IOV Valuer flashcards

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

Market value

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, each acting knowledgeably, prudently and without compulsion.

Investment value

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives, reflecting that party's requirements, expectations and risk profile rather than the general market.

Highest and best use

The reasonably probable use that is legally permissible, physically possible, financially feasible and maximally productive, producing the highest present value of the asset on the valuation date.

Substitution principle

A prudent purchaser will pay no more for an asset than the cost of acquiring an equally desirable substitute with the same utility, absent delay, risk or inconvenience.

IVS 101 scope of work

The standard requiring the valuer and client to agree the asset, purpose, intended use, basis of value, valuation date, extent of investigation and any assumptions before the assignment begins.

Contingent fee prohibition

A valuer must not accept an instruction where the fee is contingent on the reported value, because it creates a threat to independence and objectivity.

Confidentiality exception

Client information may be disclosed where required by law or a court, by a professional body's disciplinary process, or with the client's informed consent.

Competence rule

A valuer must decline work outside their competence, or disclose the limitation and obtain specialist input so that the resulting opinion remains adequately supported.

Freehold interest

An indefinite interest in land, also called fee simple, giving the holder possession and control subject to statutory restrictions, covenants and third-party rights.

Leasehold interest

A term of years held under a lease; its value depends on the unexpired term, the rent payable, lease obligations and any break or renewal rights.

No-scheme world

The principle that compulsory purchase compensation disregards the scheme that triggered the acquisition, valuing the land as it would be without that scheme.

Rent review clause

A lease provision fixing how and when rent is reviewed, commonly to market rent, open market or an index, with the pattern affecting the leasehold and freehold values.

HABU test sequence

The four tests applied in order: legally permissible, physically possible, financially feasible and maximally productive. A use failing an early test is eliminated before the next.

Market rent

The best estimate of the rent for which a property would let on the valuation date on appropriate lease terms between willing parties on arm's-length terms.

Capitalisation rate

A market-derived rate dividing net operating income by value; it reflects income return and expected growth, so a lower rate implies stronger growth or lower perceived risk.

Effective rent

The rent adjusted for incentives such as rent-free periods and capital contributions, allowing lettings with different incentive packages to be compared on a like-for-like basis.

Adjustment direction rule

Comparables are adjusted toward the subject: if the comparable is superior, deduct; if inferior, add. The subject is never adjusted toward the comparable.

Gross rent multiplier

Sale price divided by gross annual rent. It is derived from comparable sales and applied to the subject's gross rent to indicate value.

Paired data analysis

A technique comparing two otherwise similar sales that differ in one variable; the price difference is attributed to that variable to quantify an adjustment.

Reconciliation of comparables

Weighting comparable sales by similarity, recency, verifiability and number of adjustments, with the most heavily adjusted comparable generally receiving least weight.

Net operating income

Gross rental income less vacancy and collection allowance and operating expenses, before debt service, income tax, depreciation and capital expenditure.

Years' purchase formula

For a term of n years at rate i, YP = [1 − (1+i)^−n] ÷ i. For a perpetuity, YP = 1 ÷ i.

Discounted cash flow

Present value equals the sum of each period's cash flow divided by (1+r)^t over the holding period, plus the present value of the exit value.

Internal rate of return

The discount rate at which net present value equals zero; it is compared with a market-derived target rate of the same risk class, not the investor's cost of capital alone.

Depreciated replacement cost

Replacement cost of an asset's service potential less depreciation, plus land at existing use value; used for special-purpose assets with no active market.

Age-life depreciation

Depreciation equals effective age divided by total economic life, multiplied by cost new. Effective age reflects condition and modernisation, not chronological age alone.

Functional obsolescence

A loss in value from deficiencies or superadequacies within the asset itself, such as poor layout or over-specification, measured by the cost of cure or capitalised rent loss.

Replacement versus reproduction

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, including obsolete features.

Special assumption

An assumption that a fact is different from reality on the valuation date, such as planning consent being granted; it must be identified and its effect on value stated.

Reliance and third parties

A valuer may owe a duty of care to a party known to rely on the report; the report must state clearly who is entitled to rely on it.

Minimum energy efficiency standard

In England and Wales, a commercial property generally needs an EPC rating of E or above to be let; a sub-standard rating creates a cost to cure and can reduce value.

Automated valuation model

A statistical model estimating value from property attributes and transaction data. It must be validated, and its output is not a substitute for inspection where the assignment requires one.