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You already recently rated this item. Your rating has been recorded. Write a review Rate this item: 1 2 3 4 5. Preview this item Preview this item. It is directed not just at would be surveyors and valuers, but at all those who may be interested in getting an understanding of property valuation. Allow this favorite library to be seen by others Keep this favorite library private. Find a copy in the library Finding libraries that hold this item Alan Fred , Introduction to property valuation.
Provides an introduction to and general background reading for the subject of property valuation. This fifth edition is directed not just at would be surveyors and valuers, but at all those who may be interested in getting an understanding of property valuation. Read more Reviews User-contributed reviews Add a review and share your thoughts with other readers. Be the first. Add a review and share your thoughts with other readers. Real property -- Valuation. Great Britain.
Linked Data More info about Linked Data. Introduction; 2. Value; 3. General; 4. Qualities of Investments; 5. Investment Opportunities; 6. Property Investment and the Underlying Factors of the Market; 7. Reasons for Valuations; 8. Legal Interests in Property; 9. Features of Property and the Property Market; The Role of the Valuer; Rates of Interest and Yields; Methods of Valuation; Valuation Tables and Valuation Formulae.
All rights reserved. Interest payments are made on mortgage loans advanced against the security offered by a real property. Value, by itself, can be a subjective concept in that a property will have different values at any point in time according to the purpose for which it is being valued and the circumstances of the party for whom it is being valued. In referring to the earlier writings of William N. Kinnard Jr, Nick French concluded that: In the language of economics used by Kinnard, worth can be considered as value in use, whereas price or market value can be considered as value in exchange.
French 83 There is a long history of distinguishing between forms of value. However, much of the discussion in his text brings together the theories and economic writings of economists from the preceding years French Three fundamental definitions are valuation, market rent and market value. The Red Book, together with these and other definitions, is considered in detail in Chapter 9 Section 9. There are three basic motives why people and organisations spend money on property.
The basic aim is to obtain growth on the invested sum so that this amount becomes larger with time. However, speculation involves risk and the size and likelihood of financial gain is far more uncertain than on an investment. Expenditure may be for any one, two or all three of these reasons. The motives behind the spending will largely determine what the worth of a property will be to each individual investor.
Additionally, there is a definite difference in meaning between value and cost in relation to property valuation. Cost is usually an expression of what has been paid for a commodity. They are referring to a past event. It is possible to refer to costs that have not yet been incurred, but in that case, an estimate is really being made of what the expenditure will be — it is not until after the money has been spent that it can be said with certainty what the cost of the item was.
Cost is often confused with value and many laymen assume they are the same thing. For instance, people may erroneously believe that if they have just purchased an item then the price they paid, or cost, would represent the market value of that item at the time. This may not be so; they may have obtained a bargain or, conversely, through their lack of knowledge of the market, they may have paid more than its true market value. Whilst these general principles hold true for most goods and services, they are particularly valid in the case of land and buildings.
To equate cost with value is at best an unreliable equation, and in many cases, it can be very wrong. A ridiculous example, to help prove this point, would be constructing a high specification office block at a cost of millions in a completely inaccessible location, such as the middle of the Sahara Desert. Its cost is colossal, and yet its value would be negligible. Indeed, it may have no value at all simply because there would be no demand for such a property due to its total impracticability — and this is the whole basis of the difference between value and cost.
The forces of supply and demand determine value. When there is little or no demand, then the property will have little value, however much it costs to construct or acquire. Conversely, if there is extremely good demand, and particularly if this is coupled with low or restricted supply, the property will have a very high value, which can far exceed its cost. All items, whether they are goods and services or land and buildings, will have a market value or price at which they will be expected to sell.
In economics, this is usually referred to as the equilibrium price, in that it is the point where demand is equal to supply and thus the system is in equilibrium. This will produce the open market value, which cannot be found from costs alone since not all the factors that make up the effective demand and supply are then being taken into account. There are numerous types of costs relating to land and buildings. In many cases, the adjective describing the cost is the same as that for value, but the meanings are different, as are the monetary sums involved.
Examples would be development value and development cost. Development value is the estimated market value that a completed project will command. It is especially unreliable to use a cost approach to valuing as the size or age of a building increase. An increase in size will not usually lead to value rising in proportion to the added costs. With an old building, there is the difficulty of deciding how much to deduct from the costs of new construction to reflect the age and obsolescence of the structure to be valued.
The conclusion is that cost and value are rarely equal to each other but sometimes value is based on the loose assumption that they are related for properties that have no readily accessible open market value. When determining value, where a property is situated is usually of considerably more importance than what the property is. Locations in short supply and with high demand will command high market values. Tim Harford provides a brilliantly simple explanation of the effects of supply and demand and the importance of location Harford 5— As he makes clear by using the example of upmarket apartments in London and New York, scarcity and bargaining strength are the driving forces within any market that determine prices, and land and buildings are no different in this respect to other goods and services.
