Factors to consider when choosing a valuation method

 

Introduction

Valuation of real estate refers to the estimation of the most likely selling price (market price) or the worth of the property to an individual or group of individuals i.e. investment value (Baum and Crosby, 2008). There are many valuation methods. Methods such as the sales comparison, single capitalisation as well as the term and reversion are considered traditional approaches while others such as the discounted cash flow (DCF) and arbitrage valuation models are considered contemporary valuation approaches. Traditional valuation approaches are backward-looking, based upon the principle that a property’s value depends upon its economic and physical characteristics. On the other hand, Read more

Concepts and Principles

The definitions from the International Valuation Standards, eighth edition (2007) are reproduced with the permission of the International Valuation Standards Council who owns the copyright. No responsibility is accepted by the IVSC for the accuracy of information contained in the text as republished, the English version of the IVSC Standards as published by the IVSC from time to time being the only official version of the IVSC Standards.
Read more

Property Legislation

Constitution of the Republic of South Africa, Act No. 108 of 1996 (specif. Sect. 25)

Restitution of Land Rights, Act No. 22 of 1994

Restitution of Land Rights Amendment Bill of 2003

Labour Relations, Act No. 66 of 1995

Land Reform (Labour Tenant), Act No. 3 of 1996
Read more

Forms of Land Tenure

Ownership is a real right that cedes absolute control over a specific property. An owner is entitled to possess and occupy his property. It is, however, possible to possess a property and not occupy it, and to occupy it and not possess it. Two interesting points is, firstly, both possession and occupation requires some form of physical control whether directly (physical occupation) or indirectly (owner has the keys to the property). Secondly, the difference in terms of these is the possessorís intention to be the owner while the occupierís intention is to gain some benefit from occupying the property. In order to understand the network of rights in property, an organizational chart delineating the different types of rights would assist in this process (see Fig. 1 below).
Read more

Market vs Fair Value

WHAT IS MARKET VALUE?

“Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”
Read more

Valuation Methods

In property valuations there are 5 generally accepted methods or approaches to value. These are the Sales Comparison-, the Income Capitalisation-, the Depreciated Replacement Cost (DRC)-, the Residual-, and the Profits method.
Read more

ABC of Valuations

process
Read more

Broken Windows Theory

The broken windows theory is a criminology theory introduced in 1982 by social scientists James Q. Wilson and George L. Kelling. The theory is the subject of a great many debates and criticisms, although various studies are in support of it.

Wilson and Kelling is of the opinion that crime is the result of disorder. If a window is broken and left unrepaired, passersby might conclude that little care is exercised and that there is no control. The effect of this is more broken windows that in turn sends a signal that there is no order. The theory is therefore one of norm setting and the associated signaling effect of urban disorder and vandalism leading to serious crime and anti-social behaviour.
In an urban or city environment, broken windows can be anything from literal broken windows to graffiti, public disorder, or aggressive panhandling. (Wikipedia, 2012).
Read more

Celebrate, critical, collection and (blond)

I recently attended a conference on green buildings and sustainability and I would like to mention four learnings that I took away. Some of it celebrates achievements, some of it is critical, some is a collection of (hopefully) interesting facts and statements, and some, well, just illustrates how blond one can be at times.

Do you want to know the blond part first? Okay, you twisted my arm. By the way, I mean no disrespect to people with blond hair, I’m just lazily borrowing a steoreotype. For lunch on the first day, and when they eventually set all the hungry people free, everyone including myself ran like never before to get first to the lunch stalls (we don’t care if you don’t get any food as long as we have – survival is the fundamental human need; I’m just quoting Maslow’s hierarchy of needs, that’s all). As we rush into the exhibition area looking around for food I see people eating delicious foodstuffs, but I don’t see where they get it from. So not to look too desperate and hungry, I decide to casually stroll around the exhibition area and hopefully come across the food stalls. As I’m walking with one hand in pocket showing no physical signs of malnutrition and deprivation of liquids, I spot a group of people at some cooldrink stalls but alas, no food stalls. I join the line and non-chalantly asks the server behind the counter: “Are these cooldrinks complimentary?” To which he replies: “Yes, sir, what would you like.” I indicated the Ginger Ale and strolled off.
Read more

The art of applying functional property investment understanding

Here is seven aspects to property investment that I have found to be helpful over the years:

Look at the big AND small picture
Property should be viewed from both a macro and micro perspective, taking into account the big picture and micro activity within the suburb or immediate geographical area. For example, the general demand and future (improved) rights within a property zone over the next 5 years.
Read more