IOV Valuer cheat sheet

Value is an economic concept (worth to a defined party); price is the actual transaction amount; cost is the expenditure to create the asset - the three are not interchangeable in a report.

Market value (IVS/Red Book): the estimated amount for which an asset should exchange on the valuation date between a willing buyer and willing seller in an arm's-length transaction after proper marketing, with each acting knowledgeably, prudently and without compulsion.

Investment value is party-specific and reflects the holder's requirements and expectations; fair value is a legal/accounting-defined concept (IFRS 13: price in an orderly transaction between market participants at the measurement date).

Highest and best use is the basis for market value: the reasonably probable, legally permissible, physically possible, financially feasible use that produces the highest value; it may be a current or prospective use.

Anticipated use and market value: value responds to the present worth of future benefits; changes in expected future income, risk or growth shift value even if current cash flow is unchanged.

Substitution: a prudent buyer pays no more than the cost of acquiring an equally desirable substitute; this underlies all three approaches.

Balance and contribution: value is maximised when agents of production are in equilibrium; each component contributes value only to the extent it adds to total value.

External obsolescence comes from outside the asset (market, legal, environmental); it is not curable by the owner and is deducted after physical and functional depreciation.

IVS 101 (scope of work) requires agreement on the asset, the purpose and intended use, the basis of value, the valuation date, the extent of investigation and any assumptions or limiting conditions before the assignment begins.

IVS 103 (reporting) requires that the report state the scope of work, basis of value, valuation date, methods used, key inputs, and any material assumptions or limiting conditions.

RICS Rules of Conduct require members to act with integrity, provide a high standard of service, promote trust in the profession, treat others with respect, and take responsibility.

Independence: a valuer must decline or disclose an assignment where a fee is contingent on the reported value, where the valuer has a personal interest in the asset, or where the valuer has acted for both sides without informed consent.

Confidentiality is not absolute: disclosure is permitted where required by law, by a court, by a professional body's disciplinary process, or with the client's consent.

Competence: a valuer must not accept work outside their competence unless they disclose the limitation and take steps (e.g. specialist input) to ensure the work is adequate.

Record keeping: retain the working file - instructions, inspection notes, comparables, calculations and draft reports - typically for at least five years or the period required by law or the firm's policy.

Conflict of interest must be identified and managed before acceptance; where it cannot be managed, the valuer must decline the instruction.

Title: freehold (fee simple) is of indefinite duration; leasehold is a term of years. A leasehold interest's value depends on the unexpired term, the rent payable, and the lease terms.

A lease is a contract plus an interest in land: key terms are the term, rent review pattern, repairing and insurance obligations, alienation (assignment/subletting) provisions, and break options.

Security of tenure: in England and Wales, the Landlord and Tenant Act 1954 Part II gives business tenants a right to a new lease unless the landlord establishes a statutory ground of opposition.

Planning: development value depends on the permitted use, any conditions, and the likelihood of planning consent; a valuation on the basis of a use without consent must state that assumption explicitly.

Statutory disregards: compulsory purchase compensation is assessed on the basis of the 'no-scheme world' - the scheme is disregarded when valuing the land taken.

Environmental and contaminated land liability can attach to owners and occupiers; a valuation must state whether an environmental assessment was provided or assumed.

Tenure and third-party rights (easements, covenants, mortgages, charges) must be identified and their effect on value stated; unregistered interests may bind a purchaser.

Valuation date and inspection date are distinct: the report must state the valuation date and whether the property was inspected, and the basis of value must match the legal interest held.

HABU test sequence: legally permissible → physically possible → financially feasible → maximally productive. A use failing any earlier test is eliminated before the next.

Market analysis defines the relevant market: property type, location, buyer/tenant profile, price band, and the period over which comparables are drawn.

Supply and demand: short-run supply of real estate is inelastic because of construction lag and planning constraints; demand responds to employment, population, interest rates and credit availability.

Market rent is the best estimate of the rent for which a property would let on the valuation date on appropriate lease terms between willing parties; it is not the passing rent unless the two coincide.

A yield is a capitalisation rate reflecting income return and growth expectations; a lower yield implies stronger expected growth or lower perceived risk.

Market cycle stages - recovery, expansion, oversupply, recession - affect both rents and yields; the valuer must state where the subject and comparables sit in the cycle.

Excess land or a use that is not the HABU may still add value, but only if the HABU analysis supports a higher-value alternative use.

Void and incentive analysis: rent-free periods and capital contributions must be converted to an effective rent before comparing lettings.

Adjustment logic: adjust the comparable's price toward the subject - if the comparable is superior, deduct; if inferior, add. Never adjust the subject toward the comparable.

Adjustment sequence commonly applied: property rights → financing → conditions of sale → market/time → location → physical characteristics → income characteristics.

Time (market conditions) adjustment = comparable price × (index at valuation date ÷ index at comparable date) − 1, applied to the price.

Units of comparison: price per square metre, per unit, per bed, per room, per hectare, or a gross/net rent multiplier; choose the unit that the market actually uses.

Gross rent multiplier = sale price ÷ gross annual rent; net income multiplier = sale price ÷ net operating income. Both are market-derived and applied to the subject's rent or income.

Paired data analysis isolates the effect of one variable by comparing two otherwise similar sales; the value difference is attributed to that variable.

Reconciliation weights the comparables by similarity, recency, verifiability and number of adjustments; the most heavily adjusted comparable generally carries least weight.

A sale is only usable if it is arm's length, informed, and on the valuation date or adjusted to it; forced sales, related-party transfers and non-market leases are excluded or heavily caveated.

