In search of the correct applied valuation methodology

In my valuation career, now more than 30 years, there has been an increasing shift from linear valuation methodologies to more judgement-based approaches. Although some of the fundamentals still hold true, it is possible to modify existing linear methods to account for non-linearity by incorporating professional judgement of the valuer.

The challenge with linear methods is that it does not adequately deal with non-linearity. A possible solution in practice could be the adoption of an increasing number of methods, say two or three methods, which hold a diversity of assumptions in order to illustrate value under different scenarios.

In addition, the role of the professional property valuer should be to express analysed data in a more judgement-based manner in order to account for non-linearity. Statistical analysis would still be possible, only greater emphasis will be placed on outliers.

The purpose of this brief article is just to emphasise that investors should be aware of market conditions affecting property value and the application of correct approaches.