IBBI Land & Building flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Market value definition

The estimated amount for which an asset should exchange on the valuation date between a willing buyer and willing seller, after proper marketing, each acting knowledgeably, prudently and without compulsion.

Highest and best use

The use that is legally permissible, physically possible, financially feasible and maximally productive, yielding the greatest residual land value among realistic alternative uses.

Principle of substitution

A prudent buyer pays no more for a property than the cost of acquiring an equally desirable substitute with comparable utility, location and condition.

Principle of anticipation

Value is created by the expectation of future benefits; current worth equals the present value of prospective net income and benefits flowing from ownership.

Value in use

The present value of cash flows an asset generates for its current owner in its existing use; it is entity-specific and may differ from market value.

Forced sale value

The amount obtainable in a sale concluded within a compressed marketing period or under seller compulsion; assumptions about time and duress must be stated explicitly.

Effective date of valuation

The date as at which the valuer's opinion of value applies; it may precede the inspection or report date and must be stated clearly.

Obsolescence types

Loss of value from physical deterioration, functional obsolescence (design or layout inefficiency) and external obsolescence (locational or market factors outside the property).

Sales comparison approach

Estimates value by analysing prices of comparable transactions and adjusting for date, location, size, condition, tenure and zoning to reflect the subject property.

Cost approach formula

Value equals replacement or reproduction cost new, less physical deterioration, functional obsolescence and external obsolescence, plus the value of the land.

Capitalisation formula

Value equals net operating income divided by the capitalisation rate; the rate reflects required return, risk, growth expectations and market evidence.

Gross rent multiplier

Sale price divided by gross rent of the property; a quick comparison tool that ignores operating expenses, vacancy and lease terms.

Discounted cash flow

Value is the sum of forecast net operating income discounted at the required rate over the holding period, plus discounted reversion proceeds.

Residual land value

Gross development value less total development costs, including construction, professional fees, finance, contingency and developer's profit, discounted to the valuation date.

Age-life depreciation

Depreciation equals effective age divided by total economic life, multiplied by cost new; a simple cost-approach method for physical deterioration.

Term and reversion

A leasehold valuation method capitalising contractual rent to the next review, then market rent thereafter, each at appropriate yields.

Reconciliation of approaches

Weighing the indications from each valuation approach by relevance and strength of evidence to reach a single supportable opinion of value.

Mortgage lending valuation

A valuation for secured lending, usually market value as-is, with attention to realisable value, marketing period and any conditions affecting saleability.

Leasehold interest valuation

Value of a tenant's interest: capitalised contractual rent for the unexpired term, plus or minus the difference from market rent thereafter.

Under-construction valuation

Completed value less remaining cost to complete, developer's profit and risk, with construction progress verified by inspection at the valuation date.

Compulsory acquisition compensation

Payment for the land taken at market value, plus severance, injurious affection and disturbance, with betterment set off where statute allows.

Rent review valuation

Determination of market rent at the review date, assuming a hypothetical letting on standard terms and disregarding tenant's improvements.

Depreciated replacement cost

Cost of replacing the asset's service potential less depreciation, used for special-purpose assets where direct market evidence is unavailable.

Agricultural land valuation

Value derived from soil quality, irrigation, cropping pattern, net farm income and statutory restrictions on conversion or holding size.

Investment property fair value

For financial reporting, the price in an orderly transaction between market participants at the reporting date, with key unobservable inputs disclosed.

Basis of value statement

The report must name the basis used, such as market value or fair value, and cite the applicable standard defining it.

Scope of work disclosure

Statement of inspection extent, information relied upon, limitations, and any restrictions on the valuation, so users understand what was and was not done.

Special assumption

An assumption that assumes facts differing from those existing at the valuation date, such as a vacant possession or a completed building.

Valuation date versus report date

Value is expressed as at the valuation date; the report date is when the opinion is issued and may be later, without reflecting later events.

Independence and fees

The valuer must disclose conflicts and prior involvement; fees contingent on the reported value are prohibited because they compromise objectivity.

Inspection record

Documentation of inspection date, internal and external extent, accompanying persons and inaccessible areas, supporting the stated scope.

Title and tenure assumptions

Matters such as ownership, encumbrances and zoning that were not verified must be declared as assumptions with their source stated.