Where there is a shortage of supply and high demand, prices are driven upwards. Property development is closely limited by use of planning restrictions within this area to retain more open space and help protect the environment. In economic terms, the property market is an imperfect one. Each property is different. An increase in supply cannot be made to match a rise in demand very easily, if at all. Both supply and demand are inelastic.
They may be under undue pressure to buy or sell. The total supply of land in any given location or country is fixed, or perfectly inelastic. Surface area available cannot physically be increased to meet demand.berfaconsclecma.ml/habilidades-de-mando.php
An Introduction to Property Valuation (5th) [Paperback]
It is true that in some areas lowlying land has been or could be reclaimed from the sea, but conversely in other coastal areas, land is continually being eroded by the tides and lost. The small gain on the one hand is offset by the loss on the other, and therefore for all practical purposes the surface area of the world and any particular country or region within it remains fixed. It would be possible, for example, to use a larger proportion of the land surface for industry and this would provide some elasticity to the industrial land supply curve.
However, if this were done, then it would leave a decreased area available for the other land uses. An increase in land usage for industry would therefore require a corresponding reduction in some other land use or uses to compensate. Example A town has a surface land area of , hectares. Of this total, 10, hectares is currently used for industry and 30, for agriculture. It has been decided to double the land provision for industry at the direct expense of the agriculture, thus leaving 20, hectares available for each use.
The supply and demand changes are diagrammatically represented in Figures 1. Even if demand has not altered, agricultural land will therefore now command higher prices on the open market merely because it has become in short supply. The interaction of the forces of supply and demand on the open market have created this rise in value, which has been caused by the totally fixed size of land available. In Figure 1. In practice, when news of the release of agricultural land for industrial development is announced, the demand for it is likely to rise, which could match or exceed the shift in supply, so that the price may not decrease and may even increase from level 0P.
This may be achieved in a vertical direction by constructing taller buildings with more floor levels, so that for every hectare of land devoted to that land use, the amount of floor space available for that use can be increased. Of course, this is not a remedy available to all land uses; but the multistorey approach is a possible solution for commercial land uses such as offices or for residential by building flats rather than houses.
The other alternative is to fit more buildings onto a site and sacrifice the quantity of open space retained. Through utilising either or both of these policies, additional surface land area does not need to be sacrificed to increase the supply for the use. As the effective supply for all land uses is increased by this method, the town enjoys greater wealth from its fixed land area. There are limits though as to how far either solution can be taken. Development which is so dense that buildings cover every square metre of available land is not environmentally acceptable.
In a city or town, there is a maximum height of building that is either physically feasible or aesthetically desired. However, these factors can be stretched to extremes, as witnessed by the skylines of such cities as New York, Hong Kong and London, where large numbers of high-rise buildings have been constructed close together to maximise the usage of the very limited land area available in the city centre. Within any category of land use, the levels of supply for competitive properties will affect the value of any particular premises.
For instance, if there is an inadequate supply of modern offices in an area, then substantial rents may be obtainable for old offices or converted houses. Conversely, if the supply of modern offices were adequate to meet the office demand, then it would be difficult to let older buildings, even at very much reduced rent levels.
Whatever the level of supply, its interaction with demand will determine market prices. The parties to a transaction usually have a choice whether to buy or sell at a particular price. It is this principle that underpins the comparison method of valuation, which is considered in Chapter Observation and analysis of market transactions is a fundamental concept used by property valuers to provide evidence in support of the validity of their valuations. In the long term, an activity will tend to locate at the place that gives it the greatest relative advantage.
For businesses this will be the profit-maximisation location and for consumers the utility or facility-maximisation location. The person or organisation willing to pay the highest price for a site is the one most likely to occupy and use it. Any competitors who are unable or unwilling to match this price will be competed away. Although different uses, offices and shops are usually found together in a city centre as they complement each other.
For example, the workers travelling into the offices will use the shops at lunch times and after work. Different shops will group together to gain the benefits of passing trade and from the increased range and choice presented to the consumer by that shopping centre. The greater the number of shops and the more diverse their sizes, types and range of products offered, the greater the number of people who will travel to and use the centre.
This increases the potential pool of customers for all the retailers. Those sites which enjoy the greatest accessibility and complementarity will have the highest demand and will therefore need to be used intensively to try and satisfy as much of this demand as possible. However, intense use is not always possible or desirable due to site conditions, planning restrictions, type of use and social and environmental considerations. How land uses are distributed within an urban area and the effect of location on value have been the subjects of much research and discussion by economists, philosophers and sociologists over more than two centuries.
