Valuation of Special-Purpose and Non-Market Assets
This domain tests valuation where comparable market evidence is scarce: hospitals, schools, infrastructure, plant, and non-market assets. The examiner expects a defensible method, specialist inputs, and separation of property value from business value.
Core rules
- Identify the asset and the interest: land, building, plant, equipment, licence, or business. Do not value the business unless instructed.
- Use depreciated replacement cost (DRC) for specialised assets that rarely trade, but test for obsolescence and operational adequacy.
- Profits methods may be appropriate for assets whose value depends on trading performance, but clearly separate goodwill and transferable intangibles.
- Specialist evidence may be needed: engineering, quantity surveying, environmental, or operational data.
- Consider alternative use, surplus capacity, and restrictions on disposal.
Worked example
A private school has replacement cost new of 12 million, depreciation of 3 million, and land value of 4 million. DRC = 12 - 3 + 4 = 13 million. The operator's profit includes brand, enrolment, and management; adding that goodwill to the property would double-count unless a separately identifiable intangible is being valued. The DRC is a proxy for the specialised property interest, not a guarantee of market price.
Traps
- Using residential or office comparables for a specialised asset.
- Adding business goodwill into property value.
- Ignoring functional obsolescence in plant or layout.
- Using DRC when an active market exists.
- Assuming the current use is the only possible use.