intangible, and all liabilities atMarket Value, or an appropriatecarrying amount. When an asset-based approach is used in assign-ments involving operating busi-nesses valued as going concerns,the value estimate obtained shouldbe considered together with thevalue estimates from (an)otherapproach(es).

In the real estate market, thisexpression is applied to the valua-tion of land, buildings, and/or plantand machinery generally for incor-poration into company accounts.

In such cases, the ownership of theasset is not necessarily transferred,but the valuation is of interest toshareholders or is required forcompany takeovers, public listings,or mortgages.

GN 6, 3.2, 6.7



Asset Valuer

Assumptions

Auction

AuctionPrice

In other markets, besides the realestate market, this term generallyrefers to the valuation of an asset forsale, purchase, or other purposes.

See Professional Asset Valuer.

Suppositions taken to be true.Assumptions involve facts, condi-tions, or situations affecting the sub-ject of, or approach to, a valuationbut which may not be capable orworthy of verification. They arematters that, once declared, are to beaccepted in understanding the valua-tion. All assumptions underlying avaluation should be reasonable.

See also Special, Unusual, orExtraordinary Assumptions.

A sale usually in public, in whichproperty is sold to the highest bid-der, provided the amount offeredequals or exceeds any reserve priceset.

The price that is the final acceptedbid at a public auction; may or maynot include any fees or commis-sions.

See also Hammer Price, PrivateTreaty Sale.

Code of Conduct,3.1

GN 5, 3.1



AuctionRealisableValue

BenchmarkTreatment

BiologicalAssets

BonaVacantia

The estimated amount that onewould expect to achieve at an auc-tion.

It normally assumes that the sale isheld on site and substantially all ofthe assets in the inventory listingare offered for sale at one time.

One of two options allowed underIAS 16,28 for measurement subse-quent to initial recognition of anasset. Also known as the cost basisor cost model (“an item of proper-ty, plant and equipment should becarried at cost less accumulateddepreciation and any accumulatedimpairment losses”).

See also Allowed AlternativeTreatment.

Living animals or plants (withinthe context of agricultural activity).

Goods and land without any appar-ent owner. Where a person diesintestate with no designated rela-tives to succeed, all the person’sproperty passes to the government.

See also Escheat.

GN 3, 3.5.4

IAS 41,5



Book Value

Brown Field

Bundle ofRights

With respect to assets, the capi-talised cost of an asset less accu-mulated depreciation, depletion, oramortisation as it appears on thebooks of account of the business.

With respect to assets, the capi-talised cost of an asset less accu-mulated depreciation, depletion, oramortisation as it appears on thebooks of account of the business.

With respect to a business enter-prise, the difference between totalassets (net of depreciation, deple-tion, and amortisation) and total lia-bilities of a business as they appearon the balance sheet. It is synony-mous with net book value, networth, and shareholder’s equity.

See also Adjusted Book Value.

A developed site, generally locatedin an urban area.

The term, brown field, isCommonwealth usage.

See also Green Field.

The combination of rights associatedwith the ownership of real property.The bundle-of-rights concept likensproperty ownership to a bundle ofsticks with each stick representing adistinct and separate right of the prop-erty owner, e.g., the right to use, to sell,to lease, to give away, or to choose toexercise all or none of these rights.

GN 4, 3.11, 3.12;GN 6, 3.3.1, 3.3.2

General ValuationConcepts andPrinciples, 2.3;Property Types, 2.2



Business

BusinessEnterprise/Entity

BusinessValuation

BusinessValuer

See Business Enterprise/Entity.

A commercial, industrial, service,or investment entity pursuing aneconomic activity; generally, aprofit-making enterprise. A busi-ness enterprise may be unincorpo-rated (sole proprietorships, partner-ships) or incorporated (closely-heldor publicly held), or take the formof trust arrangements or multipleentities. The ownership interest in abusiness may be undivided, divid-ed among shareholders, and/orinvolve a majority interest andminority interest.

Businesses may be valued by anasset-based approach, the incomecapitalisation approach, or the salescomparison approach.

See also Going Concern, HoldingCompany (Investment Business),Operating Company, Property withTrading Potential.

The act or process of arriving at anopinion or estimation of the valueof a business or enterprise or aninterest therein.

A person, who by education, train-ing, and experience is qualified toperform a valuation of a business,business ownership interest, securi-ty, and/or intangible assets.

Property Types, 4.1,4.2, 4.7, 4.8; GN 6,3.5

GN 6, 3.6

GN 6, 3.4



Capitalisation

CapitalisationFactor

i) At a given date the conversioninto the equivalent capital value ofnet income or a series of netreceipts, actual or estimated, over aperiod.

ii) In business valuation, the termrefers to the capital structure of abusiness enterprise/entity.

iii) In business valuation, this termalso refers to the recognition of anexpenditure as a capital asset ratherthan a period expense.

Method of arriving at the value ofa property by reference to netreturns and an expected percentageyield or return. In some States,capitalisation refers to the conver-sion of a stream of income intocapital value using a single conver-sion factor.

Any multiple or divisor used toconvert income into value.

See also Capitalisation Rate,Income Multiplier, Valuation Ratio.

GN 4, 3.4; GN 6,3.8



CapitalisationRate (AllRisks Yield)

CapitalStructure

CarryingAmount

Any divisor (usually expressed as apercentage) that is used to convertincome into value.

The interest rate or yield at whichthe annual net income from aninvestment is capitalised to ascer-tain its capital value at a givendate.

The term, overall capitalisationrate, is North American usage; allrisks yield is Commonwealthusage.

See also Going-in CapitalisationRate, Terminal Capitalisation Rate.

The composition of invested capi-tal.

The amount at which an asset isrecognised in the balance sheetafter deducting any accumulateddepreciation (amortisation) andaccumulated impairment lossesthereon.

The amount at which an asset isrecognized in the statement offinancial position.

See also Net Carrying Amount.

GN 4, 3.5; GN 6,3.9

GN 6, 3.10

IAS 16,6; IAS36,5; IAS 38,7

IPSAS 16,6



Cash Flow

Certificateof Value

Certificationof Value

The actual or estimated, periodicnet income produced by the rev-enues and expenditures/outgoingsin the operation and ultimate resaleof an income-producing property.

Gross Cash Flow: Net income aftertaxes plus non-cash items such asdepreciation and amortisationequals gross cash flow.

Equity Net Cash Flow: Gross cashflow less additions to working capi-tal (decreases are added), less capitalexpenditures, less decreases ininvested capital debt principal, plusincreases in invested capital debtprincipal equals equity net cash flow.

Invested Capital Net Cash Flow:Equity net cash flow plus interestpayments net of tax adjustment lessnet increases in debt principal equalsinvested capital net cash flow.

See also Net Cash Flow.

See Certification of Value.

Required by some States in a pre-scribed format for inclusion in thevaluation report. In a certification ofvalue, the Valuer declares that thestatements of fact presented in thereport are correct to the best of theValuer’s knowledge; the analyses andconclusions are limited only by thereported assumptions and conditions;

GN 4, 3.6

GN 4, 3.6; GN 6,3.34.1

GN 4, 3.6; GN 6,3.34.2



the Valuer has no (or if so, a speci-fied) interest in the subject property;the Valuer’s compensation is or is notcontingent upon any aspect of thereport; the valuation was performed inaccordance with an ethical code andperformance standards; the Valuer hascompleted a programme of profes-sional learning; the Valuer has (or hasnot) made a personal inspection of theproperty; and no one, except thosespecified, has provided assistance inpreparing the report.

The term certificate of value or state-ment of value as used in some Stateshas no relationship to valuationreports but rather designates twoother documents prepared for statuto-ry purposes. One is the form signedby the purchaser of a property, attest-ing to the price paid for sale tax orstamp duty, probate duty, or estateplanning purposes. The other is thedocument certifying the value ofproperty sold to an authority thatexercises the power of compulsoryacquisition. Since an understandingof the analytical processes underlyinga valuation is not required by govern-ment administrative offices, the cer-tificate of value or statement of valueonly provides the stated Market Valueof the property endorsed by the statu-tory office holder, the date of valua-tion, and the barest information aboutthe property and the valuation.

See also Compliance Statement,Valuation Report.



Collectibles

ComparableData

ComparableSalesMethod(Market orDirectMarketComparisonMethod)

Broad descriptive term for objectscollected because of the interestthey arouse owing to their rarity,novelty, or uniqueness. In someStates, the term may be applied tofine art, antiques, gems and jewel-ry, musical instruments, numismat-ic and philatelic collections, rarebooks, and archival materials,among others. Elsewhere the termis normally used for these and awide variety of other items notfound in any other category.

Data generally used in the valua-tion analysis to develop value esti-mates; comparable data relate toproperties that have characteristicssimilar to the property being val-ued. Such data include sale prices,rents, and expenses.

A valuation procedure using salesprices or rentals of assets similar tothe subject asset as a basis for esti-mating its Market Value for sale orrent.

The underlying assumption is thatan investor will pay no more for aproperty than he or she would haveto pay for a similar property ofcomparable utility.

Also called sales comparisonapproach.

GN 5, 3.2

GN 1, 3.0



ComplianceReview

ComplianceStatement

ComponentValue

CompulsoryAcquisition/Purchase

See Administrative Review

An affirmative statement attestingto the fact that the Valuer has fol-lowed the ethical and professionalrequirements of the IVS Code ofConduct in performing the assign-ment. In some States, a Compli-ance Statement is known asCertification of Value. IVS 3,5.1.11.1 deals with the contents ofa compliance statement.

The value of those componentscreated by the separation of proper-ty interests.

See also Marriage Value.

In accordance with statutory proce-dures and practices, the govern-ment’s taking of private propertyfor public use upon the payment ofcompensation as provided for bystatute.

The term, compulsory acqui-sition/purchase, is Commonwealthusage. The terms, condemnationand damages, are used in NorthAmerica.

See also Condemnation, EminentDomain.

IVS 3, 3.5

Property Types,2.6.1



Condemnation

ConservationAsset

ConsistentUse

ContractRent(PassingRent)

Contractor’sMethod

Control

The act or process of enforcing theright of eminent domain. In con-demnation, the loss in value to theremainder, resulting from a partialtaking, is known as damages.

The terms, condemnation and dam-ages, are North American usage.

See also Compulsory Acqui-sition/Purchase, Eminent Domain.

See Heritage and ConservationAsset.

See Principle of Consistent Use.

The rent specified by a given leasearrangement; although a given con-tract rent may equate to the marketrent, in practice they may differsubstantially, particularly for olderleases with fixed rental terms.

The term, contract rent, is NorthAmerican usage; passing rent isCommonwealth usage.

See Cost Approach.

The power to direct the manage-ment and policies of a business.

GN 2, 3.1.9.2

GN 6, 3.12



ControlPremium

Cost

CostApproach(Method)

The additional value inherent in thecontrol interest that reflects itspower of control, as contrasted to aminority interest. See alsoDiscount for Lack of Control.

i) The price paid for goods or serv-ices becomes its cost to the buyer.

ii) The amount required to createor produce the good or service.

Cost is a production-related con-cept, distinct from exchange. Oncethe good is completed or the serv-ice is rendered, its cost becomes anhistoric fact.

The total cost of a propertyincludes all direct and indirectcosts of its production.

See also Direct Costs, IndirectCosts, Price, Value

A comparative approach to thevalue of property or another asset,that considers as a substitute forthe purchase of a given property,the possibility of constructinganother property that is a replicaof, or equivalent to, the original orone that could furnish equal utilitywith no undue cost resulting fromdelay. The Valuer’s estimate isbased on the reproduction orreplacement cost of the subjectproperty or asset, less total(accrued) depreciation, plus thevalue of the land to which an esti-

GN 6, 3.13

General ValuationConcepts andPrinciples, 4.3,4.10; Introductionto IVS 1, 2 and 3,3.2

General ValuationConcepts andPrinciples, 9.3.1;Property Types,2.7.1; GN 1, 5.11;GN 5, 3.3



CostApproachfor ValuingFine Art

mate of entrepreneurial incentiveor developer’s profit/loss is com-monly added.

See also Depreciated ReplacementCost, Depreciation, ReplacementCost, Reproduction Cost.