In his On the Principles of Political Economy and Taxation, published in , Ricardo established that land was not price determining but was price determined by whatever factor use was based upon it. This was due to the inability of the supply of land to change to meet increased demand, unlike supplies of capital and labour. In modern terms for land, this would be the difference between value in its existing use and value in its next-best remunerative use, which will be determined by market forces and planning permission. Henry George expounded the argument for the taxation of the economic rent element of land.
His philosophy was that land was not created by man but is a gift of nature and as such is owned by the whole community. Thus, any value created by a particular use belongs to that community. In , Park and Burgess developed the concentric ring theory. They concluded that accessibility, values and density declined with increasing distance from the city centre and five circular zones become established. From the centre, these are: the central business area, zone of transition, factory and low income housing zone, middle and high income housing zone and the outer commuter zone.
As identified by some of these writers, most modern urban areas share a broadly similar pattern of land uses, with variations and differences in each individual town or city. These five zones or regions are: the central business district or zone, the zone of transition, suburban area, rural— urban fringe and rural area Lean and Goodall — It is the central point from which the transportation routes radiate. In most cases, the CBD is in the geographical centre of the town, but this does not necessarily have to be so.
The central area is relatively small sized and, coupled with intense demand from users due to the advantages of its location, it will enjoy peak land values. The scarcity of land together with these high values will produce the greatest intensity of use of land in the urban area, which results in high-rise buildings.
The other uses that benefit from and need to be in this area are major public buildings such as museums, main libraries, town halls and central administrative offices. This intense competition for space and the high land values will severely restrict the amount of residential property in this area, and those that do exist will command high values, particularly if in good condition. The zone of transition This zone immediately surrounds the CBD and can be termed the inner-city area. It possesses relatively high land values and was created from the expansion of the CBD.
It usually consists of a mix of completely new buildings or old buildings being converted, rehabilitated or redeveloped. It is the oldest residential district and often consists of luxury residences or low-income multi-family dwellings at relatively high densities due to the high land values. Radial transport routes out of the centre offer reasonable accessibility for a number of other users.
Suburban area Land values and intensity of land use are much lower than in the previous two areas. The majority user is residential at moderate densities and associated complementary uses including open space and recreational areas.
Development tends to be low-rise with the possible exception of regional centres within the area. With lower land values, there is less pressure for high-rise development to maximise usage of the available sites. Rural—urban fringe This is the surrounding countryside where single-family homes mix with agriculture.
Other than those employed in local agriculture, persons living here are in higher -income groups and choose to live here as space is relatively unlimited, which allows larger dwellings to be built. Lower income groups are discouraged by the high costs of commuter travel back to town. To compete with residential use, usage of land for agriculture needs to be intense, with such uses as market gardening being common.
In Great Britain, these areas of the country have usually formed part of the Green Belts established around the major cities, and in particular London, since the late s as a means of preserving open space and countryside within close proximity to the city and to prevent the further spread of the urban conurbation beyond these established limits. This created the effect when travelling along such a route of never seeing any countryside, as the buildings from one area of the city merged with those in the next, and with those in successive towns.
It is largely devoted to agriculture, forestry, heath land and other open space with few buildings. Land values in rural areas are the lowest for the locality in that they have minimum accessibility and can offer no complementarity of uses for commercial purposes. The size of the five zones, and their exact shape will vary from city to city, town to town and region to region.
In many cases, an area or areas radiating from one centre will overlap with those from a nearby conurbation, so that all five zones do not exist in that particular district. In addition, small regional centres can be situated within the boundaries of a major city, and these too establish their own zones of land use that overlap those of the city itself.
In this way an area of land may be within the suburban area of the city, but form part of the central business district of the regional town. Establishing the economic area of land use within which a property is located is an essential factor in understanding the economic, social, political and geographical factors that exist and help determine the levels of supply and demand for a particular property type and thus influence its value.
It does not need to be a single place. Indeed, markets can be on a local, national or international basis. The investment market brings the supply of existing and new investments coming onto the market into equilibrium with the demand for investments backed by money. It is the effective supply and demand interacting that produces an equilibrium price within the market.
At any one time, some individuals or institutions will have capital and income in excess of their current expenditure whilst others have expenditure plans in excess of their current capital and income. The investment market exists for the mutual benefit of both, collecting the surplus funds of some to make them available to others who require them in exchange for forms of investment.
In either case, the level of saving has a direct bearing on the level of investment, and the factors that will influence the level of savings in an economy, especially interest rates, will affect investment. The property market exists wherever property transactions can take place. This contrasts with the market for financial securities where stock exchanges around the world have fixed times for trading. Prices determined on the exchanges are freely available at any time and are published nationally each day. There is no such arrangement with property prices. Deals to buy, sell and rent property can be made anywhere at any time and are not always reported.
This results in future buyers and sellers not always knowing what the level of demand and supply and thus the expected market value will be. Unlike financial securities, every property is different. Correct valuation of each can be complex. This is why investors should take advice from professionally qualified valuers, whose knowledge and expertise will enable them to provide a reasoned valuation on which to make purchase and sale decisions.
