Valuation Principles, Bases and Methodology
What the exam tests
This domain tests whether you can select a defensible basis of value, define it precisely, and apply a method that matches the property, purpose and evidence. BOVAEP TPC answers must show the valuation date, purpose, assumptions and reconciliation, not just a number.
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, wherein the parties had each acted knowledgeably, prudently and without compulsion.
- Other bases include market rent, investment value, fair value for financial reporting, going-concern value, liquidation or forced-sale value, special value and insurance replacement cost. A forced sale is not market value because compulsion and inadequate marketing are present.
- Methods: comparison, income capitalisation/DCF, cost, residual and profits. Choose by highest and best use and evidence quality; reconcile rather than average mechanically.
- Highest and best use must be legally permissible, physically possible, financially feasible and maximally productive.
Worked example
A 250 m2 shop is valued for secured lending. Comparable A, 240 m2, sold for RM1.20 million, gives RM5,000/m2. Comparable B, 260 m2, sold for RM1.43 million, gives RM5,500/m2 but has a superior corner frontage. Adjust B downward by 8% to RM5,060/m2; weight A more heavily because it is more similar. Adopt RM5,050/m2 × 250 = RM1,262,500, rounded to RM1.26 million as Market Value, subject to inspection and title checks.
Traps
Using asking prices as evidence; failing to state the basis and date; applying a capitalisation rate to gross rent; double-counting refurbishment; treating a forced-sale figure as market value; and averaging unadjusted comparables.