Reflecting Uncertainty in Valuations for Investment Purposes

6941 Words Sep 30th, 2011 28 Pages
Reflecting uncertainty in valuations for investment purposes
A brief guide for users of valuations
Nick Bywater MRICS

rics.org/valuation

This guide is prepared for the benefit of valuers and other users of valuations to provide a general understanding of the concept of uncertainty and the methods by which uncertainty, in valuations for investment purposes, may be identified and communicated with clarity. It is not intended to provide training in valuation techniques but rather to give valuation surveyors, and other users of valuations, a general understanding of the matters that need to be taken into account.

Reflecting uncertainty in valuations for investment purposes

Uncertainty is a feature of investment in real estate
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2. Tenant information – details of leases and lettable floor areas. Comments on tenant covenant strength and relevant tenant activity. 3. Planning information – details of relevant planning applications and consents, either on site or at nearby addresses. 4. Market information – national and local economic factors as well as national and local property market issues. 5. Market data – details of market rental transactions and investment transactions. 6. Valuation methodology – description of the overall approach to the calculation of Market Value (e.g. income capitalisation, development appraisal, profits method, etc.). 7. Valuation factors – summary of the main issues that influence the calculation of the Market Value and an explanation of the input variables. Valuation factors will normally include a discussion of the market rents that have been adopted and the yields that have been applied to the income. As mentioned above, an analysis of relevant investment transactions will provide a set of benchmark yields that can be adjusted to reflect the specific characteristics of the subject property. These results can then be used to capitalise income from the subject property and calculate the Market Value. Adjustments to the yields of comparable investment transactions will, wherever appropriate, be covered in some detail in a valuer’s report, reflecting consideration of the differences in risk and growth potential between comparable transactions
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