These can cut the real cost of commercial buildings, which may be reflected in their yields Chidell The above gives only a very brief idea of the effects each tax has on property. The appropriate allowances and adjustments that need to be made in property valuations for the effects of some of the taxes are considered below see Sections 5. It is the allocation of resources, particularly land, in such a manner as to obtain maximum efficiency, whilst paying heed to the nature of the built environment and the welfare of the community.
In this way planning is therefore the art of anticipating change, and arbitrating between the economic, social, political, and physical forces that determine the location, form, and effect of urban development. Left to a free market price mechanism, solely determined by the interaction of supply and demand, land could be allocated between competing uses in an efficient way to the detriment of the community.
The private sector developer seeking to maximise his personal profit frequently neglects the provision of both social services and public utilities. The very need for planning arose out of the inequality, deprivation and squalor caused by the interplay of free-market forces and lack of social concern prevalent during the nineteenth century.
Furthermore, unplanned, these forces combine to produce the fluctuating booms and slumps that epitomise private sector instability. Ratcliffe 5 Town planners, acting on behalf of the community, can thus wield a very significant influence on allocation of land usage and the intensity of that use. In the UK, this power is primarily given to the local planning authorities, who are the county, unitary and district councils.
They are subject to statutory regulations and guidelines enacted by Parliament and administered by Communities and Local Government, a government department headed by the Secretary of State for Communities and Local Government. Current planning legislation is consolidated in the Town and Country Planning Act The planning authorities have the power to: 1. These powers are vested in these public bodies so that development can be regulated for the overall benefit of the community and the country having taken account of financial, social, political, economic and environmental factors.
In this way, the allocation of land can be balanced between competing uses. It should also ensure any non-profitable uses, such as parks and open spaces can be sufficiently provided, which may not be the case if allocation was left entirely to free-market forces. When authorising a category of use or a change of use for a property a local planning authority is directed by The Town and Country Planning Use Classes Order To ensure this power is not abused, tight political, ethical, legal and financial controls are imposed by central government and within local government itself.
Why should every valuation be dated? How can a single property have different values at the same time? What is the difference between capital and income? Why may worth, price and value be different sums of money? How does the nature of property affect its supply? Why is it more likely that high-rise buildings will be situated in or near the city centre? What are the main three factors that determine the highest value for a property?
How does the pattern of land use within an urban area determine the types of property to be found in an area and their values? Chapter summary Property valuations are needed for many different purposes and numerous types of value can apply to any property at one time. It is critical that both valuer and client are clear about which value is to be assessed and why.
Value, price, worth, cost and market value may all sound similar descriptions of the same monetary sum, but in the context of property valuation can have quite different definitions. Seldom is cost used as a measure of value. Interaction of the market forces of supply and demand will determine prices and market values. By observing and analysing the prices in the market, the valuer can obtain information that will inform future valuations.
The inherent nature of land and buildings makes it difficult to change the level of supply in the short term and there may be absolute limits on the quantity of space that can be made available within a city area for any particular use. Accordingly, any change in demand can have a disproportionate effect on price. Land uses within an urban area often form distinct patterns, strongly influenced by land availability and accessibility. The most significant factor in determining the value of a property is where it is located. Taxation and planning policies and legislation will also affect values.
Ball, M. Egan, D. Askham and L. Evans, A. French N. Gaskell, C. Gilbertson, B. Online: Harvey, J. Wyatt, P. Who may require the services of a valuer? Why a valuation is different to a building survey. How accurate are valuations? Why valuers should be independent and objective in their work. The role of the Royal Institution of Chartered Surveyors and services it provides to the profession. The main task, by definition, is to find the value of a property. Before valuers can value, they must know exactly what type of value they are seeking to find, for whom they are finding it and for what purpose this valuation is being sought.
Without this knowledge, the resultant figure will have no relevance and has the potential to be taken out of context and interpreted in an incorrect manner. Failure to establish with a client at the outset the exact nature of the instruction, including the full facts of what is required and why and how it will be obtained, will lead to later difficulties. This could range from the provided information being misunderstood, to non-payment of fees, to a possible claim for negligence against the valuer for failing to fulfil a duty of care and undertake the task required in a careful, reasonable and professional manner.
When communicating with clients, valuers should endeavour to use clear, concise and plain English. However, within the property world and between property valuers, a large number of unusual or unique words, phrases or abbreviations are used. Such specialist terminology is not uncommon in most trades or professions. It takes time for newcomers to valuation to become familiar with this terminology and readers are recommended to gain an understanding of it to assist in their study of the subject.