A comparative approach to thevalue of fine art that considers as asubstitute for the purchase of agiven work of fine art the possibili-ty of creating another work of fineart that replaces the original. TheValuer’s estimate is based on thereproduction or replacement cost ofthe subject work of fine art, and thenature of the replacement, i.e.,whether it be new for old, indemni-ty basis, a replica, or a facsimile.

“New for old” refers to the cost ofpurchasing the same item or, ifunavailable, an item similar innature and condition in the retailmarket for new works of fine art.

“Indemnity basis” refers to the costof replacing an item with a similaritem in similar condition in the sec-ond-hand retail market for art andantiques.

A “replica” is a copy of the origi-nal item, as near as possible to theoriginal in terms of nature, quality,and age of materials but created bymeans of modern constructionmethods.

GN 5, 3.4



Crop(ping)Farms

CurableDepreciation

GN 10, 3.1



A “facsimile” is an exact copy ofthe original item, created withmaterials of a closely similarnature, quality, and age and usingconstruction methods of the origi-nal period.

Agricultural properties used forgrowing commodities that are typi-cally planted and harvested withina twelve-month cycle. Propertiesused for annual crop productionmay grow more than one type ofannual crop over the same periodand may or may not make use ofirrigation to produce the crops.Some commodities are annualcrops that may be left in theground beyond a twelve-monthcycle, per contract provisions or incircumstances where market condi-tions are unfavorable. These cropswill last for more than one yearafter harvest but are consideredless than permanent.

See also Irrigated Land, PerennialPlantings.

Those items of physical deteriora-tion and functional obsolescencewhich are economically feasible tocure.

CurrentAssets

CurrentCostConvention(Accounting)

i) Assets not intended for use on acontinuing basis in the activities ofthe enterprise such as stocks, obliga-tions owed to the enterprise, short-term investments, and cash in bankand in hand. In certain circumstancesreal estate, normally treated as a fixedasset, may be treated as a currentasset. Examples include improvedreal estate held in inventory for sale.

ii) An asset that:

a) Is expected to be realised in, oris held for sale or consumption in,the normal course of the entity’soperating cycle; or

b) Is held primarily for trading pur-poses or for the short-term and isexpected to be realised within twelvemonths of the balance sheet date; or

c) Is cash or a cash equivalent assetwhich is not restricted in its use.

All other assets should be classi-fied as non-current assets.

See also Non-Current Assets.

A method of preparing a compa-ny’s accounts in which the fixedassets are stated at their value tothe business based on currentrather than historic costs.

This refers to the present cost ofacquiring a replacement asset thatwill provide the same service.

See also Historic Cost Convention.

General ValuationConcepts andPrinciples, 3.5.1

IAS 1,57



DairyFarms

Damages

Debenture

DeedRestrictionsandRestrictiveCovenants

Definition oftheValuationAssignment

Demand (ina PropertyMarket)

Agricultural properties used for theproduction of milk from cows orfor other dairy products. Theseproperties usually have extensivestructural improvements (barns,milking parlours, silos) and equip-ment (feed bins, milkingmachines). Feed may be producedon the property, imported, or sup-plied by both sources.

See Condemnation.

Written acknowledgement or evi-dence of a debt, especially stockissued as security by a companyfor borrowed money.

Lawful limitations, usually on useor intensity of use, that run withthe land regardless of the owner.

See Specifications for theValuation Assignment.

The number of possible buyers orrenters seeking specific types ofproperty interests at various pricesin a given market within a givenperiod of time, assuming other fac-tors such as population, future

GN 10, 3.6


Introduction to IVS1, 2 and 3, 2.3



DepreciableAmount

DepreciatedReplacementCost (DRC)

prices, and consumer preferencesremain constant.

See also Market, Principle ofSupply and Demand, Supply.

i) The cost of an asset, or otheramount substituted for cost in thefinancial statements, less its resid-ual value.

ii) That element of an asset thatdepreciates over its useful life. Thedepreciable amount represents thewasting element of the asset, thebalance being the residual amount.Typically, buildings or improve-ments are treated as the depreciableamount while land is the residualamount. However, leasehold landwould also be depreciable.

DRC is an acceptable method usedin financial reporting to arrive at asurrogate for the Market Value ofspecialised or limited market prop-erties, for which market evidence isunavailable. DRC is based on anestimate of the Market Value for theExisting Use (MVEU) of the landplus the current gross replacement(reproduction) costs of the improve-ments less allowances for physicaldeterioration and all relevant formsof obsolescence and optimisation.DRC may be either described as avaluation methodology or as a basisof valuation/defined value.

IAS 16,6; IAS36,5; IAS 38,7;IPSAS 17,12

IVS 2, 3.8; GN 8,3.1



Depreciation

Note: In order to remain consistentwith IAS 16, modification of thisdefinition is required. An exposuredraft of the new proposed defini-tion will be released as soon aspossible.

The result, which includes a non-market value component, isreferred to as the DepreciatedReplacement Cost estimate. Thisresult is subject to the adequatepotential profitability or servicepotential of the entity from the useof the assets as a whole. Such anassumption can be accepted orrebutted.

i) Loss in value from the cost newand caused by physical deteriora-tion, functional (technical) obsoles-cence, and/or economic (external)obsolescence. Also called accrueddepreciation or accumulated depre-ciation.

ii) The systematic allocation of thedepreciable amount of an assetover its useful life.

In accounting, depreciation refersto one or more deductions madefor accounting (taxation) purposesto allow for the actual or assumedreduction in the capital value (cost)of an asset over an assumed or pre-scribed period.

See also Accruals for Depreciation.


IAS 16,6; IAS36,5; IPSAS 17,12



DeprivalValue

DeskReview

i) In a market context, the cost toan owner-occupier of going intothe market to purchase a replace-ment asset; also called net currentreplacement cost.

ii) In a non-market context, thevalue of an asset to the presentowner, equaling the higher of itsutility value to that owner or theasset’s exit or disposal value.

In the second context, deprivalvalue is an example of a valuationbasis that reflects the non-marketconcept of value in use of assets aspart of a going concern and issometimes referred to as optimaldeprival value.

See also Going Concern Value,Impairment Loss, ServicePotential.

A valuation review that is limitedto the data presented in the report,which may or may not be inde-pendently confirmed. Generallyperformed using a checklist ofitems. The reviewer checks for theaccuracy of calculations, the rea-sonableness of data, the appropri-ateness of methodology, and com-pliance with client guidelines, reg-ulatory requirements, and profes-sional standards. See also FieldReview.

GN 11, 3.4



Develop

Direct Costs

Discount forLack ofControl

DiscountRate

DiscountedCash Flow(DCF)Analysis

To carry out any building, engi-neering, mining, or other opera-tions in, on, over, or under the landor the making of any materialchange in the use of any buildingor land.

Costs associated directly with thephysical production of an asset,such as material and labour.

An amount or percentage deductedfrom a pro-rata share of the valueof 100 percent of an equity interestin a business, to reflect the absenceof some or all of the powers ofcontrol.

See also Control Premium.

A rate of return used to convert amonetary sum, payable or receiv-able in the future, into presentvalue. Theoretically it shouldreflect the opportunity cost of capi-tal, i.e., the rate of return the capi-tal can earn if put to other useshaving similar risk. Also calledyield rate.

A financial modelling techniquebased on explicit assumptionsregarding the prospective cash flowto a property or business. As anaccepted methodology within theincome approach to valuation,DCF analysis involves the projec-

GN 6, 3.14

GN 9, 3.4

GN 9, 3.1



tion of a series of periodic cashflows either to an operating proper-ty, a development property, or abusiness. To this projected cashflow series, an appropriate, market-derived discount rate is applied toestablish an indication of the pres-ent value of the income streamassociated with the property orbusiness. In the case of operatingreal properties, periodic cash flowis typically estimated as grossincome less vacancy and collectionlosses and less operating expens-es/outgoings. The series of periodicnet operating incomes, along withan estimate of the reversion/termi-nal value, anticipated at the end ofthe projection period, is then dis-counted. In the case of develop-ment properties, estimates of capi-tal outlays, development costs, andanticipated sales income are esti-mated to arrive at a series of netcash flows that are then discountedover the projected developmentand marketing periods. In the caseof a business, estimates of periodiccash flows and the value of thebusiness at the end of the projec-tion period are discounted.

The most widely used applicationsof DCF analysis are the internalrate of return (IRR) and net presentvalue (NPV). The techniques maybe used for the valuation of landand investments and the ranking ofprojects.



DividendsMethod

Easement

EconomicLife

EconomicObsolescence

EconomicRent

See Discounted Cash FlowAnalysis.

Nonpossessory (incorporeal) inter-est in landed property conveyinguse, but not ownership, of a portionof that property.

See also Right of Way.

i) The number of years over whichassets are expected to render ser-vices of economic value, i.e., thetime remaining for the asset to earnprofits.

ii) The period over which an assetis expected to be economicallyusable by one or more users or thenumber of production or similarunits expected to be obtained fromthe asset by one or more users.

A loss in value due to factors out-side the subject asset.

Economic obsolescence is alsocalled external, environmental, orlocational obsolescence. Examplesof economic obsolescence arechanges in competition or in sur-rounding land uses like an industri-al plant near a residential area. It isdeemed incurable as the expense tocure the problem is impractical.

See Market Rent.

Property Types,2.2.4.2

IAS 17,3



EffectiveAge

EffectiveDate

Elements ofComparison

EmergingMarket

The age of an item, such as abuilding, as indicated by its physi-cal condition and utility comparedto its useful life, in contrast to itschronological age.

The amount of maintenance andcare given to the building will helpdetermine its effective age. A 5-year-old building may have aneffective age of 10 years due topoor maintenance of the building.

The date as of which the Valuer’sopinion applies. Also referred to asvaluation date and/or as of date.

Specific characteristics of proper-ties and transactions that cause theprices paid for real estate to vary.Elements of comparison includeproperty rights conveyed, financingterms, conditions of sale, marketconditions, location, and physicaland economic characteristics.

A market growing in size andsophistication and found in anational economy, which is in tran-sition to becoming more developedand market-based. An emergingmarket may be a financial marketwith a short operating historyand/or low level of capitalisation.Characteristics common to emerg-ing markets may include signifi-cant structural changes in the

GN 1, 3.3

Valuation inEmerging MarketsWhite Paper, 2.1





EminentDomain

Encumbrance

Enterprise/Entity

EnvironmentalFactors

GN 7, 3.1.1

national economy; rapid develop-ment of political, legal, and institu-tional frameworks; and transition-ing from a planned or commandeconomy to a market-based econo-my. As a result, emerging marketsare becoming increasingly glob-alised.

The right of government to takeprivate property for public useupon payment of just compensa-tion.

The term, eminent domain, isNorth American usage.

See also Compulsory Acquisition,Condemnation.

An interest or right in real propertythat may increase or decrease thevalue of the property but does notprevent its conveyance by theowner. Examples include ease-ments and restrictive covenants.

See Business Enterprise/Entity.

Influences external to the propertybeing valued which may have posi-tive effect, negative effect, or noeffect at all on the property’s value.Hazardous or toxic substances maybe found either on or off the site ofthe property valued.

Equipment

Equitable orEquityInterest

Escheat

Excess Rent

Existing UseValue(EUV)

This includes ancillary assets thatare used to assist the function ofthe enterprise.

The interest of a beneficiary undera trust as opposed to the legalinterest of the trustee(s).

A beneficiary is said to hold equi-table title while legal title is heldby the trustee(s).

The right of the government to taketitular ownership of a propertywhen its owner dies without a willor ascertainable heirs.

See also Bona Vacantia.

A rental that is more than marketrent; such rental, if considered at all,is commonly capitalised at a higherdiscount rate because of the higherrisk and potential uncertainties asso-ciated with the consequences of thelessee’s disadvantage. From a lesseeviewpoint, it is from the payment ofexcess rent that a negative marketrent to the lessee interest may arise.In some States any value which isascribed to excess rent is consideredpersonal property because its basisarises from the contract, not the realestate.

See Market Value for the ExistingUse.

GN 3, 3.1.3


GN 2, 3.1.10



ExpensePass-throughs(RecoverableCosts)

Expenses

ExternalObsolescence

ExternalValuer

Fair Value

A form of rent escalation in whichthe tenant pays a direct share of theoperating expenses.