Direct capitalisation: Value = Net Operating Income ÷ Capitalisation Rate. The cap rate must be derived from comparable sales of similar risk and income profile.

Net operating income = gross rental income − vacancy and collection allowance − operating expenses (management, repairs, insurance, rates) but before debt service, income tax, depreciation and capital expenditure.

Years' purchase (YP) = 1 ÷ i for a perpetuity; for a term of n years YP = [1 − (1+i)^−n] ÷ i; the deferred YP for a reversion at year n is YP × (1+i)^−n.

Freehold value with a reversion: Value = (net rent × YP for the term) + (estimated resale value at the end of the term × PV factor for the term).

Leasehold value: Value = (net rent × YP for the unexpired term) − (purchase price of the reversion × PV factor for the unexpired term), where net rent is after rent, rates and insurance.

DCF: PV = Σ CFt ÷ (1+r)^t over the holding period, plus the present value of the exit value. The discount rate reflects the risk of the cash flows, not the borrowing cost.

IRR is the discount rate at which NPV = 0; it must be compared with a market-derived target rate of the same risk class, not with the investor's cost of capital alone.

Equivalent yield and effective rent: a rent-free period of f months on a rent R over a term of n years converts to an effective rent of approximately R × n ÷ (n + f/12).

Cost approach: Value = replacement (or reproduction) cost new − total depreciation + land value. It is most reliable for new or specialised assets with no comparable market.

Replacement cost is the cost to build an equivalent modern asset with the same utility; reproduction cost is the cost to replicate the original exactly.

Physical deterioration: curable items are those where the cost of cure is recovered by the value added; incurable items are measured by age/life or observed condition.

Functional obsolescence arises from deficiencies or superadequacies in the asset itself (poor layout, over-specification); external obsolescence arises from outside the asset and is generally incurable.

Age-life method: depreciation = effective age ÷ total economic life × cost new. Effective age reflects condition and modernisation, not chronological age alone.

Breakdown method estimates each depreciation component separately (physical, functional, external) and sums them; it is more defensible than age-life for complex assets.

Cost data sources: contractor tenders, published cost guides, and historical construction records adjusted by a construction cost index to the valuation date.

Land value is always at its highest and best use, including any assemblage or plot ratio potential; the depreciated improvement value is added to, not substituted for, land value.

Special-purpose assets (refineries, hospitals, stadia, infrastructure) have limited or no market; market value is often assessed by depreciated replacement cost (DRC) on a going-concern basis.

DRC = cost of replacing the asset's service potential − depreciation, plus land at existing use value; it requires the asset to be profitable or to be a public service asset.

For non-market assets, the basis of value must be stated explicitly: market value, market value on a going-concern basis, investment value, or fair value under the applicable accounting standard.

Plant and machinery: value by the cost approach with depreciation by age, use and condition; specialist items may need a specialist valuer's input.

Intangible assets (brand, licences, contracts, goodwill) are valued by the income approach (relief-from-royalty, excess earnings, incremental cash flow) and must be separated from the property interest.

Infrastructure concessions: value depends on the contract term, tariff regime, handback obligations and regulatory reset; the DCF must model these explicitly.

Agricultural and rural assets: value reflects soil quality, drainage, entitlements (subsidies, quotas), buildings and location; comparables are usually on a per-hectare basis.

Where no market evidence exists, the report must state the valuation method, the source of cost data, and the assumptions about profitability and remaining life.

A valuation report must contain: client and addressee, purpose and intended use, asset identification, basis of value, valuation date, inspection details, scope of work, methods and key inputs, assumptions and limiting conditions, and the valuer's signature and date.

The report must be sufficient for the intended user to understand the valuation; a report that omits the basis of value or valuation date is deficient regardless of the quality of the analysis.

Assumptions must be stated and distinguished from facts: a special assumption (e.g. planning consent granted) must be identified as such and its effect on value stated.

Limiting conditions (e.g. no structural survey, no environmental investigation, reliance on client information) must be disclosed and must not be so extensive that the valuation becomes meaningless.

The valuer's opinion must be reasoned and traceable: state the comparables or inputs used, the adjustments made, and the reconciliation of methods.

Client confidentiality and data protection: personal and commercially sensitive data must be handled in line with applicable data protection law and the firm's retention policy.

Professional indemnity: keep a complete working file and ensure the terms of engagement (fees, liability caps, complaints procedure) are agreed in writing before work starts.

Liability to third parties: a valuer may owe a duty of care to a party the valuer knows will rely on the report; state clearly who may rely on it.

Energy performance: in England and Wales, an EPC rating of E or above is required to let a commercial property (MEES); a sub-standard rating creates a cost to cure and can reduce value.

Stranded asset risk: properties that cannot meet future minimum energy-efficiency standards may suffer earlier obsolescence, higher void risk and a wider yield.

ESG factors - energy, carbon, water, waste, wellbeing, climate physical risk and transition risk - should be assessed where they are material to market participants, and the assessment stated in the report.

Green premium / brown discount: market evidence may show a rent or yield differential between certified and non-certified buildings; it must be supported by local comparable evidence, not assumed.

Climate physical risk (flood, heat, subsidence, wind) affects insurance cost, insurability and value; a valuation should state whether a flood or climate risk assessment was provided or assumed.

Automated Valuation Models (AVMs) are statistical models using property attributes and transaction data; they must be validated, and their output is not a substitute for inspection where the assignment requires one.

Data quality and provenance: AVM and comparable data must be checked for accuracy, completeness and date; the valuer remains responsible for the opinion even where a model produced the first estimate.

BIM and digital twins can support measurement, condition assessment and lifecycle costing; the valuer must verify the data source and its reliability before relying on it.