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GeneralValuation Concepts and

Principles

General ValuationConcepts and Principles

1. Introduction2. Land and Property Concepts3. Real Estate, Property, and Asset Concepts4. Price, Cost, Market, and Value5. Market Value6. Highest and Best Use7. Utility8. Other Important Concepts9. Valuation Approaches10. Summary

Introduction

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Introduction• The experience of Professional Property Valuers and

dialogue among nations through the InternationalValuation Standards Committee (IVSC) havedemonstrated that, with few exceptions, there is commonworldwide agreement regarding fundamentals thatunderpin the valuation discipline.

• Local laws and economic circumstances may, onoccasion, require special (and sometimes limited)applications, but fundamentals of valuation methods andtechniques are generally similar throughout the world.

• It is an objective of the International Valuation StandardsCommittee to avow and promote these fundamentals.

Introduction

• IVSC's Standards, Applications and GuidanceNotes (GNs) are based on these fundamentals,but it is the position of the Committee that it isinappropriate to attempt to articulate allappropriate fundamentals within the body ofeach Standard.

• Instead, this section supplements each Standardand provides an overview of fundamentals thatare particularly important to understanding thevaluation profession and to applying theStandards

Land and PropertyConcepts

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Land and Property Concepts

• Land is essential to our lives and ourexistence.

• Its importance brings land into focus forconsideration by lawyers, geographers,sociologists, and economists.

• As each of these disciplines relates to landand to uses of land, the societies andnations of our world are affected.

Land and Property Concepts

• Valuation of land as if vacant or of landand improvements to or on the land, is aneconomic concept.

• Whether vacant or improved, land is alsoreferred to as real estate.

• Value is created by real estate's utility, orcapacity to satisfy the needs and wants ofhuman societies.

Real Estate's Value

• Contributing to real estate's value are its– general uniqueness,– durability,– fixity of location,– relatively limited supply, and the– specific utility of a given site.

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Property

Property

• Property is a legal concept encompassing all the interests,rights and benefits related to ownership.

• Property consists of the rights of ownership, which entitlethe owner to a specific interest or interests in what isowned.

• To distinguish between real estate, which is a physicalentity, and its ownership, which is a legal concept, theownership of real estate is called real property.

• The combination of rights associated with the ownership ofreal property is referred to as the bundle of rights.

• The bundle­of-rights concept likens property ownership toa bundle of sticks with each stick representing a distinctand separate right of the property owner, e.g., the right touse, to sell, to lease, to give away, or to choose toexercise all or none of these rights.

Ownership Of An Interest

• Ownership of an interest in items otherthan real estate is referred to as personalproperty.

• The word property, used without furtherqualification or identification, may refer toreal property, personal property, or othertypes of property such as businesses andfinancial interests, or a combinationthereof.

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Valuers

• Property Valuers, Asset Valuers, and Appraisersare those who deal with the special discipline ofeconomics associated with preparing andreporting valuations.

• As professionals, Valuers must meet rigoroustests of education, training, competence, anddemonstrated skills.

• They must also exhibit and maintain a Code ofConduct (ethics and competency) andStandards of professional practice and followGenerally Accepted Valuation Principles(GAVP).

Price Changes

• Price changes over time result from specific andgeneral effects of economic and social forces.

• General forces may cause changes in pricelevels and in the relative purchasing power ofmoney.

• Operating on their own momentum, specificforces such as technological change maygenerate shifts in supply and demand, and cancreate significant price changes.

Principles Applied InValuing Real Estate

• Many recognised principles are applied in valuing realestate.

• They include the principles of– supply and demand;– competition;– substitution;– anticipation, or expectation;– change; and others.

• Common to all these principles is their direct or indirecteffect on the degree of utility and productivity of aproperty. Consequently, it may be stated that the utility ofreal estate reflects the combined influence of all marketforces that come to bear upon the value of property.