The standard reference work that provides the relevant definitions is The Glossary of Property Terms Parsons Property valuers have a range of valuation methods they can use to estimate the value of any type of property. These are covered in detail in Chapters 10 to To do this, the valuer must know how the many and varied characteristics of real property can affect value and how changes in social, economic and political factors, in the local, national and international contexts, are likely to influence it. Legislation will have a major impact on assessment of value and the valuer must have a good working knowledge of the relevant law to be able to undertake the required valuations correctly.
Purposes for which a valuation may be required include sale or purchase, rent to be paid or demanded, the amount of mortgage which could be advanced on a security, calculation of compensation payable or receivable, assessment of taxation or rating and the advisability of investment. The intention of the valuation, together with the circumstances and requirements of the client requesting the assessment, can greatly influence the value. As a result the valuer may provide each of a number of clients concerned with the one property a different valuation, or indeed, different valuations to the same client on the same property depending on the definition of values being sought.
Amongst other things this will involve being proactive in anticipating future trends in the market and suggesting solutions to problems that may arise from them so as to ensure income is maximised and running costs minimised, without detriment to the overall condition of the investments.
This management and advisory function can extend to negotiating lease renewals and rent reviews and appraising development and improvement proposals, as well as the management of the physical structure of the buildings. Valuation research specialists can also advise on trends in the market generally and on particular property types in specific locations where required by clients. It is because qualified professional valuers make an in-depth study of these matters, and are fully informed of all factors affecting property values, that they can formulate a reasonable and logical opinion on a value for a given property and situation.
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With a vast range of property types, locations and reasons for valuations to select from, once qualified and working in professional practice most valuers choose to specialise. So, some valuers will deal with one region of a country or a specific form of property such as retail or industrial only. In addition, the range of professional work undertaken provides other forms of specialism. Any person or any organisation that occupies, owns, seeks to own or finances property is likely to require a valuation.
Who owns or seeks to own property? The services of a valuer can thus be used by anyone with a legal interest in landed property or considering acquiring such an interest. Potential clients can range from global major organisations down to individual citizens. Large numbers of valuers work in private practice for large or small property consultancy or surveying firms, in partnerships or as sole practitioners, and act for clients.
There is thus a very wide scope of potential employers. Geographically there are opportunities on a worldwide scale with RICS qualified professionals being recognised internationally. It is important to appreciate that a valuation is not a building survey. Citing Definitions of Inspections and Surveys of Buildings by the Construction Industry Council CIC , the RICS defines a building survey as: an inspection and assessment of the construction and condition of a building and will not normally include advice on value … The survey will generally include the structure, fabric, finishes and grounds.
The exposure and testing of services are not usually covered. The extent of the survey will be subject to the specific agreement between the surveyor and client and advice on costs of repair will be subject to such agreement. The report may include reference to visible defects and guidance as appropriate on maintenance and remedial measures. The report may recommend that elemental or specialist investigations are undertaken or other specialist advice obtained relating to specific issues.
The survey will not normally include intrusive investigation of materials or structure, or inaccessible or hidden areas, unless agreed with the building owner. This is usually undertaken on behalf of an institutional lender, but private buyers and sellers may separately commission such reports. The case of Lloyd v. Butler and another  47 EG 56 concerned a mortgage valuation where the valuer failed to reach the duty of care expected in such cases. Although not necessarily obliged to follow up every trail of evidence, the case inferred that the valuer must alert the lender and borrower to the risk where serious defects are suspected and that further investigations should be made before there is a legal commitment made to purchase.
One of the conclusions in Smith v.
Bush  3 All ER was that if there are no clearly identifiable signs of suspected problems, or a surveyor misses defects because the signs are hidden or concealed, then it will be difficult to demonstrate negligence. On the other hand, Platform Funding Ltd v. Effectively falling between a mortgage valuation and a building survey, the Homebuyer Survey and Valuation HSV commonly known as level 2 is a form of limited contract that tightly defines the extent of inspection within its terms of engagement Royal Institution of Chartered Surveyors c.
A high proportion of the problems that arise on this type of survey are simply because the parties are not sufficiently clear about the nature and scope of the inspection, with some clients mistakenly expecting the HSV to be effectively the same as a building survey, which it is not. A Residential Building Survey commonly known as level 3 is intended to provide the buyer with the most extensive report option and is therefore the most expensive. Formerly called a structural survey, this survey is a bespoke service suitable for all residential properties and provides a full, detailed picture of their construction and condition.
It is likely to be needed if the property is, for example, of unusual construction, is dilapidated or has been extensively altered — or where a major conversion or renovation is planned. The report includes extensive technical information on material and construction as well as details of the whole range of defects, major to minor. The surveyor will not normally test the services, but may be instructed to coordinate electricians, heating engineers, etc.
