IBBI Land & Building common mistakes
IBBI Land & Building · Understand the traps and how to avoid them.
Valuing a property on the assumption that the interest being valued is freehold or unencumbered, when the assignment actually concerns a leasehold interest, a reversion, or a property subject to an existing tenancy.
Candidates read the property description and the physical asset, then jump straight to a method, skipping the step of identifying the exact rights, encumbrances, and tenure that form the subject of the valuation. The interest valued is the single most important input, and it is easy to overlook when the question focuses on the building.
What to do instead
Before choosing any approach, write one sentence stating: the property, the interest (freehold/leasehold, reversion, encumbered), the purpose, the date, and any statutory or contractual constraints. If the lease has a material unexpired term or rent review pattern, state explicitly how the interest differs from freehold and reflect that in the choice of method and yield.
Confusing value, price, and cost in definitions and in the final opinion, for example treating depreciated replacement cost as market value or mixing cost of construction with value of the asset.
The three concepts overlap in everyday language, and exam questions often deliberately embed a cost figure to tempt the candidate into presenting it as the value. The candidate has memorized definitions but does not apply the distinctions when reasoning.
What to do instead
Anchor every answer to the definition of market value (willing buyer and seller, both acting knowledgeably, prudently, without compulsion, after proper marketing, at arm's length). If using cost-based evidence, say clearly that it is a check on value or a method used only where direct market evidence is absent, and never present cost as market value.
Applying depreciation or obsolescence as a single flat percentage without distinguishing physical deterioration, functional obsolescence, and external or economic obsolescence, and without explaining whether it is curable.
Candidates learn one depreciation formula and apply it uniformly, missing that different causes require different evidence and treatment, and that curable items are usually deducted at cost while incurable items are measured by capitalised loss of income.
What to do instead
Break depreciation into its components and treat each separately: physical (age-life or observed condition), functional (compare to modern equivalent, split curable versus incurable), external (evidence from market rentals or comparables outside the property's control). State the method used for each component and why.
Selecting comparables on location alone and failing to adjust for differences in time of sale, size, tenure, condition, and rights conveyed, or applying adjustments in the wrong direction.
Under time pressure, candidates grab the nearest or most similar-looking sales and skip the systematic comparison grid. Directional errors arise because adjustments are applied mechanically rather than by asking whether the subject is superior or inferior to the comparable.
What to do instead
Build a written comparison for every comparable covering date, location, size, age, condition, tenure, and rights. For each line, state 'subject superior/inferior to comparable' and then apply the adjustment in the corresponding direction. Show the arithmetic and record the net and gross adjustment so the reasoning can be checked.
Capitalising rent at a yield without matching the yield to the rent, for example applying an all-risks yield to a gross rent, or using a yield derived from a different interest or lease profile.
The income approach compresses several steps into one formula, so candidates treat the yield as a generic number rather than as a market-derived factor that must correspond to the same rent basis, the same interest, and a comparable risk profile.
What to do instead
State explicitly whether the rent is gross or net and whether the yield is an all-risks or equivalent yield, and ensure they are consistent. Derive the yield from comparable sales of similar interests, with the same lease structure and risk, and show the derivation. Where term and reversion are valued separately, show the split and the capitalisation of the reversion.
Using the residual method with a GDV or costs that are not at the valuation date, omitting finance and contingency, or failing to test the result for sensitivity to the biggest variables.
Residual appraisal involves many moving parts, and candidates often stop once the arithmetic balances, presenting a single-point answer without checking that the inputs are current and internally consistent.
What to do instead
Set out the residual in a clear ladder: gross development value, less construction and professional costs, less contingency, less finance, less marketing and disposal, less developer's profit, equals residual land value. Date every input to the valuation date, state the profit basis (on cost or on value), and include a short sensitivity note on the two or three most uncertain inputs.
Ignoring statutory and regulatory constraints, such as planning permission, zoning or land-use restrictions, floor area ratio, setback, heritage or environmental controls, when assessing highest and best use or development potential.
Candidates focus on the physical and market characteristics and treat legal constraints as background detail, whereas in practice they often determine whether a proposed use is permissible at all.
What to do instead
For every application, record the permitted use, density, and any conditions or encumbrances, and state how they cap or shape the achievable development. Test highest and best use against four filters: legally permissible, physically possible, financially feasible, and maximally productive, and show why the chosen use passes all four.
Mixing valuation dates and failing to state the date of value, or using comparables and cost data from a different market cycle without comment.
Questions often provide data spread over months or years, and candidates average or select without noticing that the market has moved. The date of value is treated as a formality rather than a substantive input.
What to do instead
Write the date of value at the top of the working and date every comparable and cost input. Where a comparable is from a different period, apply and justify a time adjustment, and say what market evidence supports it. If the market has shifted materially, state the direction and magnitude of the effect.
Producing a report that gives a single figure with no scope, assumptions, limiting conditions, or reasoning trail, or omitting the basis of value and the interest valued.
Candidates treat the report as a formality after the calculation and reproduce a template without tailoring it, so the reader cannot tell what was valued, on what basis, or why the conclusion follows from the evidence.
What to do instead
Structure the report to state: identification of the property and interest, purpose and intended use, basis of value, date of value, scope of work and sources, method and reasoning, key assumptions and limiting conditions, and the reasoned conclusion. Make sure every assumption is disclosed and that the conclusion is traceable to the evidence presented.
Presenting a valuation as certain and unqualified, without disclosing material uncertainty, conflicts of interest, reliance on unverified information, or the limits of inspection.
Candidates believe a confident single number earns marks and see caveats as weakness, whereas professional standards require transparency about uncertainty and about the basis on which the opinion rests.
What to do instead
Include a clear statement of any material uncertainty, the nature and source of the uncertainty, and its effect on the opinion. Disclose the extent of inspection, information relied on and whether it was verified, any conflict of interest, and any departure from standard practice with reasons. Keep the wording specific to the assignment rather than generic boilerplate.