Property valuation in the UK: Implicit versus explicit models–the baby and the bathwater

Abstract

Purpose

The purpose of this paper is to comment upon the on-going debate about the preferred use of implicit models of valuation vs their explicit counterparts. The last few decades have seen changing complexities in UK leasing structures, and there is a suggestion that the implicit models are incapable of dealing with these complexities. This paper looks to address the issues and concerns with implicit models.

Design/methodology/approach

This education briefing is an overview of the pros and cons of both models and collates comments from industry to give an indication of the use of each model.

Findings

This paper analyses the appropriateness of implicit models of valuation and the areas in which they prove useful. Although the explicit models prove to be more useful in certain situations, the implicit models are also proved just as useful. The appropriate model needs to be used as appropriate to the property type.

Practical implications

Rather than seeing implicit and explicit models as “rivals”, they should be seen as two sides of the same coin. Both have advantages and disadvantages. The role of the valuer in practice is to choose the correct model for the valuation task in hand.

Originality/value

This is a review of existing models.

Citation

French, N. and Sloane, N. (2018), "Property valuation in the UK: Implicit versus explicit models–the baby and the bathwater", Journal of Property Investment & Finance, Vol. 36 No. 4, pp. 397-406. https://doi.org/10.1108/JPIF-04-2018-0024