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The purpose of this paper is to provide an integrated approach that combines the two methods usually used in the real estate appraisals, namely, the income capitalisation method and the hedonic model.

In order to pull out the link between the income capitalisation approach and the hedonic model, the standard hedonic price function is introduced into the basic model of income capitalisation instead of the house market value. It follows that, from the partial derivative, a direct relation between hedonic prices and discount rate can be obtained. Finally, by using the close relationship between income capitalisation and direct capitalisation, a mathematical relation between hedonic prices and capitalisation rate is also obtained.

The developed method allows to estimate the capitalisation rate using only hedonic prices. Indeed, selling and hedonic prices incorporate all of the information required to correctly estimate the capitalisation rate. Furthermore, given the close relation among going-in and going-out capitalisation rates and discount rate, the proposed method could also be useful for determining both the going-out capitalisation rate and the discount rate.

Obviously, it is always preferable to estimate the capitalisation rate by just using comparable transactional data. Nevertheless, the method developed in this paper is especially useful when: the rental income data are missing and/or not entirely reliable; the data on rental income and house price are related to different homes; the capitalisation rate, in fact, should compare the rent and value of identical homes. In these cases, therefore, the method can be a valuable alternative to direct estimation.

The large and important literature on real estate economics and real estate appraisal neglects the relationship between hedonic prices and capitalisation rate, thus considering the hedonic model and the income capitalisation approach as two separate and alternative methods. This paper, instead, shows that integration is possible and relatively simple.

With the decline of US net farm income from $123.8 billion in 2013 to $71.5 billion forecasted for 2016, concern has developed regarding the future path of agricultural land values. The purpose of this paper is to examine the relationship between net farm income, cash rents and land values in the state of Kansas and provides insight regarding future land values.

This study estimates partial adjustment models for cash rent and land values and uses those results to infer long-run capitalization rates and earnings multipliers. These models are used to forecast Kansas land values through 2018 and also the long-run price of farmland given 2016 expectations.

Land adjusts to changes in Kansas net farm income slowly with a one-year elasticity of 6.7 percent. The long-run elasticity is 96.9 percent which is very close to the 100 percent suggested by the theoretical income capitalization model. The long-run multiplier for income in Kansas is 21.71 which implies a capitalization rate of 4.61 percent. The estimated results suggest that Kansas land values would peak in 2016 and begin to slowly decline. If market conditions were to remain the same, land values would ultimately decrease to $1,171 per acre, a 28 percent decline from current levels.

Declines of the magnitude in estimated land values could negatively affect the financial condition of the sector. Factors such as a change in the long-run capitalization rate or unexpected supply or demand shocks for agricultural commodities globally could certainly alter the long-term prospects. However, current expectations as of March 2016 suggest that farmers will face difficult conditions over the next few years.

The purpose of this paper is to present a methodology based on the transactional asset pricing approach (TAPA) and to illustrate the application of TAPA within the context of professional property valuation.

The TAPA is a novel analytical valuation methodology recasting the traditional derivations of the income approach techniques, including DCF, from a transactional perspective based on the principle of inter-temporal transactional equity, instead of the conventional investor-specific view originating from I. Fisher (1907, 1930).

The authors present DCF analysis as a specific case of a more general TAPA approach to valuation under the income method. This also leads to novel analytical derivations of the Direct income capitalization, Gordon, Inwood, Hoskold and Ring models. Based on the TAPA framework, the authors also research the value-enhancing effects of benchmark market volatility on the subject property value and conclude that such effects can be statistically significant depending on the DCF analysis period.

The research has a direct bearing on time-variable discount rate forecasting capabilities, as it uses a time-variant structure for the discount rates.

Using the US Case-Shiller and BLS rental indices as a valuation benchmark, the paper contains an example of applying the general TAPA framework to value a notional property under a TAPA’s DCF version. Such property valuations can be easily replicated in practice – especially in the context of equitable/fair value determination under the International Valuation Standards Council valuation standards.

TAPA is a deductive principles-based theory of asset valuation especially fit for the transactional and illiquid asset valuation contexts – thus enabling a more efficient pricing for such assets in a sense of reflecting the transactional interests of the parties more closely than achievable under the conventional valuation methods.

TAPA is an original filiation of research with roots going as far back as Aristotelian Catallactics. It contains analytical formalizations of certain transactional equity principles.

The purpose of this paper is to explore the advantages equity capitalization programs based on retained earnings from patronage sources may provide cooperatives and their patrons that traditional equity financing methods do not offer.

The analysis is based on a model used to assess patron benefits from a cooperative that is financed by a combination of allocated equity acquired from noncash patronage refunds and unallocated equity acquired from retained earnings. The level of patron benefits is represented by the present value of the after-tax cash flow patrons receive from the cooperative, and the model is used to determine the combination of noncash patronage refunds and retained earnings that provides the greatest present value given the levels of those parameters that affect capitalization of the cooperative and the distribution of cash benefits to patrons.

The analysis demonstrates that only pure plans, i.e., plans based entirely on retained patronage refunds or entirely on retained earnings, will be associated with the greatest present value for any particular set of parameter values. Cooperatives that are characterized by low marginal tax rates and growth rates and whose patrons are characterized by high marginal tax rates and discount rates are those most likely to benefit from equity capitalization programs based on retained earnings.

The model is based on the assumption of constant parameter values and does not account for the existence of nonpatronage income.

A useful extension of this work would be the development of a decision aid capable of generating basic operating statement and balance sheet data and enabling cooperative decision makers to conduct experiments concerning alternative financing strategies based on retained earnings.