The term, expense pass-throughs,is North American usage; recover-able costs is Commonwealth usage.

See also Rent Escalations.

See Operating Expenses.

See Economic Obsolescence.

A Valuer who, together with anyassociates, has no material linkswith the client company or the sub-ject of the assignment.

See also Independent Valuer,Internal Valuer.

i) The amount for which an assetcould be exchanged, or a liabilitysettled, between knowledgeable,willing parties in an arm’s-lengthtransaction.

In accounting, fair value anticipates asale which may occur in differingcircumstances and in conditionsother than those prevailing in the(open) market for the normal, orderlydisposition of assets. These includethe possibility of a sale under short-term distress situations or other cir-cumstances not contemplated in theMarket Value definition.

Code of Conduct,3.4

General ValuationConcepts andPrinciples, 8.1; IAS16,6; IAS 17,3 etc.;IPSAS 16,6; IVA 1,3.1, A6.4 et seq.



Fee Simple(Estate)

FieldReview

ii) The term fair value is also usedin legal actions to derive a settle-ment in disputes between parties,the circumstances of which maynot meet the definition of MarketValue. Hence fair value is not syn-onymous with Market Value.

iii) Fair value may represent theservice potential of an asset, i.e.,the future economic benefitsembodied in the asset in terms ofits potential to contribute, directlyor indirectly, to the flow of cashand cash equivalents to the entity.

Absolute ownership subject only tolimitations imposed by the State;also called freehold.

A valuation review that includesinspection of the exterior andsometimes the interior of the sub-ject property and possibly inspec-tion of the comparable propertiesto confirm the data provided in thereport. Generally performed usinga checklist that covers the itemsexamined in a desk review andmay also include confirmation ofmarket data, research to gatheradditional data, and verification ofthe software used in preparing thereport. See also Desk Review.

IVA 1, A6.4


GN 11, 3.5



FinanceLease

FinancialAsset

FinancialInstrument

FinancialInterests

A lease that transfers substantiallyall the risks and rewards incident toownership of an asset. Title may ormay not eventually be transferred.

See also Operating Lease.

Any asset that is a) cash; b) a con-tractual right to receive cash oranother financial asset from anoth-er enterprise; c) a contractual rightto exchange financial instrumentswith another enterprise under con-ditions that are potentially favor-able; or d) an equity instrument ofanother enterprise.

Any contract that gives rise to botha financial asset of one enterpriseand a financial liability or equityinstrument of another enterprise.

The interests i) created by mort-gage pledges where the property isused as collateral to secure financeor a charge is taken over the prop-erty; or ii) representing the owner’sequity interest in the property.

Financial interests also result fromthe legal division of ownershipinterests in businesses and realproperty (e.g., partnerships, syndi-cations, corporations, cotenancies,joint ventures), from the contractu-al grant of an option to buy or sellproperty at a stated price within aspecified period, or from the cre-

IAS 17,3

IAS 32,5; IAS 39,8

IAS 32,5; IAS 39,8


Property Types, 5.1



FinancialLiability

FinancialModelling

ation of investment instrumentssecured by pooled real estate assets(securitised investment instru-ments).

Any liability that is a contractualobligation a) to deliver cash oranother financial asset to anotherenterprise; or b) to exchange finan-cial instruments with another enter-prise under conditions that arepotentially unfavorable.

The projection of a business’s orproperty’s periodic income or cashflow pattern from which measuresof financial return can be calculat-ed. Income or cash flow projec-tions are generated through the useof a financial model that takes intoaccount historical relationshipsbetween income, expense, and cap-ital amounts as well as projectionsof those variables. Financial mod-elling may also be used as a man-agement tool to test expectationsfor property performance, to gaugethe integrity and stability of theDCF model or as a method toreplicate the steps taken byinvestors in making decisionsinvolving the purchase, sale, orholding of a property or business.

See also Discounted Cash FlowAnalysis.

IAS 32,5; IAS 39,8

GN 9, 3.2



FinancialStatements

i) In accounting, these comprise thebalance sheet and income andexpenditure statement (Profit andLoss Account). They are writtenstatements of the financial positionof a person or company.

ii) A complete set of financialstatements, including the followingcomponents:

a) Balance sheet;

b) Income statement;

c) Statement showing either:

1) all changes in equity; or

2) changes in equity other thanthose arising from capitaltransactions with owners anddistributions to owners.

d) Cash flow statement; and

e) Accounting policies andexplanatory notes.

iii) Financial records of prescribedcontent and form for publication inthe interests of common informa-tion needs of a wide range of third-party users who are not necessarilyidentifiable. There is a measure ofpublic accountability associatedwith financial statements that aredeveloped within a regulatoryframework of accounting standardsand the law. Financial statementsare used to report the financialposition and performance of anenterprise.

IAS 1,7

IVA 1, A1.1



Fixed orLong-termAssets

Fixturesand Fittings

Forced Sale(Liquidation)Value

Forestry/Timberland

See Non-Current Assets.

The totality of improvements inte-gral to a property, valued collec-tively.

See Trade Fixtures or Tenant’sFixtures.

i) Market Value, with a proviso thatthe vendor has imposed a time limitfor completion of the sale whichcannot be regarded as a reasonabletime period, taking into account thenature of the asset, its location, andthe state of the market.

ii) The amount which may reasonablybe received from the sale of a propertywithin a time frame too short to meetthe marketing time frame of the MarketValue definition. In some States forcedsale value in particular may also involvean unwilling seller and a buyer or buy-ers who buy with knowledge of the dis-advantage of the seller.

Agricultural property used for thegrowing of non-orchard trees that areperiodically harvested over extendedgrowing periods (10 to 20 or moreyears). Considered to be agriculturalproperties because they produce acrop, i.e., wood, even though thatcrop requires a long-term growingperiod. See also Perennial Plantings.

GN 5, 3.5

IVS 2, 3.10

GN 10, 3.7



See Partial Interests.

Absolute ownership subject to lim-itations imposed by the state; alsoan estate held for perpetuity. In cer-tain States, it is known as a feesimple estate.

A fee simple estate representing theperpetual ownership in land.

Also called freehold subject tolease interests; has the same mean-ing as leased fee interest and repre-sents the ownership interest of alessor owning real property that issubject to (a) lease(s) to others.

Generally considered to be the sumof the present value of anticipatednet incomes to be received underthe lease plus the present value ofthe anticipated value of the proper-ty when use and possession areregained by the lessor. In practice,the type of value (i.e., MarketValue) must be identified, defined,and appropriate to the situation.

A loss in value within a structuredue to changes in tastes, prefer-ences, technical innovations, ormarket standards.

Functional obsolescence includesexcess capital costs and excess


GN 2, 3.1.1

GN 2, 3.1.5

GN 2, 3.1.11.1



FractionalInterests

Freehold

FreeholdInterest

FreeholdInvestment

Freehold orLeased FeeValue

FunctionalObsolescence

Furniture,Fixtures, andEquipment(FF&E)

GAVP

GoingConcern

operating costs. It may be curableor incurable.

Also called technical obsolescence.

A term used in North America torefer to tangible personal propertyplus trade fixtures and leaseholdimprovements.

See also Personal Property.

Generally Accepted ValuationPrinciples; best practice in theValuation profession.

The financial statements are nor-mally prepared on the assumptionthat an enterprise is a going con-cern and will continue in operationfor the foreseeable future. Hence, itis assumed that the enterprise hasneither the intention nor the needto liquidate or curtail materially thescale of its operations; if such anintention or need exists, the finan-cial statements may have to be pre-pared on a different basis and, ifso, the basis used is disclosed.

An operating business.

Going concern also serves as apremise under which Valuers andaccountants consider a business asan established enterprise that willcontinue in operation indefinitely.Adoption of a going concern prem-

Property Types,3.2.2.2; GN 5, 3.6

Introduction/IVSObjectives andScope

IAS Framework,23; IVA 1, A5.4

GN 4, 3.11; GN 6,3.19.1

GN 6, 3.19.2, 5.7.1



GoingConcernValue

ise allows the business to be valuedabove liquidation value and isessential to the development of theMarket Value of the business.

The value of a business as a whole,subject to adequate potential prof-itability or service potential of theenterprise, with all its assets andliabilities, goodwill and potentiali-ties.

If the premises used are owned bythe business, they form part of thegoing concern value on the basis oftheir value to the business. Theconcept involves valuation of acontinuing enterprise from whichallocations or apportionments ofoverall going concern value maybe made to constituent parts asthey contribute to the whole, butnone of the components of them-selves constitute Market Value.

See also Deprival Value

The value of a business, or aninterest therein, as an operatingbusiness.

Intangible elements of value in abusiness enterprise resulting fromfactors such as having a trainedworkforce, an operational plant,and the necessary licences, sys-tems, and procedures in place.

IVS 2, 3.5, 6.4

GN 4, 3.12.1,3.12.2; GN 6,3.20.1

GN 6, 3.20.2



Going-inCapitalisationRate (InitialYield)

Goods andChattelsPersonal

Goodwill

The initial net income at the dateof transaction or valuationexpressed as a percentage of thesale price or valuation.

The term, going-in capitalisationrate, is North American usage; ini-tial yield is Commonwealth usage.

In certain States, the term used foridentifiable, portable, and tangibleobjects considered by the public tobe personal property.


i) This is an intangible but mar-ketable asset based on the probabil-ity that customers will continue toresort to the same premises wherethe business is carried on under aparticular name, or where goodsare sold or services provided undera trade name, with the result thatthere is likely to be continuingprospect of earning an acceptableprofit.

Goodwill may be property-specificor inherent within the property. Orgoodwill may be largely or whollypersonal. In such case, the good-will element will be extinguishedupon sale of the property.

That intangible asset that arises asa result of name, reputation, cus-tomer patronage, location, prod-ucts, and similar factors, whichgenerate economic benefits.

Property Types,3.2.1; GN 5, 3.7


GN 4, 3.13; GN 6,3.21



Green Field

GroundLease

HammerPrice

HazardousSubstance

ii) Any excess of the cost of acqui-sition over the acquirer’s interest inthe fair value of the identifiableassets and liabilities acquired as atthe date of the exchange transac-tion.

An undeveloped site for whichdevelopment is proposed; greenfields are usually located on theperiphery, or outside, of an urbanarea.

The term, green field, isCommonwealth usage.

See also Brown Field.

Usually a long-term lease of landwith the lessee permitted toimprove or build on the land and toenjoy those benefits for the term ofthe lease.

The accepted and announced bid,exclusive of any fees or commis-sions and, therefore, not necessari-ly the purchase price. See alsoAuction Price, Private Treaty Sale.

In the context of valuation, anymaterial within, around, or near theproperty being valued that has suf-ficient form, quantity, and bio-availability to create a negativeimpact on the property’s MarketValue.

IAS 22,41

GN 2, 3.1.8.1

GN 5, 3.8

GN 7, 3.2



Headleaseor MasterLease

HeadleaseholdInterest(SandwichLessorInterest)

Heritage andConservationAsset

A lease to a single entity, which isintended to be the holder of subse-quent leases to sublessees that willbe the tenants in possession of theleased premises.

The term, headlease, isCommonwealth usage; masterlease is North American usage.

The intermediate interest between asuperior interest, such as the free-hold, and sub- or under-leaseholdinterest(s), such as tenants in pos-session. The owner of theheadleasehold interest is thereforeboth a lessee, to the superior inter-est, and a lessor, to the subordinateinterest(s).

The term, headleasehold interest, isCommonwealth usage; sandwichlessor interest is North Americanusage.

An asset having some cultural,environmental, or historical signifi-cance. Heritage assets include his-torical buildings and monuments,archaeological sites, conservationareas and nature reserves, andworks of art. Heritage assets oftendisplay the following characteris-tics (although these characteristicsare not necessarily limited to her-itage assets):

a) their economic benefit in cultur-al, educational, and historic terms

GN 2, 3.1.6

GN 2, 3.1.7

This definition isconsistent with thedefinition of her-itage assets inIPSAS 17,8.



Highest andBest Use

Historic(Historical)CostConvention(Accounting)

is unlikely to be fully reflected in afinancial value based purely onmarket price;

b) legal and/or statutory obligationsmay impose prohibitions or severerestrictions on disposal by sale;

c) they are often irreplaceable andtheir economic benefit mayincrease over time even if theirphysical condition deteriorates; and

d) it may be difficult to estimatetheir useful lives, which in somecases could be hundreds of years.