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Real Estate, Property, andAsset Concepts

Real Estate

• Real estate is defined as the physical land andthose human-made items, which attach to theland. It is the physical, tangible "thing" which canbe seen and touched, together with all additionson, above, or below the ground.

• Local laws within each State prescribe the basisfor distinguishing real estate from personalproperty.

• Although these legal concepts may not berecognised in all States, they are adopted hereto distinguish important terms and concepts.

Real Property

• Real property includes all the rights,interests, and benefits related to theownership of real estate.

• An interest or interests in real property isnormally demonstrated by some evidenceof ownership (e.g., a title deed) separatefrom the physical real estate.

• Real property is a non-physical concept.

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Personal Property

• Personal property includes interests intangible and intangible items which are notreal estate.

• Items of tangible personal property are notpermanently affixed to real estate and aregenerally characterised by theirmoveability.

Assets

• In accounting terminology, assets areresources controlled by an entity as aresult of past events and from which somefuture economic benefits are expected toflow to the entity.

• Ownership of an asset is itself intangible.• However, the asset owned may be either

tangible or intangible.

Assets

• The future economic benefits embodied in anasset may flow to the entity in a number of ways.For example, an asset may be:(a) used singly or in combination with other assets in

the production of goods or services to be sold by theentity;

(b) exchanged for other assets;(c) used to settle a liability; or(d) distributed to the owners of the entity. (International

Financial Reporting Standards [IFRSs], Framework,55)

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Assets

• An asset is recognised in the balancesheet when it is probable that the futureeconomic benefits will flow to the entityand the asset has a cost or value that canbe measured reliably. (IFRSs, Framework,89)

Tangible And Intangible Assets

• International Financial Reporting Standardsdistinguish among tangible and intangibleassets.

• Of particular importance are the following termsand concepts– Current assets. Assets not intended for use on a

continuing basis in the activities of an entity.Examples include stocks, obligations owed to theentity, short-term investments, and cash in bank andin hand. In cer­tain circumstances real estate,normally treated as a fixed asset, may be treated as acurrent asset. Examples include land or improved realestate held in inventory for sale.

Tangible And Intangible Assets– Other non-current assets. Assets not intended for use on a

continuing basis in the activities of an entity, but expectedto be held in long-term ownership including

• long-term investments;• long-term receivables;• goodwill;• expenditures carried forward; and• patents, trade-marks, and similar assets.

– This asset category includes both tangible, or physicalassets and intangible, or non-physical assets.

• Intangible assets are considered items of intangible personalproperty, and may include

• management and marketing skill,• credit rating,• goodwill, and• various legal rights or instruments (patents, trademarks,

copyrights, franchises, and contracts).

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Operational And Investment Assets

• Where either historic or current cost accountingconventions are upheld, a distinction is drawnbetween operational and investment assets.

• Operational assets are considered requisite tothe operations of the going concern orcorporation.

• Investment assets that are owned by acorporation are considered extraneous to theoperational requirements of the corporateowner.

Valuing An Asset

• Accounting terminology differs somewhat from terms morecommon to Valuers.

• Valuers are principally involved with fixed assets.• Technically it is the ownership of the asset, or the right of

ownership, that is valued rather than the tangible orintangible asset itself.

• This concept distinguishes the economic concept ofvaluing an asset objectively based upon its ability to bepurchased and sold in a marketplace from some subjectiveconcept such as assuming an intrinsic or other non-MarketValue basis.

• The objective market concept does, however, have specialapplications for limited or non-market property valuation asdiscussed in International Valuation Standard 2.

Depreciation• The term depreciation is used in different contexts in

valuation and in financial reporting.• In the context of asset valuation, depreciation, refers to

the adjustments made to the cost of reproducing orreplacing the asset to reflect physical deterioration andfunctional (technical) and economic (external)obsolescence in order to estimate the value of the assetin a hypothetical exchange in the market when there isno direct sales evidence available (para. 9.2.1.3,General Valuation Concepts and Principles).

