Pusprose and Reasons OF Valuations
Valuations are required for many different purposes ranging from open market transaction to compulsory purchase. Although the underlying preferred method of valuation should not be dependant upon the purpose of the valuation, it is important that the purpose is determined before undertaking any calculation.
Need OF Valuations
Buying and selling property is a difficult proposition. At any given moment, you're being asked to consider a great number of variables, put them together, and decide whether the property you're looking at is worth investing in or not. This is challenging no matter how you decide to go about it, but without a property valuation it is far more difficult and the process is much more unreliable and risky. Consider this: do you want to make these investment decisions without knowing the accurate valuation of your property? It's possible to try and value your property yourself, but this is a risky proposition that is almost certainly going to result in an inaccurate property valuation no matter how careful you are.
Market Value – Sale Report
The most common purpose for requesting a valuation is for sale. Although, this is often referred to as a valuation, it is actually more akin to marketing advice as normally the estimate of price is given for a future date after the property has been fully marketed. Conversely, a valuation for purchase is, by its nature, an estimate of the individual’s best bid and thus is a calculation of worth.
Market Value – Accounting Purposes
A more correct use of the term valuation is the value of property as reported in company (or public) accounts. The majority of property owners have to prepare valuations of their properties for the purposes of their accounts. This is a statement of the company’s wealth on a particular date. Thus the value of the property element within the business is an estimate of the Market Value on the date of the accounts.
Market Value – Loan Security
Banks and other lenders commission the valuation of property acting as collateral for a loan. They want a market value on which they can judge the amount of the loan based on a “loan to value” ratio. They are attempting to manage the risk of the loan by ensuring that the property has sufficient value to act as security for the amount lent.
Market Value – Minimum Price or Auction Reserve
Often when a company or public body is selling its assets by tender or auction, they are obliged to only accept offers in excess of their valuation of the asset. Thus a Market Value has to be determined as a guide. Similarly, in cases where an owner has a property that is unusual or where there are special circumstances pertaining to it, the valuer may be instructed to place a reserve value on the property for auction.
Market Value – Insurance
All property must be insured in the case of replacement - but this is really unconnected to the sale price - which of course includes the land. For insurance purposes the normal basis of valuation adopted will be the cost of replacing the building in the event of destruction or partial destruction.
Market Value – Taxation
Valuers frequently have to value property for tax purposes. The principal taxes fall into groups: capital and revenue. Often these valuations are formula based and diverge form normal market value calculations.
Market Value – Compulsory Purchase
Often public schemes involve the purchase of land and this acquisition is subject to a compulsory order. The principal basis of compensation for the land and buildings taken is based on open market value. This is often a case where the valuer has to deal with specialised property such as churches, schools and the like