It should also be noted that the cri-teria set by government to desig-nate what a heritage asset is maynot correspond to the criteria usedin the private sector.

The most probable use of a proper-ty which is physically possible,appropriately justified, legally per-missible, financially feasible, andwhich results in the highest valueof the property being valued.

See also Market Value.

i) The traditional accounting con-vention for the compilation of finan-cial statements on the basis of costsactually incurred by the currentowner. The use of such accountingconvention may not reflect theunderlying value of the assets at thedate of the annual accounts.





HoldingCompany(InvestmentBusiness)

Impairment

ImpairmentLoss

ii) Assets are recorded at theamount of cash or cash equivalentspaid or the fair value of the consid-eration given to acquire them at thetime of their acquisition. Liabilitiesare recorded at the amount of pro-ceeds received in exchange for theobligation, or in some circum-stances (for example, incometaxes), at the amounts of cash orcash equivalents expected to bepaid to satisfy the liability in thenormal course of business.

See also Current Cost Convention.

An enterprise which maintains thecontrolling interest in subsidiarycompanies by virtue of ownershipof stock in those companies; abusiness which receives returns onits assets.

When recoverable amount declinesbelow carrying amount.

See Carrying Amount, ImpairmentLoss, Recoverable Amount.

The amount by which the carryingamount of an asset exceeds itsrecoverable amount.

IAS Framework,100(a)

Property Types4.3.1; GN 6, 3.22

IAS 36,5

IAS 16,6; IAS36,5; IAS 38,7



Improvements

Income

Income(Capitalisation)Approach

Buildings, structures, or modifica-tions to the land, of a permanentnature, involving expenditures oflabour and capital, and intended toenhance the value or utility of theproperty. Improvements have dif-fering patterns of use and econom-ic lives.

See also Land, Value ofImprovements.

See Net Income.

A comparative approach to valuethat considers income and expensedata relating to the property beingvalued and estimates value througha capitalisation process.Capitalisation relates income (usu-ally net income) and a definedvalue type by converting an incomeamount into a value estimate. Thisprocess may consider direct rela-tionships (whereby an overall capi-talisation rate or all risks yield isapplied to a single year’s income),yield or discount rates (reflectingmeasures of return on investment)applied to a series of incomes overa projected period, or both. Theincome approach reflects the princi-ple of anticipation.

IVA 1, 3.3; GN 8,3.5

General ValuationConcepts andPrinciples, 9.3.3;Property Types,2.7.3; GN 1, 5.13;GN 5, 3.9



IncomeMultiplier(Years’Purchase)

IncurableDepreciation

IndemnityValue

IndependentValuer

The ratio between the sale price orvalue of a property and the averageannual income or income expectan-cy; may be based on gross or netincome. It is applied to income toarrive at capital value.

The term, income multiplier, isNorth American usage; years’ pur-chase is Commonwealth usage.

See also Capitalisation Factor,Investment Method, ValuationRatio.

Those items of physical deteriora-tion and functional obsolescencewhich are not economically feasi-ble to cure

It is the cost necessary to replace,repair, or rebuild the propertyinsured to a condition substantiallythe same as, but not better or moreextensive than, its condition at thetime that the damage occurred tak-ing into consideration age, condi-tion, and remaining useful life.

A Valuer who meets the specificrequirements of independence,which may attach to many assign-ments and are applied by regula-tion or by law with some clientsand in certain States.

See also External Valuer.



GN 3, 3.5.6

Code of Conduct,3.6; IVA 2, 6.8.3

IndirectCosts

Infrastructure

Initial Yield

InjuriousAffection

InsurableValue (orInsuranceReplacementCost)

Costs associated with constructionor manufacture that cannot be actu-ally identified in the asset.

Examples include insurance,financing cost and taxes duringconstruction, architect’s fees, man-agement costs, and legal expenses.

Assets which usually display someor all of the following generalcharacteristics:

a) they are part of a system or net-work;

b) they are specialised in natureand do not have alternative uses;

c) they are immovable; and

d) they may be subject to con-straints at time of disposal.

See Going-in Capitalisation Rate.

The diminution in the value of aproperty interest resulting from theuse of statutory powers.

The term, injurious affection, isCommonwealth usage.

See also Damages.

It is the depreciated replacementcost new as defined in the insurancepolicy, less the depreciated replace-ment cost new of the items specifi-cally excluded in the policy, if any.

This definition isconsistent with thedefinition of infra-structure assets inIPSAS 17,21.

GN 3, 3.5.3



IntangibleAssets

IntangibleProperty

IntegratedUnit

Assets that manifest themselves bytheir economic properties; they donot have physical substance; theygrant rights and privileges to theirowner; and usually generateincome for their owner. IntangibleAssets can be categorised as aris-ing from: Rights; Relationships;Grouped Intangibles; or IntellectualProperty.

In general, the accounting profes-sion limits the recognition of indi-vidual intangible assets to thosethat are: commonly recognisable;have a statutory or contractualremaining life; and/or must be indi-vidually transferable and separablefrom the business.

An identifiable non-monetary assetwithout physical substance held foruse in the production or supply ofgoods or services, for rental to oth-ers, or for administrative services.

The rights and privileges granted tothe owner of intangible assets.

An agricultural entity that has com-mon ownership of all or part of theprocesses involving the productionand marketing of its productsand/or commodities.

GN 4, 3.16

IAS 38,7

GN 4, 3.16

GN 10, 3.9



InternalRate ofReturn(IRR)

InternalValuer

The discount rate that equates thepresent value of the net cash flows ofa project with the present value ofthe capital investment. It is the rate atwhich the Net Present Value (NPV)equals zero. The IRR reflects boththe return on the invested capital andthe return of the original investment,which are basic considerations ofpotential investors. Therefore, deriv-ing the IRR from analysis of markettransactions of similar propertieshaving comparable income patternsis a proper method for developingmarket discount rates for use in valu-ations to arrive at Market Value.

Used in discounted cash flow analy-sis to find the implied or expectedrate of return of the project, the IRRis the rate of return which gives azero net present value (NPV).

A Valuer who is in the employ ofeither the enterprise that owns theassets or the accounting firm respon-sible for preparing the enterprise’sfinancial records and/or reports. AnInternal Valuer is generally capableof meeting all the requirements ofindependence and professionalobjectivity required under the Codeof Conduct, but for reasons of publicpresentation and regulation may notalways be acceptable to fill the roleof Independent Valuer in certaintypes of assignments.

See also External Valuer.

GN 9, 3.5

Code of Conduct,3.4



IntrinsicValue

InvestedCapital

Investment

InvestmentAnalysis

InvestmentAsset

In some States, the amount consid-ered, on the basis of an evaluationof available facts, to be the “true”or “real” worth of an item. A long-term, Non-Market Value conceptthat smoothes short-term pricefluctuations.

The sum of the debt and equity in abusiness on a long-term basis.

i) Using a capital sum to acquire anasset which is expected to producean acceptable flow of incomeand/or appreciate in capital value.

ii) The term is also used to refer toan asset acquired for the purpose ofinvestment.

See also Investment Property.

A study undertaken for the purpos-es of development and investment,the evaluation of investment per-formance, or the analysis of atransaction involving investmentproperties. Investment analyses arevariously called (economic) feasi-bility studies, market or mar-ketability analyses, or financialprojection studies.

Land and/or buildings held to earna present or future rental incomeand/or for the preservation or gainof capital value or both. It is not

GN 5, 3.10

GN 6, 3.24

GN 9, 3.3




InvestmentMethod

InvestmentProperty

held for use in the production orsupply of goods or services or foradministrative purposes, or for salein the ordinary course of business.

See also Operational Asset, SurplusAsset.

A valuation procedure that capi-talises expected future income orutility as a basis for estimating theMarket Value of the subject asset.

The underlying assumption is thatthe investor will pay no more forthe subject asset than would haveto be paid for another asset with anincome stream of comparableamount, duration, and certainty.

See also Income Approach.

i) In real estate, property owned forthe purpose of leasing to a thirdparty, for possible future occupa-tion by the owner, or for futuredevelopment to earn rental incomeor profit on resale.

ii) Property (land or a building, orpart of a building or both) held (bythe owner or by the lessee under afinance lease) to earn rentals or forcapital appreciation or both, ratherthan for:

a) use in the production or supplyof goods or services or for admin-istrative purposes, or

IAS 40,4; IPSAS16,6; IVA 1,6.2.5.5, 6.3 et seq.,A6.2.4.2



InvestmentValue(Worth)

b) sale in the ordinary course ofbusiness/sale in the ordinary courseof operations.

Note: In its Exposure Draft ofProposed Improvements toInternational Accounting Standards(issued May 2002) the IASB pro-posed an amendment to this defini-tion. The words “(by the owner orby the lessee under a financelease)” will be deleted altogether.Additional wording will be intro-duced to enable property heldunder an operating lease to be clas-sified as investment property andaccounted for as if it were afinance lease subject to meetingstrict criteria. The revised IAS 40will be effective for annual finan-cial statements covering periodsbeginning on or after 1 January2005. Earlier application (afterpublication of the revised Standardprogrammed for second quarter2003) is encouraged.

The worth or value of a property toa particular investor, or a class ofinvestors, for identified investmentobjectives.

This subjective concept relates spe-cific property to a specific investor orgroup of investors with identifiableinvestment objectives and/or criteria.The term investment value should notbe confused with the Market Value ofan investment property.

IVS 2, 3.4



IrrigatedLand

JointVenture

Land

The term, investment value, isNorth American usage; worth isCommonwealth usage.

Lands used to produce crops orforage for livestock and whichrequire the application of waterother than that from natural rainfallare called irrigated crop(ping)farms or irrigated grazing land.Properties that lack a water sourceother than natural rainfall arereferred to as dry land agriculturalproperties.

A combination of two or more enti-ties that join to undertake a specificproject; differs from a partnershipin that it is limited in duration andproject-specific.

A contractual arrangement wherebytwo or more parties undertake aneconomic activity which is subjectto joint control.

The earth’s surface, the spacebeneath which extends to the cen-tre of the earth, and the spaceabove which extends to the skies.

The ownership of land and therights attached to the ownershipare, however, subject to the laws ofa particular State.

Valuation of land as if vacant, andof land and improvements to or onthe land, is an economic concept.

GN 10, 3.2


IAS 31,2

General ValuationConcepts andPrinciples, 2.1, 2.2



Land UsePlanning

Lease

Whether vacant or improved, landis also referred to as real estate.

See also Improvements, Property,Real Estate, Real Property.

The proposed programme set forthby a local authority for the futuredevelopment of an area in accor-dance with a particular land use orland uses. Land use planning,which represents a form of policepower exercised by government,provides the basis for zoning.

i) A contract arrangement in whichrights of use and possession areconveyed from a property’s titleowner (called the landlord or les-sor) in return for a promise byanother (called a tenant or lessee)to pay rents as prescribed by thelease contract. In practice the rightsand the duties of the parties can becomplex, and are dependent uponthe specified terms of their contract.

ii) An agreement whereby the les-sor conveys to the lessee in returnfor a payment or series of pay-ments the right to use an asset foran agreed period of time.


GN 2, 3.1.1

IAS 17,3



LeaseInterest

Leased FeeEstate

Leasehold

Also known as lessee interest, ten-ant’s interest, or leasehold interest;the ownership interest created bythe terms of a lease contract ratherthan the underlying rights of realestate ownership. The lease interestis subject to the terms of a specificlease arrangement, expires within aspecified time, and may be capableof subdivision or subleasing toother parties.

The ownership interest that the land-lord or lessor maintains in a propertysubject to a lease whereby the rightsof use and occupancy are conveyedto a tenant or lessee; the ownershipinterest in a leased property.

Compare leasehold.

The interest of a lessee or tenant ina leased property including rightsof use and occupancy for a speci-fied period of time in return for thepayment of a premium and/or rent.

Leaseholds may be of variousduration such as 25 years, 60 years,and 99 years, etc.

GN 2, 3.1.4





LeaseholdImprovementsor Tenant’sImprovements

LeaseholdInterest

LeaseholdValue

Legal Estate

Fixed improvements or additions toland or buildings, installed by, andpaid for by the tenant to meet thetenant’s needs; typically removableby the tenant upon expiration ofthe lease; removal causes no mate-rial damage to the real estate.

