16.1 Valuation principles and terminology notes

1. 16.1.1Valuation: definition, purposes and the role of the valuer

   Valuation is the art and science of estimating the present worth of a property on a stated date and for a stated purpose; it is done for sale, mortgage, taxes, acquisition, rent fixing, insurance, partition and court matters, by a valuer who must be independent and well informed.

   Standard · 7 min · Read here
2. 16.1.2Value, cost and price: kinds of value – market, book, salvage, scrap, assessed and reversionary

   Cost is what it took to produce a property, price is what was actually paid, and value is the valuer's estimate of its worth; value takes many forms — market, book, salvage, scrap, distress, assessed, reversionary, accommodation, marriage — each defined by its purpose.

   Standard · 7 min · Full course
3. 16.1.3Characteristics of landed property and factors affecting demand and value

   Land is immovable, durable, unique (heterogeneous) and fixed in total supply, traded in an imperfect, heavily regulated market; its value is driven by a derived demand that depends on location, access, permitted use, title and the general economy.

   Standard · 6 min · Full course
4. 16.1.4Interests in land: freehold, leasehold, life interest, licence and easements

   A valuer values an interest, not just land: freehold (absolute, perpetual ownership), leasehold (right to enjoy for a term under TPA s.105), reversion, life interest, a licence (bare permission, no interest — Easements Act s.52) and easements (rights over another's land — s.4) each have their own value.

   Standard · 8 min · Full course
5. 16.1.5Rent and outgoings: rack, ground, head and standard rent; gross and net income

   Rack rent is the full open-market rent; ground rent is rent for bare land; head rent is what a lessee pays his own landlord; profit (improved) rent is what he keeps; standard rent is the rent fixed by rent-control law; and net income = gross income − outgoings is what is capitalised into value.

   Standard · 7 min · Full course
6. 16.1.6Rates of interest, capitalisation and capital value

   Capital value = net annual income × years' purchase (YP); for a perpetual income YP = 100 ÷ rate of interest, and the rate itself rises with risk — so the safer the income, the lower the rate, the higher the YP and the higher the value.

   Standard · 6 min · Full course

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