Property Valuation Methodology
Executing professional property valuations in line with the South African Council for the Property Valuers Profession (SACPVP) & South African Institute of Valuers (SAIV).
It is our responsibility, as property valuers, to deliver our services according to ethical standards of credibility, efficiency and honesty of purpose. In this industry, where time is money and money a commodity, our clients expect property valuation services that line up with international standards. For this reason, we execute our duties “without fear, favour or prejudice” and succeed in surpassing our clients’ expectations with every valuation we undertake.
To ensure that every property valuation is a success for all parties involved, the client requesting the valuation should endeavour to provide a comprehensive instruction relating to the property being valued. Once we have this instruction, we as property valuers can proceed to investigate the property in terms of title deeds, endorsements, diagrams, restrictions, zoning certificates, rates records, and the like. This thorough investigation will assist us to establish the “highest and best use” of the property in question.
Arrangements can then be made for an on-site property inspection where concerned parties are present – at a time most convenient to all. There are a few property valuation methods available, especially when it comes to the valuation of industrial and commercial properties. When deciding which of these to utilise on a specific valuation project, we follow the guidance of the International Private Equity and Venture Capital Valuation Board which suggests we, “…should be biased towards those methodologies that draw heavily on market-based measures of risk and return.” Below are the five property valuation methodologies Roper & Associates are able to use:
Sales Comparison Method
South African Courts have declared this the most reliable method of property valuation. The Sales Comparison Method involves the valuer assessing sales data of similar properties and other relevant market data to establish a property value.
As a comparative approach using a capitalisation process, this valuation method is applied when a property has income-generating capabilities and these are considered by the market as the primary basis for value. A valuer would deploy this method in the case of office blocks, shopping centres or factories.
Depreciated Replacement Cost Method
This method is used when the property does not transact readily in the market place, and little or no market evidence is available to the valuer. This value is defined as the current cost of replacing the property with its modern equivalent, less deductions for physical deterioration and/or optimisation.
This property valuation method is commonly used when developers want to determine the value of a tract of land which has development potential. This method refers to the estimated amount that a property would obtain from the disposal of an asset after deducting the costs of disposal, if the asset were of an age and in a condition expected at the end of its useful life.
Profit (Accounting) Method
This method of property valuation is dependent on the property’s use (hotel, petrol station, farmland, etc.) and states that the rental amounts and capital values are usually influenced by profit-generating potential. For this reason, profits are used as a basis to determine the value of a property. The gross annual income or turnover is estimated from which cost of sales is deducted. The net balance is divided into a rent and profit split, where the rental is capitalised appropriately.