See also Personal Property, TradeFixtures or Tenant’s Fixtures.

See Lease Interest.

The value of the lease interest;although property rights conveyedto a lessee include the rights of useand possession, they are generallyoffset by the obligation to pay acontinuing rental amount for thoserights. Hence, a leasehold valuearises only where there is a posi-tive difference between a proper-ty’s market rent and the contractrent. Where a contract rent exceedsthe market rent, a negative lease-hold value may occur. In practice,the type of value (i.e., MarketValue) must be identified, defined,and appropriate to the situation.

A right or interest in real property;legal estates are defined by thelaws of a State and are usually sub-ject to outside limitations imposedby the State, e.g., taxation, compul-sory acquisition, regulation, orappropriation in cases of intestacy.


GN 2, 3.1.11.2




LegalFramework

Legal Life

Lessee

LesseeInterest

Lessor

LessorInterest

LimitedMarketProperty

LimitingConditions

A comprehensive body of enforce-able laws prescribing the rights andinterests associated with the owner-ship of property as well as thepowers exercised by the govern-ment over property.

The period of legal or contractualprotection of the intangible assetallowed by law.

A person to whom property is rent-ed under a lease. The lessee iscommonly called a tenant.

See Lease Interest.

One who owns the rights to use anasset, which is transferred to anoth-er (lessee) under a lease agreement.The lessor is usually referred to asthe landlord.

The interest held by the lessor.

Property that because of marketconditions, unique features, orother factors attracts relatively fewpotential buyers.

Constraints which are imposed onvaluations by clients, the Valuer, orlocal statutory law.


GN 4, 3.17

GN 2, 3.1.3

IVS 2, 3.2; GN 8,3.3

Code of Conduct,3.2



LiquidationValue

Liquidator

LivestockRanches/Stations

See Forced Sale Value.

A person appointed by the court, orby the creditors of a company, orby the members of the companyfor the purpose of effecting the liq-uidation.

Agricultural properties used toraise and feed animals such as cat-tle, sheep, pigs, goats, horses, orcombinations thereof. The actualuse of these properties can takemany forms. The animals may bebred, raised, and sold within theoperation of the property. Younganimals may be acquired from out-side the property and then raisedwithin the property. The animalsmay be raised for consumptive useor for breeding stock. Feed for theanimals may be produced on theproperty, imported, or supplied byboth sources. Properties used forthe production and feeding of live-stock have significant capitalinvestment in the structuralimprovements (pens, livestockshelters, sheds, division fencing)and the livestock, which may ormay not be depreciable dependingon the laws and regulations of thelocal jurisdiction.

GN 10, 3.5



LoanSecurity

Machinery

MajorityControl

MajorityInterest

ManagementAccounts orInternalAccounts

Market

An asset which is legally nominat-ed to be available to a lender forrealisation and recovery of moneyowed following default by the bor-rower.

A machine is an apparatus using orapplying mechanical power, havingseveral parts each with a definitefunction, and together performingcertain kinds of work.

For valuation purpose, thisincludes individual machines orcollection of machines.

The degree of control provided bya majority position.

Ownership position greater than50% of the voting interest in abusiness.

Accounts used by those who man-age enterprises to monitor andguide them in day-to-day activities.Presented to aid decision makingwithin the enterprise, they are notfor publication or subject to exter-nal regulation.

It is the environment in whichgoods and services trade betweenbuyers and sellers through the pricemechanism.

GN 3, 3.1.2

GN 6, 3.26

GN 6, 3.25

IVA 1, A2.1.1

General ValuationConcepts andPrinciples, 4.4;Introduction to IVS1, 2 and 3, 2.0



MarketApproach

MarketRent

The concept of a market implies anability of goods and/or services totrade among buyers and sellerswithout undue restriction on theiractivities. A market can be local,national, or international.

See also Demand, Principle ofSupply and Demand, Supply.

Any approach to value based uponthe use of data that reflect markettransactions and reasoning that cor-responds to the thinking of marketparticipants.

A general way of estimating avalue indication for an asset usingone or more methods that comparethe subject to similar assets thathave been sold.

The estimated amount for which aproperty, or space within a property,should lease on the date of valua-tion between a willing lessor and awilling lessee on appropriate termsin an arm’s-length transaction afterproper marketing wherein the par-ties had each acted knowledgeably,prudently, and without compulsion.If the terms of the lease vary fromthose that the market would deemto be appropriate, i.e., the marketnorm, then the market rent applica-ble to that lease would also vary asa reflection of those terms.

Also called economic rent.

GN 4, 3.18; GN 6,3.27

GN 2, 3.1.9.1



MarketValue

MarketValue forthe ExistingUse(MVEU) (orExisting UseValue)

The estimated amount for which aproperty should exchange on thedate of valuation between a willingbuyer and a willing seller in anarm’s-length transaction after prop-er marketing wherein the partieshad each acted knowledgeably,prudently, and without compulsion.

The concept of Market Valuereflects the collective perceptionsand actions of a market and is thebasis for valuing most resources inmarket-based economies. The pro-fessionally derived Market Value isan objective valuation of identifiedownership rights to specific proper-ty as of a given date.

See also Highest and Best Use,Non-Market Bases of Value

The estimated amount for whichthe land should exchange, withvacant possession, based on contin-uation of its existing use, betweena willing buyer and willing sellerin an arm’s-length transaction afterproper marketing wherein the par-ties had acted knowledgeably, pru-dently, and without compulsion. Inthe context of DRC methodology,the existing use value of the landmay be applied in developing onepart of the DRC model. The report-ed DRC estimate should nonethe-less reflect the Market Value of theland component based on its high-est and best use.

IVS 1, 3.1

GN 8, 3.4



It should be noted that theInternational Accounting Standardsno longer recognise MVEU andthat the MVEU basis of valuationhas been taken under advisementby the IVSC.

The term, existing use value, isCommonwealth usage.

In 1998 the IASB and IVSC aban-doned the concept of Market Valuefor Existing Use and removed itfrom their standards (IAS 16 andIAS 22). The reasoning behind thisdecision was that existing use isinconsistent with the definition offair value, which refers to a trans-action price. In efficient markets,transaction prices cannot necessari-ly be said to reflect purely existinguse or purely an alternative usebecause different market partici-pants may well take differentviews.

It should, however, be noted thatthe concept has not been universal-ly abandoned by national account-ing standard setters and remains inuse in some jurisdictions. In addi-tion, the MVEU concept is consid-ered an integral component ofDRC methodology and the basis ofland valuation when DRC esti-mates are used in financial report-ing to arrive at a surrogate forMarket Value of limited marketand specialised properties.



MarketabilityDiscount

MarriageValue(AssemblageValue)

MasterLease

MinimumContents ofa ValuationReport

An amount or percentage deductedfrom an equity interest to reflectlack of marketability.

The value increment that would berealised by the merger of interestsin property. For example, the valueof two adjoining parcels of landmay be greater as one propertythan the aggregate of their separatevalues.

The term, marriage value, isCommonwealth usage; in NorthAmerica, the terms, assemblagevalue and plottage value, are used.

The excess value, if any, producedby a merging of two or more(lease) interests in a property, over-and-above the sum of values ofthose individual interests.

See Headlease.

All valuation reports must clearlyand accurately set forth the conclu-sions of the valuation in a mannerthat is not misleading. Ten elementshave to be included in all valuationreports: 1) the identity of the Valuerand the date of the report; 2) theidentity of the client; 3) the instruc-tions, date of the value estimate,purpose and intended use of the val-uation; 4) the basis of the valuation,including type and definition of

GN 6, 3.29

IVS 2, 3.11

GN 2, 3.1.11.3

Code of Conduct,7.1; IVS 3, 5.1



MinorityDiscount

MinorityInterest

value; 5) the identity, tenure, andlocation(s) of the property interest(s)or right(s) to be valued; 6) the dateand extent of inspections; 7) thescope and extent of the work used todevelop the valuation; 8) anyassumptions and limiting conditions;and any special, unusual, or extraor-dinary assumptions; 9) a compliancestatement that the valuation has beenperformed in accordance with theseStandards and any required disclo-sures; and 10) the professional quali-fication and signature of the Valuer.As required in some States, specificcertification by the Valuer in the pre-scribed form.

Valuation reports may oftendescribe the information and dataexamined, the market analysis per-formed, the valuation approachesand procedures followed, and thereasoning that supports the analy-ses, opinions, and conclusions.

A discount for lack of controlapplicable to a minority interest.

Ownership position of less than50% of the voting interest in abusiness.

That part of the net results of oper-ation and of net assets of a sub-sidiary attributable to interestswhich are not owned, directly orindirectly through subsidiaries, bythe parent.

GN 6, 3.31

GN 6, 3.30

IAS 22,8



ModernEquivalentAsset(MEA)

MortgageLendingValue(MLV)

Net Assets

A term used in some States in ref-erence to a structure similar to anexisting structure and having anequivalent productive capacity thatcould be built using modern mate-rials, techniques, and design.Replacement cost is the basis usedto estimate the cost of constructinga modern equivalent asset.

The term, modern equivalent asset,is Commonwealth usage.

The value of the property as deter-mined by the Valuer making a pru-dent assessment of the future mar-ketability of the property by takinginto account long-term sustainableaspects of the property, the normaland local market conditions, andthe current use and alternativeappropriate uses of the property.Speculative elements may not betaken into account in the assess-ment of mortgage lending value.The mortgage lending value shallbe documented in a transparent andclear manner.

Total assets less total liabilities.

GN 8, 3.8

IVS 2, 3.12 (fromDirective 98/32/ECof the EuropeanParliament and ofthe Council of 22June 1998)

GN 6, 3.32



NetCarryingAmount

Net CashFlow

Net CurrentReplacementCost

Net(Operating)Income

Under the historical cost conven-tion, net carrying amount repre-sents the gross carrying amountless accumulated depreciation. It isalso referred to as the net revaluedamount found through an indexa-tion of historical costs, or valuationor periodic revaluation of theassets.

See also Carrying Amount.

During an operating period, thatamount of cash that remains afterall cash needs of the business havebeen satisfied. Net cash flow istypically defined as being cashavailable to equity or invested cap-ital.

See also Cash Flow.

i) Cost that would be incurred inthe marketplace in acquiring anequally satisfactory substituteasset.

ii) It is the cost of purchasing, atthe least cost, the remaining servicepotential of the asset at the balancesheet date; it is an entry value.

iii) Simply put, it is the replace-ment cost less depreciation.

Revenue less expenses, includingtaxes.

See also Operating Expenses.

IVA 1, A6.3

GN 6, 3.34

GN 6, 3.33



Net PresentValue(NPV)

NetRealisableValue

The measure of the differencebetween the discounted revenues, orinflows, and the costs, or outflows,in a DCF analysis. In a valuationthat is done to arrive at MarketValue, where discounted inflows andoutflows and the discount rate aremarket derived, the resulting NPVshould be indicative of the MarketValue by the income approach.

i) The estimated selling price of anasset in the ordinary course ofbusiness, less selling costs andcosts of completion.

ii) It is the estimated proceeds ofsale of an asset, less the sellingcosts; it is an exit value.

iii) The estimated selling price inthe ordinary course of business lessthe estimated costs of completionand the estimated costs necessaryto make the sale.

Net realisable value is used onlywithin the context of IAS 2,Inventories, for properties held fordisposal. In those circumstances,that figure would equate to MarketValue less selling costs where allrequirements of the Market Valuedefinition are met. In particular,this includes sufficient time for theMarket Value transaction to occur.Market Value is ordinarily a grossfigure or, more appropriately, a“face value” prior to deduction ofdisposition costs.

GN 9, 3.6

IAS 2,4

IVA 1, A6.5



Net SellingPrice

Non-CurrentAssets

Non-MarketBases ofValue

The amount obtainable from thesale of an asset in an arm’s-lengthtransaction between knowledge-able, willing parties, less the costsof disposal.

Tangible and intangible assets,which fall into two broad cate-gories, namely property, plant andequipment, and other long-termassets.

Also called fixed, or long-term,assets.