• In financial reporting depreciation refers to the chargemade against income to reflect the systematic allocationof the depreciable amount of an asset over its useful lifeto the entity.

• It is specific to the particular entity and its utilisation ofthe asset, and is not necessarily affected by the market.

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Price, Cost, Market, andValue

Price, Cost, Market, and Value

• Imprecision of language, particularly in aninternational community, can and does lead tomisinterpretations and misunderstandings.

• This is particularly a problem where wordscommonly used in a language also have specificmeanings within a given discipline.

• That is the case with the terms price, cost,market, and value as they are used in thevaluation discipline.

Price• Price is a term used for the amount asked, offered, or

paid for a good or service.• Sale price is a historical fact, whether it is publicly

disclosed or kept confidential.• Because of the financial capabilities, motivations, or

special interests of a given buyer and/or seller, the pricepaid for goods or services may or may not have anyrelation to the value which might be ascribed to thegoods or services by others.

• Price is, however, generally an indication of a relativevalue placed upon the goods or services by theparticular buyer and/or seller under particularcircumstances.

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Cost

• Cost is the price paid for goods or servicesor the amount required to create orproduce the good or service.

• When that good or service has beencompleted, its cost is a historical fact.

• The price paid for a good or servicebecomes its cost to the buyer.

Market

• A market is the environment in which goods and servicestrade between buyers and sellers through a pricemechanism.

• The concept of a market implies that goods and/orservices may be traded among buyers and sellerswithout undue restriction on their activities.

• Each party will respond to supply-demand relationshipsand other price-setting factors as well as to the party'sown capacities and knowledge, understanding of therelative utility of the goods and/or services, andindividual needs and desires.

• A market can be local, regional, national, or international.

Value

• Value is an economic concept referring to theprice most likely to be concluded by the buyersand sellers of a good or service that is availablefor purchase.

• Value is not a fact, but an estimate of the likelyprice to be paid for goods and services at agiven time in accordance with a particulardefinition of value.

• The economic concept of value reflects amarket's view of the benefits that accrue to onewho owns the goods or receives the services asof the effective date of valuation.

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Types Of Values• There are many types and associated definitions of

value (for examples see IVSC Standard 2).• Some defined values are commonly used in valuations.• Others are used in special situations under carefully

identified and disclosed circumstances.• It is of paramount importance to the use and

understanding of valuations that the type and definitionof value be clearly disclosed, and that they beappropriate to the particular valuation assignment.

• A change in the definition of value can have materialeffect on the values that would be assigned toproperties.

Market Value• Professional Valuers, who possess intimate knowledge of

a property market; understand the interaction ofparticipants in the market; and are, thereby, able to judgethe most likely prices to be concluded between buyers andsellers of property in that market avoid the unqualifiedterm value by preceding the term with some adjectivedescribing the particular type of value involved.

• Market Value or in some States Open Market Value is themost common type of value associated with propertyvaluations and is discussed in International ValuationStandard 1.

• Although common usage possibly dictates anunderstanding that Market Value is intended in theabsence of a statement to the contrary, it is especiallyimportant that Market Value, or whichever basis of value isused, be clearly identified and defined in each suchassignment.

Market Value

• The value concept contemplates amonetary sum associated with atransaction.

• However, sale of the property valued is nota condition requisite to estimating the pricefor which property should sell if it weresold on the date of valuation underconditions prescribed in the definition ofMarket Value.

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Market Value Of Real Estate• The Market Value of real estate is a representation of its

market-recognised utility rather than its purely physicalstatus.

• The utility of assets to a given entity or individual maydiffer from that which would be recognised by the marketor by a particular industry.

• Considerations similar to those expressed above areapplied to the valuation of property other than realestate.

• Financial reporting will require application of MarketValue methods and a clear distinction between suchmethods and non-Market Value methods.