The exact extent of liability will depend upon the precise terms and conditions of engagement that the surveyor and client enter into. The case of Hacker v. Thomas Deal and Company  44 EG involved a building survey known then as a structural survey. The decision made it clear that the courts expect a more detailed inspection of the fabric of a building, and a deeper knowledge and expertise of construction and defects be employed in the case of building surveys compared to valuations. For all the use of mathematical formulae and calculations, valuers also exercise subjective opinion based on their knowledge of the market and their interpretation of facts.
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Two valuers, given the same property to value and the same facts to work from, will often arrive at slightly different final values as they have each formed somewhat diverse opinions on the current state of the market and how the information concerning the property should be interpreted. It is vital that value is calculated after carrying out careful and meticulous research and is based on sound principles, having taken all relevant factors into account and disregarding all irrelevant factors.
Doing less than this is unacceptable. Nevertheless, having diligently carried out the valuation functions there are usually some factors that are open to subjective opinion. This may cause the final value suggested by the individual valuer to vary a little from that suggested by another practitioner. Unless a figure satisfactory to both can be achieved, all valuation theory is pointless.
There is no use in deciding that a property is worth a certain value if nobody is prepared and able to purchase or rent it at that price. A number of court cases have examined the expected degree of accuracy expected in a valuation. In Singer and Friedlander Ltd v. In addition, Watkins J said that the bracket could be extended to about 15 per cent or a little more, either way in exceptional circumstances. In Muldoon v. This measured how far each valuation was from the sale price, regardless of whether it was above or below that price and treating each sale as equally important.
The conclusion that may be drawn from this research is that valuers have a tendency to err on the side of caution and possibly slightly undervalue. This is perhaps understandable. Should clients achieve a higher sale price than their valuation they will probably be surprised and pleased, but if they can only sell at a figure less than valuation they will be more likely to both be disappointed and to question the accuracy of the provided valuation. In any event, market data confirms that it is very difficult for a valuation figure to be clear-cut and unequivocal. There is always an element of subjectivity in the assessment of value.
Inevitably, this results in an inherent small margin of variation between valuations made by different valuers or between a valuation and the final market exchange price. The key is keeping this margin as small as possible. This is considered in more detail in Chapter 9. Faculties changed to professional groups in A member of the RICS can join up to four of the groups. RICS publications on valuation matters are contained within isurv Valuation. It is regularly updated and its content expanded. There is a distinction drawn between official RICS information, such as the Valuation Standards, and information written specifically for isurv Valuation by individual authors.
The growth of the European Union and the opening up of property markets in eastern Europe and Far East to foreign investment have helped this expansion of the profession and demand for its services. Increasingly global clients undertaking cross-border property investment seek this advice. It was originally founded in by the major real estate valuation institutes from the major economies. It has now broadened its membership to include professional associations for valuers of many types of assets, including plant and equipment, minerals, intangible assets and businesses.
Its membership represents over fifty different countries. IVSC is committed to the development of a single set of global standards and requirements for the valuation of all assets and liabilities. The means by which property performance is measured and evaluated is becoming increasingly standardised. And we are seeing the adoption of global accounting standards, with RICS leading the way. They must be prepared to acquire an ability in foreign languages to enable them to converse with their overseas clients and business contacts.
They must seek to obtain knowledge and experience in the legal, financial and valuation characteristics specific to each foreign property market. As Gilbertson et al. There is a bright future for those valuers who understand the dynamics in their market and anticipate or always respond to change.
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Electronic distance measuring devices, PDAs personal digital assistants and laptop computers have sped up the process of measuring, referencing, valuing and reporting on property and recording inspections. Another area of activity that has grown significantly in recent years is that of property research. Most major private practices and many large companies and financial institutions have specialised departments for carrying out this function, both to provide a general overview of the market and for specific job or client needs.
Far more property-specific data and statistics are now available than was the case before the expansion of information technology. The potential application of computerised neural networks to property valuation was considered in the mids. Work by Lam and Connellan and James suggested use of this technology to eliminate subjectivity and improve accuracy within property valuation.
Although not developed further in the UK at that time, the underlying principle has been implemented in Automated Valuation Models AVMs that have begun to be used for certain types of residential property valuations in the early years of the twenty-first century. Johnstone et al. More recently, automated valuation models AVMs have been developed to allow for a rapid assessment of a property value. Here, a user inputs the target address and property characteristics for example,, number of bedrooms, age, etc.
The model will then return a value for the target property. AVMs have been an established feature of the U. Their use is still quite limited at present, being more likely to be considered suitable for a mortgage advance where the loanto-value LTV is quite low and thus the perceived risk to the lender is correspondingly low.
However, there is a potential for AVMs to become more sophisticated and widespread in their use in the future. A concern is that human valuers will be replaced by computerised AVMs. As well as providing valuations for the many properties not amenable to AVMs, their expertise is required to interpret, check and evaluate AVM outputs. The wide-ranging and influential Stern Review Great Britain has helped focus attention on sustainability, energy efficiency and risk of flooding and the implications of these on the value of a property are going to be a significant consideration in the future.