Valuations of property may bebased on considerations of the eco-nomic utility or functions of aproperty other than its ability to bebought and sold by market partici-pants, or the effects of unusual oratypical market conditions.

See also Assessed, Rateable, orTaxable Value; Going ConcernValue; Insurable Value; InvestmentValue or Worth; Liquidation orForced Sale Value; Marriage Value;Salvage Value; Special Value;Value in Use.

IAS 36,5


Introduction to IVS1, 2 and 3, 4.2.1



Non-OperationalAsset

Obsolescence

OperatingCompany

In the public sector, a surplus assetor one, which is not considerednecessary to the production of thegoods or services the entity pro-duces, but which is held for invest-ment, development or disposal, oris used for some other commercialpurpose unrelated to the operationof the entity or the statutory obliga-tions, which the entity was estab-lished to meet.

See Investment Asset, SurplusAsset. See also Operational Asset.

A loss in value due to a decrease inthe usefulness of property causedby decay, changes in technology,people’s behaviourial patterns andtastes, or environmental changes.Obsolescence is sometimes classi-fied according to items of outmod-ed design and functionality, overdesign/over engineering (e.g., anasset designed to produce at acapacity which current demand nolonger warrants), items with struc-tural design unable to meet currentcode requirements, and factors aris-ing outside the asset (external oreconomic obsolescence), such aschanges in user demand.

A business that performs an eco-nomic activity by making, selling,or trading a product or service.

GN 6, 3.35





OperatingExpenses(Outgoings)

OperatingLease

OperationalAsset

The expenses incurred in generat-ing income.

In real estate, these expensesinclude but are not necessarily lim-ited to property tax, insurance,repairs and maintenance, and man-agement fees.

Operating expenses when subtract-ed from gross income equal netoperating income.

The term, operating expenses, isNorth American usage; outgoingsis Commonwealth usage.

A lease other than a finance lease.

A lease is classified as an operatinglease if it does not transfer substan-tially all the risks and rewards inci-dent to ownership.

See also Finance Lease.

An asset considered requisite to theoperations of an entity (a goingconcern or corporation). In thepublic sector, operational assetscomprise three categories: infra-structure, specialised propertiessuch as heritage assets, and non-specialised properties such asmunicipal office buildings.

See also Investment Asset, Non-Operational Asset, Surplus Asset.

IAS 17,3

IAS 17,6Classification ofLeases


Optimisation

Option

Oral Report

The upgrading or remediation of aproperty to optimise its productivi-ty.

The process of considering physi-cal deterioration and functional/technical obsolescence in a proper-ty asset, and determining the mosteconomic means to replicate theasset’s service potential. The costsof upgrading and remediation arecontingent liabilities to be estimat-ed and disclosed in conjunctionwith the optimisation process.

The term, optimisation, is used insome parts of the Commonwealth.

An agreement to keep open anoffer to buy, sell, or lease realproperty for a specified period at astated price. An option creates acontractual right, the exercise ofwhich is generally contingent uponthe fulfillment of specified condi-tions.

The results of a valuation verballycommunicated to a client or pre-sented before a court either asexpert testimony or by means ofdeposition. A report communicatedorally to a client should be support-ed by a work file and at a mini-mum followed up by a writtensummary of the valuation.

See also Written Report.

GN 8, 3.11


IVS 3, 3.2



Outgoings

Owner-OccupiedProperty

Partial orFractionalInterest

ParticipationRent

Partnership

PassingRent

PercentageLease

See Operating Expenses.

Property held by the owner or bythe lessee under a finance lease foruse in the production or supply ofgoods or services or for administra-tive purposes.

Rights in real property created bylegal divisions of the ownershipinterest. For example, real propertyis not only owned in sole propri-etorships, but may also be held bycorporations (shareholders), part-nerships, joint tenancies, and ten-ancies in common.

See Turnover Rent.

An ownership interest in whichtwo or more persons jointly own abusiness or property and share itsprofits and losses. Partnershipsmay be general or limited.

See Contract Rent.

See Turnover Lease.

IAS 40,4; IPSAS16,6


Property Types,5.1.1.1, 5.1.2.1



PerennialPlantings

PersonalProperty

Crops grown from plantings thathave a life extending beyond oneyear or one crop cycle. Examplesare vineyards and orchards. Thesetypes of properties can have signifi-cant capital investment in the plant-ings, which represent a depreciableasset. See also Forestry/Timberland.

A legal concept referring to allrights, interests, and benefits relat-ed to ownership of items other thanreal estate. In certain States, itemsof personal property are legallydesignated as personalty in distinc-tion to realty, which may eitherrefer to real property or real estate.

Items of personal property can betangible, such as a chattel, or intan-gible, such as a debt or patent. Itemsof tangible personal property typi-cally are not permanently affixed toreal estate and are generally charac-terized by their moveability.

Personal property may be valuedaccording to its Market Value, sal-vage value, or liquidation value. Thetechniques used in the three valua-tion approaches may be applied tothe valuation of personal property.

See also Collectibles; Fixtures andFittings; Furniture, Fixtures, andEquipment (FF&E); Goods andChattels Personal; LeaseholdImprovements or Tenant’sImprovements; Plant and Equipment;Trade Fixtures or Tenant’s Fixtures.

GN 10, 3.3

General ValuationConcepts andPrinciples, 2.4, 3.3;Property Types,2.1.1, 3.1, 3.2, 3.3,3.5; GN 5, 3.14



Personalty

PhysicalDeterioration

PhysicalLife

Plant

Plant andEquipment

A legal term used in certain Statesto designate items of personalproperty in distinction to realty,which may either refer to realproperty or real estate. Personaltyincludes tangible and intangibleitems, which are not real estate.

See also Personal Property, Realty.

A loss in value due to impairmentof physical condition; may be cur-able or incurable.

The period during which an asset iscapable of use taking into accountfactors such as its condition andwhether it meets or is capable ofmeeting accepted standards andstatutory requirements.

An assemblage of assets that mayinclude specialised non-permanentbuildings, machinery, and equipment.

Assets intended for use on a con-tinuing basis in the activities of anenterprise/entity including spe-cialised, non-permanent buildings;machinery (individual machines orcollections of machines, trade fix-tures, and leasehold improve-ments); and other categories ofassets, suitably identified.

General ValuationConcepts andPrinciples, 3.3;Property Types,3.1; GN 5, 3.15

GN 3, 1.1




Plant andMachinery

PlottageValue

Portfolio

Powers ofGovernment

Tangible assets that:

(a) are held by an enterprise/entityfor use in the production or supplyof goods or services, for rental toothers, or for administrative pur-poses; and

(b) are expected to be used over aperiod of time.


See Plant and Equipment.

See Marriage Value.

An assemblage of the various prop-erties held or managed by a singleentity.

Powers exercised by the state, thatimpose certain limitations uponproperty rights. Powers of govern-ment include taxation, compulsoryacquisition/purchase, regulation,and appropriation in cases of intes-tacy.

See also Assessed, Rateable, orTaxable Value; Bona Vacantia;Compulsory Acquisition/Purchase;Condemnation; Eminent Domain;Escheat; Land Use Planning.

GN 3, 3.1; GN 5,3.16



Premium(LeasePremium)

PresentValue

PresentValue of $1per Period

Price

Principle ofAnticipation

The price paid by an actual orprospective lessee to a lessor, usu-ally in consideration of the rent orfor the rent being reduced to belowwhat would otherwise be payable.

The current monetary value offuture cash flows.

The present day worth or capitalsum of the right to receive $1 perperiod for a given number of futureperiods, when each periodic receipthas been discounted at a selectedrate of interest and the individualpresent values aggregated. It issynonymous with years’ purchase.

An amount asked, offered, or paidfor a good or service. The conceptof price relates to the exchange ofa commodity, good, or service.Once the exchange has been trans-acted, the price, whether publiclydisclosed or kept confidential,becomes an historic fact. The pricepaid represents the intersection ofsupply and demand.

See also Cost, Value.

Value is created by the expectationof future benefits.





Principle ofConsistentUse

Principle ofSubstitution

Principle ofSupply andDemand

The principle that land cannot bevalued on the basis of one usewhile improvements are valued onthe basis of another. The principleof consistent use must be addressedwhere land use is changing andwhen properties are devoted to tem-porary interim uses. Improvementsthat do not represent the land’shighest and best use, but have sub-stantial remaining physical lives,may have an interim use of tempo-rary value, no value at all, or evennegative value if substantial costsmust be incurred for their removal.

A prudent person will not pay morefor a good or service than the costof acquiring an equally satisfactorysubstitute good or service, in theabsence of the complicating factorsof time, greater risk, or inconven-ience. The lowest cost of the bestalternative, whether a substitute orthe original, tends to establishMarket Value. This principle isfundamental to the three approach-es to Market Value.

The price of a good, service, orcommodity varies inversely withthe supply of the item and directlywith the demand for the item.

See also Demand, Market, Supply.





PrivateTreaty Sale

Privatisation

ProfessionalAsset Valuer

ProfessionalPropertyValuer

A sale negotiated and transactedbetween persons rather than bypublic auction or another method.The sale price paid in a privatetreaty sale is generally not knownexcept by the parties to the transac-tion. See also Auction Price,Hammer Price.

The process of transferring proper-ty from state ownership to privateownership; privatisation is general-ly carried out through the distribu-tion to citizens of shares in former-ly state-owned industries, the out-right transfer of residential units tooccupants, the restoration of prop-erty to the owners or their descen-dants before the advent of national-isation, or by sale of the propertyto local or foreign investors.

A person with the necessary quali-fications, ability, and experience toexecute valuations of land, build-ings, and/or plant and machinery,generally for incorporation intocompany financial statements.

See also Professional PropertyValuer.

A person who possesses necessaryqualifications, ability, and experi-ence to estimate property value –generally the value of real property– for a diversity of purposes

GN 5, 3.17

Introduction/IVSObjectives andScope

Introduction/IVSObjectives andScope; GN 5, 3.18



Property

including transactions involvingtransfers of property ownership,property considered as collateral tosecure loans and mortgages, prop-erty subject to litigation or pendingsettlement on taxes, and propertytreated as fixed assets in financialreporting. A Professional PropertyValuer may also possess the specif-ic expertise to perform valuationsof other categories of property, i.e.,personal property, businesses, andfinancial interests.

See also External Valuer,Independent Valuer, Internal Valuer,Professional Asset Valuer, Valuer.

A legal concept, encompassing allthe interests, rights, and benefitsrelated to ownership. Property con-sists of the private rights of owner-ship which entitle the owner to aspecific interest or interests in whatis owned. To distinguish betweenreal estate, a physical entity, and itsownership, a legal concept, the own-ership of real estate is called realproperty. Ownership of an interest inan item other than real estate isreferred to as personal property.

The International ValuationStandards Committee recognisesthe following four property types:real property, personal property,businesses, and financial interests.

See also Bundle of Rights,Personal Property, Real Property.

General ValuationConcepts andPrinciples, 2.3, 2.4



PropertyCompany

Property,Plant andEquipment(PP&E)

PropertyRights

A holding company in real property.

i) Assets intended for use on a con-tinuing basis in the activities of anenterprise including land and build-ings, plant and equipment, accumu-lated depreciation, and other cate-gories of assets, suitably identified.

ii) Tangible assets that: a) are heldby an entity for use in the produc-tion or supply of goods or services,for rental to others, or for adminis-trative purposes; and b) are expect-ed to be used during more than oneperiod.

The rights associated with the own-ership of the real estate. Theseinclude the right to use the proper-ty, to sell it, to lease it, to give itaway, to develop it, to farm it, tomine it, to alter its topography, tosubdivide it, to assemble it, to useit for waste disposal, or to chooseto exercise none of these rights.The combination of property rightsis sometimes referred to as thebundle of rights. Property rights aretypically subject to public and pri-vate restrictions such as easements,rights of way, zoning, specifieddevelopment density, and otherrestrictions that may encumberproperty.

General ValuationConcepts andPrinciples, 3.5.2.1

IAS 16,6; IPSAS17,12

GN 1, 3.0



PropertyValuer

PropertywithTradingPotential

PublicBuilding

PublicSector Asset

See Professional Property Valuer.

See Specialised Trading Property.

A building that serves some commu-nity or social function and is held inpublic ownership. Examples includecourthouses, municipal centres,schools, prisons, police stations, mili-tary facilities, libraries, hospitals,clinics, and social or public housing.