Market Value

• The total cost of a property includes all directand indirect costs of its production.

• If supplemental capital costs are incurred by apurchaser subsequent to acquisition, they will beadded to the historical acquisition cost for costaccounting purposes.

• Depending upon how the utility of such costs isperceived by the market, they may or may notbe fully reflected in the property's Market Value.

Cost Estimate For A Property

• A cost estimate for a property may be based on either anestimate of reproduction cost or replacement cost.

• Reproduction cost is the cost to create a virtual replica ofthe existing structure, employing the same design andsimilar building materials.

• A replacement cost estimate envisions constructing astructure of comparable utility, employing the design andmaterials that are currently used in the market. (In someStates, the term modern equivalent asset is used todescribe a structure, whose cost is estimated on areplacement basis.)

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Market Value

Market Value

• The concept of Market Value reflects thecollective perceptions and ac­tions of amarket and is the basis for valuing mostresources in market-based economies.

• Although precise definitions may vary, theMarket Value concept is commonlyunderstood and applied.

Market Value

“The estimated amount for which aproperty should exchange on the date ofvaluation between a willing buyer and awilling seller in an arm's-length transactionafter proper marketing wherein the partieshad each acted knowledgeably, prudently,and without compulsion.”

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Market Value

• It is important to stress that the professionallyderived Market Value estimate is an objectivevaluation of identified ownership rights tospecific property as of a given date.

• Implicit within this definition is the concept of ageneral market comprising the activity andmotivation of many participants rather than thepreconceived view or vested interest of aparticular individual.

• Market Value is a market-supported estimatedeveloped in ac­cordance with these Standards.

Real Property

• Real property is distinguished from most goodsand services because of the relatively longerperiod required to market what is a relativelyilliquid commodity in order to achieve a pricethat represents its Market Value.

• This characteristically longer exposure time, theabsence of a `spot market' (a market in whichcommodities are available for immediate sale),and the nature and diversity of properties andproperty markets give rise to the need forProfessional Valuers and Valuation Standards.

Market Value vs. Fair Market Value

• In some States, the legal term Fair Market Valueis used synonymously with the term MarketValue.

• Fair Market Value should not be confused withthe accounting term, Fair Value. (para. 8.1below.)

• The IVSC position is that the term Market Valuenever requires further qualification and that allStates should move toward compliance with thisusage.

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Highest and Best Use

Land

• Land is regarded as a permanent asset,but improvements upon or to the landhave a finite life.

• Because of the immobility of land, eachreal estate parcel possesses a uniquelocation.

• Land's permanence also means that it willnormally be expected to outlast uses andimprovements, which have a finite life.

Land

• The unique characteristics of land determine its optimalutility.

• When improved land is valued separately fromimprovements to or upon the land, economic principlesrequire that improvements to or on the land be valued asthey contribute to or detract from the total value of theproperty.

• Thus, the Market Value of land based upon the "highestand best use" concept reflects the utility and thepermanence of land in the context of a market, withimprovements constituting the difference between landvalue alone and total Market Value as improved.

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Highest And Best Use (HABU)

• Most properties are valued as acombination of land and improvements.

• In such cases, the Valuer will normallyestimate Market Value by considering thehighest and best use of the property asimproved.

Highest And Best Use (HABU)

“The most probable use of a propertywhich is

• physically possible,• appropriately justified,• legally permissible,

• financially feasible, and• which results in the highest value

of the property being valued.”

HABU

• A use that is not legally permissible or physicallypossible cannot be considered a highest and best use.

• A use that is both legally permissible and physicallypossible may nevertheless require an explanation by theValuer justifying why that use is reasonably probable.

• Once analysis establishes that one or more uses arereasonably probable uses, they are then tested forfinancial feasibility.

• The use that results in the highest value, in keeping withthe other tests, is the highest and best use.

