IBBI Land & Building cheat sheet

Market value is the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm's-length transaction after proper marketing, where each acts knowledgeably, prudently and without compulsion.

Value in use is asset-specific, reflecting the present value of cash flows the asset generates for its current owner; it can exceed market value and is not the same as fair value under IVS.

Highest and best use is the use that is legally permissible, physically possible, financially feasible and maximally productive, producing the highest residual land value among competing uses.

The principal of substitution holds that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute with similar utility.

The principal of anticipation states value is created by the expectation of future benefits, so current value is the present worth of prospective net income.

Forced sale value and distressed value reflect compressed marketing periods or seller compulsion; they require explicit assumptions and must not be presented as market value.

Land is a non-depreciating, indestructible factor whose value derives from location, access, permissible use and development potential; buildings depreciate through physical, functional and economic obsolescence.

Real estate is heterogeneous and immobile, so valuation relies on comparison and adjustment rather than a single observable price; effective date and inspection date may differ.

Sales comparison approach: adjust comparable prices for transaction date, location, size, frontage, shape, tenure, zoning and condition; apply adjustments multiplicatively or sequentially to a common basis.

Cost approach: value = replacement or reproduction cost new less depreciation (physical deterioration, functional obsolescence, external obsolescence) plus land value; use for special-purpose or new buildings.

Income approach: value = net operating income divided by capitalisation rate (V = NOI / R); the cap rate may be built up from a risk-free rate plus risk, illiquidity and management premiums.

Discounted cash flow: value is the sum of NOI_t divided by (1+r)^t over the holding period plus reversion value discounted at the same rate; model rent growth, vacancy, capex and exit cap explicitly.

Gross rent multiplier = sale price / gross rent; use only where rentals and sales are comparable; it ignores operating expenses and vacancy.

Residual land value = gross development value discounted to today minus total development costs (construction, fees, finance, contingency, profit) - the classic developer's method.

Depreciation in the cost approach is measured by age-life method (effective age / total economic life × cost new) or by breakdown method for curable and incurable items.

Reconciliation weights each approach by relevance and evidence quality, not by simple averaging; the final opinion must state the primary approach and why others were given less weight.

For mortgage lending, lenders typically require market value on an as-is basis plus, where relevant, a forced-sale or liquidation value with stated marketing period assumptions.

Leasehold and freehold interests differ: a leasehold valuation capitalises the contractual rent for the unexpired term and market rent thereafter, adjusting for lease incentives and review patterns.

Under-construction property is valued on an as-is-where-is basis using completed value less cost to complete, developer's profit and risk, with progress verified by inspection.

For compulsory acquisition, compensation generally covers market value of the land, severance and injurious affection, and disturbance; betterment may be set off where statute permits.

Rent review and lease renewal valuations use market rent at the review date, disregarding tenant improvements and assuming the hypothetical letting on standard terms.

Industrial and special-purpose assets (plant, refineries, hotels) are valued on a going-concern or depreciated replacement cost basis where market evidence is absent.

Agricultural land valuation considers soil class, irrigation, cropping pattern, net farm income and statutory land-ceiling or conversion restrictions.

For financial reporting, investment property is measured at fair value under the relevant standard, with valuation date aligned to the reporting date and disclosure of key unobservable inputs.

A valuation report must identify the client, intended use and users, the asset, the interest valued, the basis of value, the valuation date, currency, and the scope of work including inspection and limitations.

IVS requires the valuer to state whether the valuation is compliant with IVS, disclose assumptions and special assumptions, and distinguish them clearly from ordinary assumptions.

Valuation date and report date are distinct: value is expressed as at the valuation date, while the report date is when the opinion is issued; subsequent events are not reflected unless instructed.

The report must disclose the valuation approach(es) adopted, key inputs and sources of evidence, and the reasoning behind the reconciliation, sufficient for another valuer to understand the opinion.

Independence and objectivity require disclosure of any prior involvement, fee arrangements contingent on value, and conflicts of interest; contingency fees based on the outcome are prohibited.

Inspection records should note date, extent (internal/external), who accompanied, and any inaccessible areas; a desktop or restricted valuation must state the absence of inspection.

Title, tenure, encumbrances, statutory approvals and zoning must be verified or assumed, with the source stated; unverified matters are declared as assumptions.

Records and working papers supporting the opinion should be retained for a period consistent with professional and statutory requirements, enabling later review or challenge.