A property, owned or leased by govern-mental or statutory authority and man-aged by a governmental or quasi-gov-ernmental agency, for the provision ofsome essential public service or good.Public sector properties comprise dif-ferent asset types, including conven-tional properties as well as heritage andconservation assets, infrastructure, pub-lic utility plants, recreational assets, andpublic buildings (e.g., military facili-ties), each category of which constitutesproperty, plant, and equipment. Publicsector properties may also be classifiedas operational and non-operational orsurplus assets.

See also Heritage and ConservationAsset, Infrastructure, Non-Operational Asset, OperationalAsset, Public Building, PublicUtility Plant, Recreational Asset.



PublicUtility Plant

Rate ofReturn

RateableValue

Real Estate

RealProperty

Realty

A property that

a) produces a service or good forgeneral public consumption; and

b) is usually a monopoly or quasi-monopoly provider subject to someform of governmental control.

An amount of income (loss) and/orchange in value realised or antici-pated on an investment, expressedas a percentage of that investment.

See Assessed Value.

Physical land and all things that area natural part of the land as well asthose items which are attached tothe land by people.

See also Improvements, Land, RealProperty.

A legal concept referring to all therights, interests, and benefits relat-ed to the ownership of real estate.An interest in real estate is normal-ly recorded in a formal document,such as a title deed or lease.

See also Property, Real Estate.

A legal term used in the US to des-ignate real estate or real property indistinction to items of personalty.

See also Personalty.

GN 4, 3.20; GN 6, 3.36






The process of incorporating in thebalance sheet or income statementan item that meets the definition ofan element and satisfies the follow-ing criteria:

a) it is probable that any futureeconomic benefit associated withthe item will flow to or from theenterprise; and

b) the item has a cost or value thatcan be measured with reliability.

Recognition involves the depictionof the item in words and by a mon-etary amount and the inclusion ofthat amount in the balance sheet orincome statement totals. Items thatsatisfy the recognition criteriashould be recognised in the balancesheet or income statement. Thefailure to recognise such items isnot rectified by disclosure of theaccounting policies used nor bynotes or explanatory material.

The higher of an asset’s net sellingprice (net realisable value) and itsvalue in use.

See Expense Pass-throughs.

IAS Framework, 82,83

IAS 36,5; IVA 1,6.4.4



Recognition

RecoverableAmount

RecoverableCosts

RecreationalAsset

ReinstatementValue

Rent(al)

RentEscalations(SteppedRents)

A property held in public owner-ship that

a) is managed by or on behalf ofnational, municipal, or local gov-ernment authorities; and

b) provides for recreational use bythe general public.

Examples include parks; play-grounds; green belts; walks andtrails; swimming pools; playingcourts, fields, and courses; andother properties equipped withrecreational and athletic facilities.

This is the cost necessary toreplace, repair, or rebuild the prop-erty insured to a condition substan-tially the same as, but not better ormore extensive than, its conditionwhen new.

See Contract Rent, Market Rent,Turnover Rent.

Upward rental adjustments basedon some external change or index-ing, and specified in a lease clause.(The term, rent escalations, isNorth American usage; steppedrents is Commonwealth usage.)

See also Expense Pass-throughs.

GN 3, 3.5.5



ReplacementCost (New)

Report Date

ReproductionCost (New)

ReservePrice

i) The cost of replacing an assetwith an equally satisfactory substi-tute asset.

ii) Normally derived from the cur-rent acquisition cost of a similarasset, new or used, or of an equiva-lent productive capacity or servicepotential.

Replacement cost assumes the useof modern materials, techniques,and designs.

See also Reproduction Cost.

The date of the valuation report.May be the same or different fromthe valuation date.

The current cost of an identicalnew item.

The current cost of constructing areplica of the existing structures,employing the same design andsimilar building materials.

In the market for fine art, reproduc-tion cost is equivalent to the cost ofcreating a facsimile of the originalitem.

See also Cost Approach forValuing Fine Art, ReplacementCost.

The lowest acceptable price fixedby the vendor.

General ValuationConcepts andPrinciples, 4.11;GN 4, 3.21; GN 6,3.37

GN 4, 3.22; GN 6,3.38

General ValuationConcepts andPrinciples, 4.11;GN 4, 3.23; GN 6,3.39



ResidualValue

RestrictiveCovenants

RevaluedAmount

ReversionYield

Right ofWay

The net amount which an entityexpects to obtain for an asset at theend of its useful life after deduct-ing the expected costs of disposal.

The remaining value of an asset atthe end of a prescribed period oftime (in this definition residualvalue is similar to scrap value).

See Deed Restrictions.

i) The value of property, plant andequipment as established byappraisal or valuation normallyundertaken by professionally quali-fied Valuers.

ii) The fair value of an asset at thedate of as revaluation less any sub-sequent accumulated depreciationand subsequent accumulatedimpairment losses.

See also Allowed AlternativeTreatment.

See Terminal Capitalisation Rate.

Right or privilege, acquiredthrough use or contract, to passover a portion or strip of landedproperty owned by another.

See also Easement.

IAS 16,6; IAS38,7; IPSAS 17,12

IAS 16,29




Sale andLeaseback

SalesComparisonApproach

A simultaneous sale of real estateand lease of the property to theseller. The buyer becomes the les-sor or landlord and the sellerbecomes the lessee or tenant.Because there may be unique cir-cumstances or relationshipsbetween the parties, sale and lease-back transactions may or may notinvolve typical market terms.

A comparative approach to valuethat considers the sales of similaror substitute properties and relatedmarket data and establishes a valueestimate by processes involvingcomparison. In general, anappraised property is comparedwith sales of similar properties thathave been transacted in the openmarket. Listing and offerings mayalso be considered.

A general way of estimating avalue indication for personal prop-erty or an ownership interest inpersonal property, using one ormore methods that compare thesubject to similar properties or toownership interests in similar prop-erties. This approach to the valua-tion of personal property isdependent upon the Valuer’s mar-ket knowledge and experience aswell as recorded data on compara-ble items.

Also called comparable salesmethod.

GN 2, 3.1.12


GN 5, 3.12



SalvageValue

SandwichLessorInterest

Scrap Value

SecuritisedInvestmentInstruments

The value of a property, excludingland, as if disposed of for the mate-rials it contains, rather than forcontinued use without specialrepairs or adaptation.

It may be given as gross or net ofdisposal costs and, in the lattercase, may equate to net realisablevalue. It is the expected value ofthe asset at the end of its economiclife. The concept of salvage valueis that the asset is valued for sal-vage disposal rather than for itsoriginally intended purpose.

See Headleasehold Interest.

The value a wasting asset will haveat the end of its predictable life, asknown or ascertainable at the timewhen the asset was acquired orprovided by the person making thedisposal.

Instruments securing debt and equi-ty positions that are bought and soldin a private or institutional marketsector and a public market sector;examples include real estate invest-ment trusts (REITs), collateralisedmortgage obligations (CMOs), com-mercial mortgage-backed securities(CMBSs), real estate operatingcompanies (REOCs), and separateand commingled funds.

IVS 2, 3.9




ServicePotential

The capacity to provide goods andservices in accordance with theentity’s objectives, whether thoseobjectives are the generation of netcash inflows or the provision ofgoods and services of a particularvolume, quantity, and quality tobeneficiaries or stakeholders. In thepublic sector, the concept of serv-ice potential takes the place of freemarket cash flows and the test ofadequate profitability applied in theprivate sector. The test of adequateservice potential, which determineswhether the asset meets therequirements set for its productivecapacity, is generally undertakenby the directors/managers of theentity.

The future economic benefitsembodied in the asset in terms ofits potential to contribute, directlyor indirectly, to the flow of cashand cash equivalents to the entity.Service potential is measured asthe level of productive capacitythat would have to be replaced ifthe entity were deprived of theasset. In quantifiable terms, contin-ued service potential is expressedas remaining useful life or remain-ing productive capacity.

The term, service potential, isCommonwealth usage.

GN 8, 3.7



Before completing the acquisition ofa property, a prudent purchaser in themarket typically exercises due dili-gence by making customary enqui-ries about the property. It is normalfor a Valuer to make assumptions asto the most likely outcome of this duediligence process and to rely on actu-al information regarding such mattersas provided by the client. Special,unusual, or extraordinary assump-tions may be any additional assump-tions relating to matters covered inthe due diligence process, or mayrelate to other issues, such as theidentity of the purchaser, the physicalstate of the property, the presence ofenvironmental pollutants (e.g.,ground water contamination), or theability to redevelop the property.

See also Assumptions.

See Specialised Properties.

See Dairy Farms, LivestockRanches/Stations.

Properties that are rarely if ever soldon the (open) market, except byway of a sale of the business orentity of which they are a part(called the business in occupation),

IVS 3, 3.6

General ValuationConcepts andPrinciples, 8.2; IVA1, 3.5; GN 8, 3.2



Special,Unusual, orExtraordinaryAssumptions

SpeciallyDesigned(Assets)Properties

SpecialisedLivestockFacilities

SpecialisedProperties

Specialised,or SpecialPurpose,AgriculturalProperties

due to their uniqueness, arisingfrom the specialised nature anddesign of the buildings, their config-uration, size, location, or otherwise.

Examples of specialised propertiesinclude refineries, power stations,docks, specialised manufacturingfacilities, public facilities, churches,museums, and properties located inparticular geographical locations foroperational or business reasons. Suchproperties or assets may also bereferred to as limited or non-marketassets. The Depreciated ReplacementCost (DRC) method is commonlyused in the valuation of specialisedproperties for financial reporting pur-poses with proper disclosure.

Also called special purpose, or spe-cial use, properties.

Agricultural properties that do nottypically produce a crop but areused for the handling, processing, orstorage of crops following harvest.These properties frequently have asmall land base that is extensivelydeveloped with structural improve-ments (grain elevators) and equip-ment (lifting machinery). Propertiesmay also be classified as specialpurpose by the nature of the com-modity produced. Examples aretruck farms, poultry farms, farmsthat produce certified crop seeds orfresh cut flowers, and racehorsebreeding or training stables.

GN 10, 3.8



SpecialPurposeProperties

SpecialisedTradingProperty(STP)

SpecialPurchaserValue

Special UseProperties

SpecialValue


Property with trading potential,such as hotels; gas, or petrol, sta-tions; restaurants; and the like, theMarket Value of which may includeassets other than land and buildingsalone. These properties are com-monly sold in the market as anoperating package that may makeseparate identification of the valueof the land, building, personal prop-erty, intangible assets, and businessitself difficult or impossible.

Also called property with tradingpotential.

The terms, specialised trading prop-erty and property with tradingpotential, are Commonwealth usage.

Value reflecting the premium anowner of land may pay for adjacentproperty in excess of Market Value.

See also Special Value.


A term relating to an extraordinaryelement of value over and aboveMarket Value. Special value couldarise, for example, by the physical,functional, or economic association

Property Types,4.3.2; IVA 1, 3.4


IVS 2, 3.11



Specificationsfor theValuationAssignment

of a property with some otherproperty such as the adjoiningproperty. It is an increment ofvalue, which could be applicable toa particular owner or user, orprospective owner or user of theproperty, rather than to the marketat large; that is, to a purchaser witha special interest. Special valuecould be associated with elementsof going concern value. The Valuermust ensure that such criteria aredistinguished from Market Value,making clear any special assump-tions made.

The first step in the ValuationProcess, which establishes the con-text and scope/extent of the assign-ment and resolves any ambiguityinvolving the valuation issue orproblem. The term is similar to val-uation brief as used in some States.A Valuer ensures that the analyses,information and conclusions pre-sented in the report fit the specifi-cations for the assignment. Thespecifications for the value assign-ment include the following sevenelements:

1. An identification of the real, per-sonal (plant and machinery; furni-ture, fixtures, and equipment[FF&E]), business, or other proper-ty subject to the valuation andother classes of property includedin the valuation besides the pri-mary property category;

IVS 3, 3.4



SteppedRents

Subleasehold

2. An identification of the propertyrights (sole proprietorship, partner-ship, or partial interest) to be val-ued;

3. The intended use of the valua-tion and any related limitation; andthe identification of any subcon-tractors or agents and their contri-bution;

4. A definition of the basis or typeof value sought;

5. The date as of which the valueestimate applies and the date of theintended report;

6. An identification of the scope/extent of the valuation and of thereport; and

7. An identification of any contin-gent and limiting conditions uponwhich the valuation is based.

See Rent Escalations.

