18.1 Methods of valuation notes

1. 18.1.1Methods of valuation: classification and choosing a method

   All methods of valuation fall into three approaches — market (comparison), income (capitalisation) and cost — plus development/residual methods for land with potential; the valuer picks the one for which reliable evidence exists and which matches how the property is normally bought, let or used.

   Standard · 7 min · Read here
2. 18.1.2Rental (investment) method and rateable value for property tax

   The rental method values a let property as net income × YP, where net income = gross rent − outgoings; rateable value applies the same idea to property tax — the annual rent a property might reasonably fetch from year to year, less a statutory allowance for repairs.

   Standard · 7 min · Full course
3. 18.1.3Comparison (sales) method and genuine sale instances

   The comparison method values a property from recent, genuine sales of similar properties nearby, each adjusted for differences in time, location, size, shape and other features — it is the most direct method wherever the market is active and sale data are reliable.

   Standard · 7 min · Full course
4. 18.1.4Belting method, frontage, return frontage, corner plots and plottage

   The belting method values a deep plot with a road on one side by cutting it into belts parallel to the road, each worth less than the one in front (usually 1 : 2/3 : 1/2); frontage, return frontage (corner), double frontage and plottage are further adjustments to a plot's unit value.

   Standard · 7 min · Full course
5. 18.1.5Land and building (contractor's or cost) method

   The land and building (contractor's or cost) method values a property as land value + the present cost of replacing the building − depreciation (and obsolescence); it is the method for properties that are rarely sold or let, such as temples, schools, hospitals and public buildings.

   Standard · 7 min · Full course
6. 18.1.6Development and residual methods: hypothetical layout and hypothetical building

   The development (residual) method values land that is ripe for development as what the finished development will sell for, minus everything it costs to get there — including the developer's profit and the time value of money; the residue is the land value.

   Standard · 7 min · Full course
7. 18.1.7Profits method

   The profits (accounts) method values a trading property — hotel, cinema, petrol pump, licensed premises — from the business it earns: from the net profit, deduct a fair share for the operator; the balance is the rent the property can bear, which is then capitalised.

   Standard · 6 min · Full course
8. 18.1.8Depreciation: straight line, sinking fund and constant percentage methods; obsolescence

   Depreciation is the loss in a building's value with age and use; it is measured by the straight line (equal amounts), constant percentage (fixed % of the reducing value) or sinking fund (an interest-earning fund) method, and value is further reduced for obsolescence — functional or economic.

   Standard · 7 min · Full course
9. 18.1.9Valuing agricultural land: jirayat and bagayat classes, yield and capitalisation of net income

   Agricultural land is valued either by comparison with genuine sales of similar land or by capitalising its net income — average yield × price, plus by-products, minus cultivation and other outgoings — with the land class (jirayat, bagayat, rice, warkas) and irrigation deciding most of the difference in value.

   Standard · 7 min · Full course

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