From establishing and confirming what specific value is being sought by the client, through to inspection of the property, researching and analysing all relevant data, calculating and reporting value and liaising with other professional advisors, the range of abilities required is extensive. Apart from advising on value, valuers can also be involved in the management of property.
Potential clients for valuations range from individual citizens to global organisations. It is important to distinguish a valuation and a valuation inspection from a building survey and to understand the requirements and limitations of each. Whilst all valuations must be undertaken thoroughly, competently and with all reasonable care, there is often a small variation between values and final sale price or between figures produced by two or more valuers on the same property. This is due to the process requiring a certain amount of subjective assessment and interpretation together with the mathematical appraisal.
Valuers must remain independent and maintain the highest standards of integrity and ethics to make certain the figures they provide are impartial. The RICS acts as a regulatory body to ensure high standards are set and maintained and provides a wealth of material, both printed and on online, to assist in this. The profession has become international in scope and challenges faced in the future come from increased use of information technology, global clients and markets and the effects of climate change on valuation.
Further reading Brett, M. Lynch, T. Online at: accessed 4 January Online: accessed 30 December Santo, P. Many other types of investment exist, although the majority of funds are placed in three main markets: 1. The forms of investment available include: 1. Goods and chattels Clearly, not all such purchases could be considered investments, especially where they are bought for use. By necessity, appropriate goods and chattels must be of a durable nature with a long-term life expectancy.
They will slowly deteriorate and become less efficient with age and use. This process may be slowed by regular expenditure on maintenance and repair, but will not be halted entirely. Although this is true of the above examples, there is an exception when the item has acquired a rarity value that outweighs its decrease in value through age and use. A good example of this would be a Supermarine Spitfire fighter aircraft, especially if still in flying condition.
Immediately before and throughout the Second World War, these aircraft were mass-produced in thousands. Indeed, at the end of hostilities, most such aircraft were scrapped as they were replaced by modern jet fighters. However, today there are very few of these machines in good condition still existing in the world. Despite, or more likely because of, its considerable age and having been flown for thousands of hours, such an aircraft would today command an extremely high value, far in excess of its original price, due to its rarity.
The current rarity and historical importance of the item gives it a high value. National Savings Certificates and Bonds These provide a very safe type of investment as the precise purchase price and interest rate are known and usually the redemption value is stated at the time of purchase. They can generally be redeemed at any time. Despite these advantages, they can offer modest returns and little capital appreciation. Premium Bonds could be considered a form of investment in this category.
They are issued by the UK central government but provide no interest payment. Conversely, Bonds could be owned for many years and never be selected to receive a prize. However, the Bonds can be redeemed at any time for their face value. It may therefore be better not to consider Premium Bonds as an investment at all, but rather in the nature of a lottery ticket, where the return of the initial stake money is guaranteed. Bank or building society deposit or savings accounts and saving schemes These also generally offer a very safe form of investment. Some current accounts can also pay interest, but usually at a lower rate than deposit or savings accounts.
The interest rate is variable, depending on the behaviour of interest rates generally in the economy, but the capital is always secure in nominal terms, providing the institution remains solvent. In the UK in September a loss of confidence in the stability of Northern Rock, due to difficulties in the world credit market emanating from heavy defaults in sub-prime US mortgage lending, led to huge demand from savers to withdraw their deposits amid fears that their money may be lost if the company become illiquid.
These fears were allayed when the UK government promised to guarantee all such savings in the event of this or similar institutions falling into financial difficulties. Subsequent financial turmoil throughout world credit markets and banking in led to further assurances being issued by US, UK, European and other national governments to underwrite savings placed within major banks and financial institutions in an attempt to maintain stability of the system and prevent panic withdrawals by savers.
When the investor withdraws interest payments from the bank or building society account to provide an annual interest return, there will be no capital appreciation. It will remain at the same nominal sum as that initially deposited. However, liquidity of capital is generally good in that money can be withdrawn from many types of account at nil or short notice, although larger sums and accounts paying higher rates of interest may be require more or even considerable notice.
The principle is that the larger the sum of money invested, and the longer the notice required for its withdrawal, the higher the interest rate that will be paid. There are also accounts where an additional rate may be earned in return for investing a minimum specified sum on a monthly or other regular contractual basis. Life assurance policies These pay a specified sum of money to a beneficiary on the death of the assured life. Endowment assurance policies pay the sum on death or at the end of an agreed period, whichever occurs soonest.
The amount of this additional bonus payment will vary from year to year, according to the state of the company, and could even be zero. Conversely, they can show growth at or above the level of inflation, thus ensuring that the sum payable on maturity maintains its value in real terms. A single or more usually annual or monthly premiums are paid for a policy. The level of premium is decided having regard to the age, sex, occupation and state of health of the insured person.