The analysis contained in this paper is based on an explicit model and extends across a broad range of values for various parameters that affect the level, timing, and present value of cash distributions from cooperatives. Because the cash flow received by patrons is determined after the cooperative’s planned equity growth is met, cash flow comparisons are equivalent with respect to the capital provided the cooperative. In addition, the revolving period is endogenously determined.

In 1996, an International Accounting Standards Committee (IASC) working party suggested that current methods of accounting for leases should be changed and in 1999 this work culminated in a position paper from the UK Accounting Standards Board (ASB) which made a number of suggestions for consultation (ASB, 1999). The paper assumes that the overall thrust of the proposed changes will be accepted and that will mean that occupying lessees will be required to capitalise the liability to pay rent for their lease and place that liability on the balance sheet. It will also require that property owners identify the value of the lease and the residual property value separately. These are by no means the only issues that are raised by the position paper but it is the implications of these two proposals for valuation methodology that is the subject of this paper. The property industry response in the UK to these two proposals is outlined and it shows that a minimalist approach is recommended, which incidentally is the preferred approach of the UK ASB. This paper argues that market valuations should already be carried out by techniques that attempt to identify the different values of the lease and the residual property value. The minimalist approach will replace one missing set of information with a misleading set, meaning that the IASC attempt to improve the ability of accounts to provide a “fair view” of companies will be thwarted. Alternative valuation models should be adopted which accurately appraise the assets and liabilities distributed by the lease and also identify the residual property value. Conventional market valuation approaches do not work in this context.

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.

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.

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.

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.

This is a review of existing models.

Recent developments in accounting for stock options have increased interest in the analytical techniques used to value them. Techniques used to value the options of publicly traded companies have been extensively discussed. In contrast, there has been almost no discussion of the valuation procedures of the options for non‐publicly traded companies. This paper addresses this gap. The paper suggests that a straightforward income capitalization model can be used to develop reasonable surrogates for the variables of the Black‐Scholes option pricing model. The paper also discusses how to adjust the income apitalization model for both lack of marketability and lack of control discounts.

This study aims to test empirically the validity of the accounting valuation model that is based on earnings and book values for loss‐reporting firms under a conservative accounting regime.

The empirical tests are performed by employing returns models on data derived from non‐financial firms listed on the Athens Stock Exchange for the period 1992‐2000.

The empirical results suggest that there is no unique concept of income, which is applicable, for valuation purposes, in all circumstances. Total income may be the appropriate income concept to use for the valuation of profit reporting firms but not for loss‐reporting ones; for loss‐reporting firms, ordinary income appears to be a more useful concept for valuation purposes. Extraordinary income was also found to be value relevant. Further, different versions of the accounting valuation model appear to be more relevant for different groups of firms (groups defined in terms of various firm characteristics, such as: size, growth opportunities and riskiness.

The study examines the informational content of the various earnings and loss items in the income statement and provides conclusions that are useful for standard setters, accounting policy makers and market participants.

It provides further evidence on the value relevance of losses, as opposed to that of earnings. It coincides with the development of a new project initiated by the International Accounting Standards Board, i.e. “Reporting Comprehensive Income”, concerning the content of the income statement. The analysis is carried in an accounting environment that adopts only historic cost accounting for the recording and measurement of assets and liabilities, revenues and expenses.

This research paper has two objectives. The first is to shed light on the consistency in and quality of the applied valuation models. The second objective is to analyse uniformity on important valuation input variables throughout 1994‐2002.

More than 150 original valuation reports are retrieved and qualitatively checked on model consistency, for example on discounting methods. The impact of the inconsistencies on the end value were calculated by using a dummy discounted cash flow model (DCF). The uniformity of the input variables net yield, discount rate and exit yield are quantitatively determined: is there a decreasing standard deviation through time?

There appears to be little consistency: the Dutch appraisers use a variety of methods within the DCF method. Cash flows are discounted quarterly in advance, yearly in arrear and averaged over the year, only three of the ten most frequent used appraisers use a flexible inflation scenario, etc. These different approaches can have a large impact on the appraisal value. As for the uniformity, the standard deviation for all three variables has not decreased through time.

The conclusions and recommendations of this research have been used by the valuation committee of the ROZ/IPD Netherlands Property Index to improve and extend the valuation guidelines.

Valuation models, which are the foundation of benchmarks, have never been researched on a large scale due to confidential issues. This research appears to be the first to actually analyse valuation models of many different appraisal companies in one country, The Netherlands. The participants of the ROZ/IPD Netherlands Property Index own 85 per cent of the €38 billion institutionally invested value in real estate in The Netherlands. Their policy decisions are partially based on the comparison to the Dutch benchmark. Therefore consistency and uniformity of the valuation models is critical.

Valuation is often said to be “an art not a science” but this relates to the techniques employed to calculate value not to the underlying concept itself. Valuation is the process of estimating price in the market place. Yet, such an estimation will be affected by uncertainties. These input uncertainties will translate into an uncertainty with the output figure, the valuation. The degree of the uncertainties will vary according to the level of market activity; the more active a market, the more credence will be given to the input information. In the UK at the moment the Royal Institution of Chartered Surveyors (RICS) is considering ways in which the uncertainty of the valuation can be conveyed to the use of the valuation, but as yet no definitive view has been taken apart from a single Guidance Note (GN5). One of the major problems is that valuation models (in the UK) are based on comparable information and rely on single inputs. They are not probability‐based, yet uncertainty is probability driven. This paper discusses the issues underlying uncertainty in valuations and suggests a probability‐based model (using Crystal Ball) to address the shortcomings of the current model.