Valuation and Property Appraisal
What this domain covers
Valuation and Property Appraisal tests how a valuer estimates market value and defends that estimate. It covers the valuation date, highest and best use, the three approaches, and the adjustments that turn comparable evidence into an opinion.
Core rules
- Market value is the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing, where each acts knowledgeably, prudently, and without compulsion.
- Highest and best use is the use that is legally permissible, physically possible, financially feasible, and maximally productive.
- The sales comparison approach adjusts recent sales for time, location, size, condition, and tenure. The income approach capitalises net operating income. The cost approach adds depreciated replacement cost to land value.
- A valuation report must state the purpose, date, basis of value, assumptions, title, and any material uncertainty.
Worked example
A comparable three-bedroom house sold six months ago for J$18,000,000. The subject is superior by 5% in condition, and the market has risen 4% since the sale. Adjusted value = 18,000,000 × 1.05 × 1.04 = J$19,656,000. For an income property, if net operating income is J$1,800,000 and the capitalisation rate is 9%, value = 1,800,000 ÷ 0.09 = J$20,000,000. The valuer reconciles the indications rather than averaging blindly.
Traps
Using asking prices as sale evidence; failing to adjust for time; capitalising gross rent instead of net income; mixing up freehold and leasehold; and ignoring planning restrictions or title defects.