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HABU

• Application of the HABU definition permitsValuers to assess the effects ofdeterioration and obsolescence inbuildings, the most appropriateimprovements for land, the feasibility ofrehabilitation and renovation projects, andmany other valuation situations.

HABU

• In markets characterized by extreme volatility orsevere disequilibrium between supply anddemand, the highest and best use of a propertymay be a holding for future use.

• In other situations, where several types ofpotential highest and best use are identifiable,the Valuer should discuss such alternative usesand anticipated future income and expenselevels.

• Where land use and zoning are in a state ofchange, the immediate highest and best use of aproperty may be an interim use.

HABU

• The concept of highest and best use is afundamental and integral part of MarketValue estimates.

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Utility

Utility

• The key criterion in the valuation of anyreal or personal property is its utility.

• Procedures employed in the valuationprocess have the common objective ofdefining and quantifying the degree ofutility or usefulness of the property valued.

• This process calls for interpretation of theutility concept.

Utility• Utility is a relative, or comparative term, rather

than an absolute condition.• For example, the utility of agricultural land is

ordinarily measured by its productive capacity.• Its value is a function of the quantity and quality

of produce, which the land will yield in anagricultural sense, or of the quantity and qualityof buildings essential to the agriculturaloperation.

• If the land has development potential, however,its productivity is measured by how productivelyit will support a residential, commercial,industrial, or mixed use.

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Utility

Consequently, land value is established byevaluating its utility in terms of the

• legal,

• physical,• functional,• economic, and• environmental

factors that govern its productive capacity.

Utility• Fundamentally, property valuation is governed by the way specific

property is used and/or how it would ordinarily be traded in themarket.

• For some property, optimum utility is achieved if the property inquestion is operated on an individual basis.

• Other property has greater utility if operated as part of a group ofproperties, e.g., properties owned and managed by a businessentity such as a chain of multiple retail outlets, fast foodrestaurants, or hotels.

• Therefore, a distinction must be made between a property's utilityviewed individually and when considered as a part of a group.

• A Valuer will regard the property as the market views it, whether asa discrete entity or as part of an aggregate or portfolio.

• Typically, the Valuer estimates and reports the value of theproperty as an individual entity.

• If the value of the property, taken as part of an aggregate orportfolio, is other than its individual value, such value should beconsidered and reported.

Utility

• Free-standing properties that are self-contained,independent operations normally change hands on anindividual basis and are valued as such.

• Should such properties possess greater (or lesser) valuearising from a functional or economic association withother properties, such additional, or special, value maybe addressed in the valuation process and reportedaccordingly, pursuant to either the Valuer's ownobservations or in accordance with disclosed instructionsfrom a client.

• Any such value estimate should not, however, bereferred to as Market Value without a supportingexplanatory statement.

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Utility

• An individual property may possess anadditional, or special, value above its value as aseparate entity by reason of its physical orfunctional association with an adjoining propertyowned by others or its attractiveness to apurchaser with other special interests.

• The extent or amount of such additional, orspecial, value is generally reported separatelyfrom Market Value.

Utility• Utility is measured from a long-term perspective, ordinarily over

the normal useful life of a particular property or group ofproperties.

• However, there are times when particular property may becometemporarily redundant, otherwise removed from production,adapted to an alternative use or function, or perhaps simply idl edfor a prescribed period of time.

• In other instances, external market circumstances, economic orpolitical, may dictate the curtailment of production for an inde finiteperiod of time.

• Valuations in such situations require special expertise and trai ning,and reporting should be done in accordance with InternationalValuation Standards.

• Of particular importance, is that the Valuer should ensure that fullexplanation and disclosure is made of the definition of value, d ataupon which the valuation is based, and the extent of specialassumptions or limitations (if any) upon which the valuation ismade.

Utility• Similarly, property may not have a readily discernible degree of

utility at the date of valuation because of external or economicfactors, e.g., property situated in remote regions, in Statesexperiencing volatile market conditions, in States not having amarket economy, or in States experiencing a change in economicsystems.