Endowment policies are most frequently taken out as part of a mortgage agreement. An endowment mortgage requires the mortgagor to pay interest only on the sum borrowed during the period of the loan. In addition, the endowment insurance policy should guarantee that if the mortgagor dies during this period, a sum sufficient to repay the loan would be available. Theoretically, this will be sufficient to redeem the loan and leave the mortgagor with some additional cash. In practice, there have been cases where the policy has underperformed and provided an insufficient sum to repay the loan.
Unit trusts and investment trusts Both of these are vehicles that offer an opportunity for small investors, with limited or no knowledge, to invest in the stock market at reduced personal risk. Both types of trust aggregate funds invested by many investors, and invest these on their behalf in equities. The advantage is that the trust can spread the risk by investing in many different companies, whereas the small investor on his or her own may only have sufficient capital to acquire shares in one or two companies.
In addition, experts will decide when the trust should buy and sell and select which particular securities should be purchased, relieving the investor of this worry and responsibility. A unit trust consists of a trustee such as a bank who will handle the finances and keep the securities and cash reserves; and a management company who will select the individual securities to be bought and sold. There are always two prices quoted, a buying and a selling, for the units. In the US unit trusts are known as mutual funds. Shares not units in these trusts trade on the Stock Exchange in the same way as other quoted companies, and investors can purchase their shares at the current market price as determined on the Exchange.
Both types of trust offer reasonably secure methods of investing in stocks and shares, as there is an expectation that any losses in one part of the portfolio will be offset by gains in another part. Providing the overall trend of the equities market is upward, the value of the investment in real terms is maintained or improved.
Precious metals and stones The main categories are gold, silver, platinum and diamonds, although many other precious stones could form worthwhile investments. In the case of the precious metals, ingots or bars are the appropriate form for investment, not jewellery, although solid coins could have a value above the pure intrinsic worth of the metal, depending on the rarity of the coin type, its condition and year of issue. For retention of maximum value, precious stones ideally are retained in an uncut state, since poorly cut stones can suffer a serious depreciation of value.
Again, usually the value is reduced substantially if the stones are mounted in jewellery, as this restricts the market for their sale, unless the piece has a particular historical or celebrity value. The market for these types of investments fluctuates considerably, depending on world supply and demand. For instance, there have been both substantial growth and losses in the past in the gold market and therefore there can be a degree of risk attached to such a holding. Works of art and collections of rare objects Paintings, sculptures, china, miniatures, crystal glass, postage stamps, coins, medals, etc.
Some goods and chattels bought for use or precious metals and stones could also fall into this category. Rarity, by itself, is usually enough to ensure such items retain a high value. However, the history of the item can enhance this value considerably. The war or sports medal awarded to a nationally famous hero would sell at a higher price than the same type of medal awarded to a lesser-known person.
The market for many of these items can be extremely unpredictable, with bidding far exceeding reserves at auction.
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Conversely, artists that were popular fifty years ago may now no longer be so highly regarded, and their work can decrease in value. There is also the added problem of security from the ownership of such items, although conversely prestige and enjoyment can be derived from the display of the work of art or collection. Currency and commodities More often traded for short-term speculative gains rather than longer term investment, they form a substantial sector of daily financial dealing on the foreign and stock exchanges. Stocks and shares Shares represent part-ownership of a company, whereas stock and debentures are forms of loan to companies and to central and local government.
Each share is equivalent to another similar share in the same company. The shares in public limited companies trade on the Stock Exchange, but shares in private companies are sold privately. Preference shares are issued at a fixed rate of interest. Their fixed rate of interest can be a disadvantage when inflation erodes their value, but in times of depression, their guaranteed income is an advantage over ordinary shares, which are unlikely to provide much if any annual dividend.
This means that if in any one year the profits are insufficient to pay all the preference shares in full, any shortfall in the interest payment is carried forward to be made good in the next year, providing profits improve. Should there still be a shortfall, this will again be carried forward, and so on until the full interest payments have been made. These deferred returns take precedence over all other shares, but not over debentures. Should there be a surplus of profits after the prior claims of debenture and preference shareholders have been met, a company may declare a dividend to be distributed amongst the ordinary shareholders.
Because of this uncertainty of income, ordinary shares are a riskier investment than debentures and preference shares. The assets of the company guarantee the interest payments and capital repayments and therefore, if the company should go bankrupt or go into liquidation, debenture-holders will be repaid before ordinary shareholders. This term originated because the certificates themselves had a gilt-edged border. However, the name nowadays is applied more loosely to indicate a very safe type of financial security investment. Those issued by the UK government are known as Exchequer stocks or Treasury stocks.
Some UK and Commonwealth companies and some local and public authorities also issue stocks. They earn a fixed rate of interest, which is stated when the stock is first issued. These interest payments are made half-yearly.
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