A leasehold position created whena tenant or lessee in a prior leaseconveys to a third party, a subles-see, the interest that the tenant, orlessee, enjoys.

See also Headlease or MasterLease, Headleasehold Interest.




SubsequentExpenditure

Substitution

SummationApproach

Supply (in aPropertyMarket)

SurplusAsset

Subsequent expenditure relating toan item of property, plant, andequipment that has already beenrecognised should be added to thecarrying amount of the asset whenit is probable that future economicbenefits, in excess of the originallyassessed standard of performanceof the existing asset, will flow tothe enterprise. All other subsequentexpenditure should be recognisedas an expense in the period inwhich it is incurred.

See Principle of Substitution.

See Cost Approach.

The quantity of property intereststhat are available for sale or leaseat various prices in a given marketwithin a given period of time,assuming labor and productioncosts remain constant.

See also Demand, Market,Principle of Supply and Demand.

An asset that is owned by an entitysuch as a corporation but consid-ered superfluous to the operationsof that entity. A surplus asset is notconsidered necessary to the pro-duction of the good or service theentity produces. It is held forinvestment, development, or dis-

IAS 16,23




Syndication

TangibleAssets

TaxableValue

TechnicalObsolescence

posal, or used as security for a loanor some other commercial purposeunrelated to the operation of theentity. The Market Value of a sur-plus asset is determined by itshighest and best use. Also callednon-operational asset.

See also Investment Asset,Operational Asset.

Legal entity related to a partner-ship; often organised by a generalpartner with investors as limitedpartners, whereby funds are pooledfor the acquisition and develop-ment of real estate projects or busi-ness ventures.

Assets with a physical manifesta-tion.

Examples include land and build-ings, plant and machinery, fixturesand fittings, tools and equipment,and assets in the course of con-struction and development.

See Assessed Value.

Term used by PP&E Valuers forFunctional Obsolescence.




TechnicalReview

Tenant’sInterest

TerminalCapitalisationRate(ReversionYield)

Timberland

Toxic

A valuation review performed by aValuer to form an opinion as towhether the analyses, opinions, andconclusions in the report underreview are appropriate, reasonable,and supportable.

See Lease Interest.

The capitalisation rate used to con-vert income into an indication ofthe anticipated value of the proper-ty at the end of the holding periodor property resale value.

In North America, the terminalcapitalisation rate is also called aresidual capitalisation rate or acoming-out capitalisation rate. Inthe Commonwealth, it is known asa reversion yield.

See Forestry/Timberland.

The status of a material, whethergas, liquid, or solid, that in itsform, quantity, and location at thedate of valuation has capacity tocause harm to life-forms.

Toxicity refers to the degree orextent of such capacity.

GN 11, 3.3

GN 7, 3.3



TradeFixtures orTenant’sFixtures

TradingEntity

TradingPotential

Trust

TurnoverLease

Non-realty fixtures attached toproperty by the tenant and used inconducting the trade or business.

See also Leasehold Improvementsor Tenant’s Improvements,Personal Property.

See Specialised Trading Property.

Future profits to be derived fromthe sale of goods and products,e.g., petrol, food, and drink, or theprovision of specialised facilitiesfor lodging, parking, gaming, orentertainment. Trading potential isassociated with a category of prop-erties (petrol stations, restaurants,hotels, casinos, cinemas, and the-atres), the Market Value of whichincludes not only land, buildings,and personal property but alsointangibles, such as goodwill, andthe business itself.

The term, trading potential, isCommonwealth usage.

See Equitable or Equity Interest.

Also called a percentage lease; alease provision in which some orall of the rental amounts to be paidis based upon a percentage of therevenues derived from that leasedunit by the lessee. It is common for


GN 2, 3.1.8.2



TurnoverRent

Useful Life

Unit(s) ofComparison

such arrangements to include aguaranteed minimum or base rent,which is not dependent upon thelessee’s operations for its amount,as well as a percentage or partici-pation rent in operating revenuesover a stated amount.

Also called participation rent; anyform of lease rental arrangement inwhich the lessor receives a form ofrental that is based upon the earn-ings of the lessee. A percentagerent is an example of a turnoverrent.

Either

a) the period over which a depre-ciable asset is expected to be usedby an entity; or

b) the number of production orsimilar units expected to be ob-tained from the asset by the entity.

Typically a factor produced by twocomponents, which reflects precisedifferences between properties andfacilitates analysis, e.g., price persquare metre or square foot, or theratio of a property’s sale price to itsnet income (Net Income Multiplier/Years’ Purchase).

GN 2, 3.1.9.3

IAS 16,6; IAS17,3; IAS 36,5;IPSAS 17,12

GN 1, 3.0



Utility

VacantPossession

A relative or comparative termrather than an absolute conditionthat refers to the degree of useful-ness of a good or service.

The utility of agricultural land ismeasured by its productive capaci-ty. If the land has developmentpotential, its productivity is meas-ured by how well it will support aresidential, commercial, industrial,or mixed use.

Optimum utility is achieved forsome property if operated on anindividual basis. Other propertyhas greater utility if operated aspart of a group of properties, orheld and managed within an aggre-gate or portfolio of properties.

Utility is generally measured froma long-term perspective, ordinarilyover the useful life of a property orgroup of properties. When a prop-erty may not have a readily dis-cernible degree of utility at the dateof valuation, full disclosure of thevalue definition, supporting data,and extent of special assumptionsor limiting conditions is required.

In real estate this refers to a rightto possession of land or built-upproperty in respect of which thereis no current occupant.

The term, vacant possession, isCommonwealth usage.

General ValuationConcepts andPrinciples, 7.2, 7.3,7.6, 7.7



Valuation

ValuationApproach

ValuationAssignment

ValuationBrief

ValuationCertificate

ValuationDate

The process of estimating value.

In general, a way of estimatingvalue that employs one or morespecific valuation methods.Depending on the nature and pur-pose of the property, three valua-tion approaches may be applied.These are the sales comparison,cost, and income capitalisationapproaches. Their application willenable the Valuer to determineMarket Value or a value other thanMarket Value.

See Asset-Based Approach,Comparable Sales Method, CostApproach, Income (Capitalisation)Approach, Market Approach,Principle of Substitution, SalesComparison Approach.

See Definition of the ValuationAssignment.

See Specifications for theValuation Assignment.

See Valuation Report, MinimumContents of a Valuation Report.

The date as of which the Valuer’sopinion of value applies. Alsoreferred to as effective date and/oras of date.

General ValuationConcepts andPrinciples, 9.1; GN4, 3.25; GN 5, 3.20;GN 6, 3.40



ValuationMethod

ValuationProcedure

ValuationRatio

ValuationReport

Within the valuation approaches, aspecific way to estimate a value.

The act, manner, and technique ofperforming the steps of a valuationmethod.

A factor wherein a value or priceserves as the numerator and finan-cial, operating, or physical dataserve as the denominator.

See also Capitalisation Factor,Income Multiplier.

A document that records theinstructions for the assignment, thebasis and purpose of the valuation,and the results of the analysis thatled to the opinion of value. AValuation Report may also explainthe analytical processes undertakenin carrying out the valuation, andpresent meaningful informationused in the analysis. ValuationReports can be either oral or writ-ten. The type, content, and lengthof a report vary according to theintended user, legal requirements,the property type, and the natureand complexity of the assignment.

The terms, valuation certificate andvaluation report, are sometimesused interchangeably. As used insome States (the UK), the term,valuation certificate, designates adocument in which the Valuer cer-

GN 4, 3.25; GN 5,3.21; GN 6, 3.41

GN 4, 3.27; GN 5,3.22; GN 6, 3.42

GN 4, 3.27; GN 6,3.43

IVS 3, 3.1



ValuationReview

tifies the amount of the valuationof the property. The valuation cer-tificate is usually a short letter,though it may also take the form ofa detailed report. It includes thevaluation date; purpose of theassignment; date of the certificate;assumptions upon which the valua-tion is based; and the name,address, and qualification of theValuer. Certification of value asused in other States (the US) is astatement in which the Valueraffirms that the facts presented arecorrect, the analyses are limitedonly by the reported assumptions,the Valuer’s fee is not contingentupon any aspect of the report, andthe Valuer has performed the valu-ation in compliance with ethicaland professional standards.

See also Minimum Contents of aValuation Report.

A valuation assignment that coversa range of types and purposes. Theprincipal characteristic all valua-tion reviews have in common isthat one Valuer exercises impartialjudgement in considering the workof another Valuer. A valuationreview may support the same valueconclusion in the valuation underreview or it may result in disagree-ment with that value conclusion.Valuation reviews provide a credi-bility check on the valuation as

GN 11, 3.1



ValuationStandards

well as a check on the strength ofthe work of the Valuer who devel-oped it, as regards the Valuer’sknowledge, experience, and inde-pendence.

In some States a valuation reviewmay also be an update done by aValuer of the same valuation firmthat carried out the original valua-tion.

Valuation organisations around theworld distinguish between varioustypes of reviews, e.g., administra-tive (compliance) reviews, techni-cal reviews, desk reviews, fieldreviews, reviews to ensure that avaluation has been carried out inaccordance with professional stan-dards (where the bases of valuationused in the valuation under revieware accepted), reviews that mustergeneral market information to sup-port or contest the value conclu-sion, and reviews that examine thespecific data in the valuation underreview with comparable data froma sample group.

The International ValuationStandards (IVS), unless otherwisespecified.



Value

Value inExchange

Value in Use

The price most likely to concludedby the buyers and sellers of a goodor service that is available for pur-chase. Value establishes the hypo-thetical or notional price that buy-ers and sellers are most likely toconclude for the good or service.Value is not a fact, but an estimateof the likely price to be paid for agood or service at a given time inaccordance with a particular defini-tion of value.

See also Cost, Price.

i) It is the value as recognised by amarketplace in which exchange ofasset ownership notionally takesplace. The IVSC definition ofMarket Value for appropriate finan-cial reporting is based upon theprinciple of value in exchange.

ii) The value, in terms of cash, of aproperty which is bartered foranother asset or assets. Cash beingthe yardstick by which the compar-ative value of each can be assessed.

i) The present value of estimatedfuture cash flows expected to arisefrom the continuing use of an assetand from its disposal at the end ofits useful life.

It should be noted that the abovedefinition, which applies to finan-cial reporting, considers the valueof an asset at the end of its useful


IVS 2, 6.1, 6.2

IAS 36,5; IVA 1,A6.3.4.1; GN 8,3.10



Value ofImprovements

Valuer

life. This meaning differs from theway the term is commonly used invaluation practice (see below).

ii) The value a specific propertyhas for a specific use to a specificuser and therefore non-marketrelated. This value type focuses onthe value that specific propertycontributes to the enterprise ofwhich it is a part, without regard tothe property’s highest and best useor the monetary amount that mightbe realised upon its sale.

The value added to the land byimprovements such as buildings,structures, or modifications to theland, of a permanent nature,involving expenditures of labourand capital, and intended toenhance the value or utility of theproperty. Improvements have dif-fering patterns of use and econom-ic lives.

See also Improvements.

One who possesses the necessaryqualifications, ability, and experi-ence to execute a valuation. Insome States, licensing is requiredbefore one can act as a Valuer.

See also Professional PropertyValuer.

IVS 2, 3.1

Code of Conduct,3.3



WastingAsset

WorkingCapital

Worth

WrittenReport

Years’Purchase(YP)

An asset which in real terms willgenerally depreciate in value overtime.

Examples include leaseholds andextractive interests.

The amount by which currentassets exceed current liabilities.

See Investment Value.

The results of a valuation commu-nicated to a client in writing, whichincludes electronic communication.Written reports may be detailednarrative documents containing allpertinent materials examined andanalyses performed to arrive at avalue conclusion, or abbreviatednarrative documents, includingperiodic updates of value, formsused by governmental and otheragencies, or letters to clients.

See also Oral Report.

See Present Value of $1 per Period,Income Multiplier.

GN 6, 3.44

IVS 3, 3.3



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