• The reporting requirements under International Valuation Standardsfor valuations under these circumstances call for full disclosure ofthe definition of value, the data which support the valuation, and theextent to which special assumptions or limitations (if any) governthe valuation.

• A common effect of political or economic uncertainty is a change inutility, whether in terms of capacity or efficiency.

• The Valuer's responsibility in such situations is to assess the marketexpectancy of the time span for such events.

• Temporary shut-downs or closures may have little or no impact onproperty or asset values, whereas prospects for long-term cessationof activities may result in a permanent diminution in value.

• The property or asset valued must be viewed in the light of allinternal and external factors bearing on its operating performance.

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Other Important Concepts• The expression Market Value and the term Fair Value as

it commonly appears in accounting standards aregenerally compatible, if not in every instance exactlyequivalent concepts.

• Fair Value, an accounting concept, is defined inInternational Financial Reporting Standards and otheraccounting standards as the amount for which an assetcould be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arm's-lengthtransaction.

• Fair Value is generally used for reporting both Marketand Non-Market Values in financial statements.

• Where the Market Value of an asset can be established,this value will equate to Fair Value.

Specialised property• Specialised property is property that is rarely, if ever, sold

in the market except by way of a sale of the business orentity of which it is part, due to uniqueness arising from itsspecialised nature and design, its configuration, size,location, or otherwise.

• Where there is limited or no directly comparable marketinformation for Valuers to consider, the valuation processmay become more complex.

• However, it is the Valuer's responsibility to develop dataand reasoning from the market to support and/or explainthe value conclusion.

• Each of the valuation methods may be applied, and allapplicable methods should be considered.

• Where possible, the Valuer develops land value, cost, andaccumulated depreciation estimates from marketinformation, and explains the basis for the value estimate.

Abnormal Market Conditions

• Where normal market conditions are disrupted orsuspended, or where supply and demand imbalanceslead to market prices that do not meet the Market Valuedefinition, the Valuer may face a difficult valuationproblem.

• By using the Market Value concept and definition, and byapplying market data and reasoning to the valuationprocess, Valuers ensure the relevance and usefulness ofasset values reported in financial statements. Asavailability and/or applicability of market data decrease,the valuation assignment may require a higher degree ofprofessional Valuer vigilance, experience, andjudgement.

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Specific Disclosure Requirement

• A Valuer may be required to apply a particulardefinition of Market Value to meet legal orstatutory requirements.

• If so required, the Valuer must make specificdisclosure of the fact and describe the impact ofany differences upon the value estimated.

• Where an assignment is undertaken inaccordance with International ValuationStandards, the term Market Value will alwaysconform to the IVS definition.

Valuation Reports• All valuation reports should make clear the purpose and intended

use of the valuation.• In addition to other reporting requirements, where financial

reporting is involved the report should specifically identify th easset class into which each asset is placed and the basis for su chplacement.

• Each asset class should be explicitly explained.• The estimation and reporting of property and asset values, and

related guidance, are the scope of these International ValuationStandards, Applications, and related Guidance Notes.

• How the results of valuations are to be compiled, conveyed, andincorporated with the findings of other professionals is of crucialimportance to Valuers.

• Proper understanding of terminology is essential for Valuers andthose who read their reports.

• The sound use of experience and expertise and correct applicationof methodology are also essential.

• These Standards are intended to serve the common objectives ofthose who prepare property and asset valuations and those whomust rely on their results.

Valuation Approaches

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Valuation Approaches

• Valuations of any type, whetherundertaken to estimate market value or adefined non-market value, require that theValuer apply one or more valuationapproaches.

• The term valuation approach refers togenerally accepted analyticalmethodologies that are in common use.

• Referred to also as valuation methods.

Principle Of Substitution

• Market based valuations normally employ one or more ofthe valuation approaches by applying the principle ofsubstitution, using market-derived data.

• This principle holds that a prudent person would not paymore for a good or service than the cost of acquiring anequally satisfactory substitute good or service, in theabsence of the complicating factors of time, greater risk,or inconvenience.

• The lowest cost of the best alternative, whether asubstitute or the original, tends to establish MarketValue.

Sales Comparison Approach

• This comparative approach considers the salesof similar or substitute properties and relatedmarket data, and establishes a value estimateby processes involving comparison.

• In general, a property being valued (a subjectproperty) is compared with sales of similarproperties that have been transacted in themarket.

• Listings and offerings may also be considered.

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Income Capitalisation Approach• This comparative approach considers income and

expense data relating to the property being valued andestimates value through a capitalisation process.

• Capitalisation relates income (usually a net incomefigure) and a defined value type by converting an incomeamount into a value estimate.

• This process may consider direct relationships (knownas capitalisation rates), yield or discount rates (reflectingmeasures of return on investment), or both.

• In general, the principle of substitution holds that theincome stream which produces the highest returncommensurate with a given level of risk leads to themost probable value figure.

Cost Approach• This comparative approach considers the possibility that,

as a substitute for the purchase of a given property, onecould construct another property that is either a replica ofthe original or one that could furnish equal utility .

• In a real estate context, one would normally not bejustified in paying more for a given property than the costof acquiring equivalent land and constructing analternative structure, unless undue time, inconvenience,and risk are involved.

• In practice, the approach also involves an estimate ofdepreciation for older and/or less functional propertieswhere an estimate of cost new unreasonably exceedsthe likely price that would be paid for the appraisedproperty. (GN 8, The Cost Approach for FinancialReporting-[DRCI.)

Non-Market Based Valuations

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Non-market Based Valuations• Non-market based valuations may apply similar approaches,

but typically involve purposes other than establishing MarketValue.

• For example: An entity may apply a cost approach to comparethe cost of other buildings with the cost of a proposed buildingto the entity, thereby ascertaining the bargain or premiumaccruing a particular property at variance with the market atlarge.

• This application focuses on a particular property and whatmay be a non-market cost.

• An owner of land may pay a premium price for adjacentproperty.

• In applying a sales comparison approach to determine amaximum price that owner is willing to pay for adjacent land,a Valuer arrives at a figure that may well exceed its MarketValue.

• In some States, such an estimate is called Special PurchaserValue.

Non-market Based Valuations• An investor may apply a rate of return that is non-market and

particular only to that investor.• In applying an income capitalisation approach to determine the price

that investor is willing to pay for a particular investment based onthe investor's anticipated rate of return, a Valuer arrives at anestimate of Investment Value or Worth rather than Market Value.

• Depreciated replacement cost is an application of the cost approachused in assessing the value of specialised assets for financialreporting purposes, where direct market evidence is limited orunavailable.

• Each valuation approach has alternative methods of application.• The Valuer's expertise and training, local standards, market

requirements, and available data combine to determine whichmethod or methods are applied.

• The reason for having alternative approaches and methods is toprovide the Valuer with a series of analytical procedures which willultimately be weighed and reconciled into a final value estimate,depending upon the particular type of value involved.

Non-market Based Valuations

• Valuation approaches and methods are generallycommon to virtually all types of valuation, including realproperty, personal property, businesses, and financialinterests.

• However, valuation of different types of property involvesdifferent sources of data that appropriately reflect themarket in which the property (and/or service or business)is to be valued.

• For example, individual buildings are commonly sold andvalued in the relevant real estate market whereas thevalues of the shares of stock in a property company thatowns a number of buildings are reflected by pricing inthe relevant shares market.

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Summary

Summary

• The International Valuation Standards areintended to facilitate cross-border transactionsinvolving property and contribute to the viabilityof global markets by promoting transparency infinancial reporting.

• Emphasis is placed on the use of factual marketinformation from which informed professionaljudgements regarding property valuations canbe drawn.