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Article
Publication date: 2 July 2018

Nick French and Laura Gabrielli

Since the global financial economic crisis hit the world markets in 2007/2008, the role of property valuation has been under greater and greater scrutiny. The process of…

Abstract

Purpose

Since the global financial economic crisis hit the world markets in 2007/2008, the role of property valuation has been under greater and greater scrutiny. The process of valuation and its quality assurance has been addressed by the higher prominence of the International Valuation Standards Council (IVSC). This is a significant initiative worldwide. However, there has been little written on the appropriate use of valuation approaches and methods in market valuations. There is now a hierarchy of valuation definitions. In order, there are valuation approaches, valuation methods and, as a subset of the methods, techniques or models. The purpose of this paper is to look at the importance of identifying the appropriate approach to be adopted in market valuations and the methods, techniques and models that should be applied to determine market value.

Design/methodology/approach

This practice briefing is an overview of the valuation approaches, methods and models available to the valuer and comments on the appropriateness of valuation each in assessing market value.

Findings

This paper reviews the IVSC-recognised approaches and prompts the valuer to be careful with the semantics involved so that they are better placed to provide an unambiguous service to their clients.

Practical implications

The role of the valuer in practice is to identify the appropriate approach for the valuation of the subject property, choose the right method and then apply the correct mathematical model for the valuation task in hand.

Originality/value

This provides guidance on how valuations can be presented to the client in accordance with the International Valuation Standards.

Details

Journal of Property Investment & Finance, vol. 36 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 2 March 2012

Nelson Chan and Norman Harker

The purpose of this paper is to re‐visit the problems of taxation consequences of sinking fund in the UK and to look at what is believed to be the only rational reason for…

Abstract

Purpose

The purpose of this paper is to re‐visit the problems of taxation consequences of sinking fund in the UK and to look at what is believed to be the only rational reason for using the dual rate adjusted for tax method variant.

Design/methodology/approach

The structure of this paper is: valuing a freehold and a leasehold interest by the single rate gross and net of tax approaches to show the logic that works with freehold valuation interest may not work with leasehold valuation; exploring the tax impacts on sinking fund; resolving the taxation issue of sinking fund; demonstrating the solution to the “double sinking fund problem” by the Greaves method and the single rate net of tax approach; and exploring the future of the dual rate theory.

Findings

The paper confirms that the traditional method is not satisfactory, even after the modifications made by the various methods mentioned above. The single rate net of tax approach is proved to meet all expectations and can be regarded as a more rational approach to the dual rate method.

Practical implications

Valuers of the “UK School” might consider that not only should dual rate valuation be regarded as defunct, but also that the more appropriate approach might be to move to a net of taxation approach.

Originality/value

This paper is the original work of the authors.

Details

Journal of Property Investment & Finance, vol. 30 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 5 September 2016

David Jansen van Vuuren

The purpose of this paper is to compare the value outcomes of the cost approach to the DCF profits method when valuing specialised property under different scenarios as a…

Abstract

Purpose

The purpose of this paper is to compare the value outcomes of the cost approach to the DCF profits method when valuing specialised property under different scenarios as a test for choice of method or model uncertainty; and to quantify valuation uncertainty under each scenario and to argue for an increasing adoption of the profits method of valuation.

Design/methodology/approach

A qualitative case study approach was used to analyse four physical valuations performed in practice under four specific scenarios, namely, a business-as-usual scenario, an underperforming business scenario, an expanding capacity scenario and a combined business-as-usual funding a start-up joint venture scenario.

Findings

The cost approach relative to the DCF profits approach consistently under-values specialised property under business-as-usual and business expanding scenarios while it over-values in instances of underperforming business scenario.

Practical implications

Financial institutions that predominantly uses or accepts the cost approach for valuing specialised property should consider adopting the DCF profits approach as the default approach when valuing for mortgage lending purposes. Business owners of specialised properties should contract practitioners knowledgeable and skilled in the application of the DCF profits method.

Originality/value

This paper quantifies choice of method or model uncertainty of four different scenarios of specialised properties where both the cost approach and DCF profits methods of valuation were employed. It suggests the adoption of the DCF profits method as the default method of valuation for specialised property.

Details

Journal of Property Investment & Finance, vol. 34 no. 6
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 April 2006

Yong Keun Yoo

Aims to examine a comprehensive approach to combine several simple multiple valuation, so as to improve the valuation, accuracy of the simple multiple valuation technique.

Abstract

Purpose

Aims to examine a comprehensive approach to combine several simple multiple valuation, so as to improve the valuation, accuracy of the simple multiple valuation technique.

Design/methodology/approach

In order to combine several simple multiple valuations, the equity value is estimated by a weighted average of the valuation outcomes obtained from several simple multiple valuations. To calculate the weight of each valuation outcome, the out‐of‐sample price‐deflated regression of stock prices on several simple multiple valuation outcomes is conducted. Next, the alternative hypothesis of whether the composite approach yields a higher valuation accuracy than the simple multiple valuation is tested, using the actual stock price of the valued firm as the benchmark to measure the valuation accuracy under the assumption of market efficiency.

Findings

It was found that combining several simple multiple valuation outcomes of a firm, each of which is based on a stock price multiple to a historical accounting performance measure of the comparable firms (historical multiple), improves the valuation accuracy of the simple multiple valuation using a single historical multiple. However, further analysis shows that the combination of the simple multiple valuation outcomes based on a stock price multiple to analysts’ earnings forecasts of the comparable firms (forward earnings multiple) and several simple multiple valuation outcomes based on historical multiples does not improve the valuation accuracy of the simple multiple valuation using a forward earnings multiple.

Research limitations/implications

One caveat of this study is that only the linear combination of the simple multiple valuation outcomes is considered. Non‐linear combination of the simple multiple valuation outcomes based on both forward earnings multiple and historical multiples may be able to improve the valuation accuracy of the simple multiple valuation using a forward earnings multiple. This possibility is still an open question.

Practical implications

The findings imply that a historical multiple contains incremental information not captured by other historical multiples, which is useful for the improvement of the valuation accuracy. However, the historical multiples may have no incremental information beyond a forward earnings multiple.

Originality/value

The forward earnings multiples as well as the historical multiples for the equity valuations of broader firms are considered. Given the previous finding that forward earnings multiple presents the highest valuation accuracy among the valuation multiples, it is further investigated whether the composite approach using forward earnings multiple and historical multiples can improve the valuation accuracy of the simple multiple valuation using a forward earnings multiple. In addition, the potential problem of selection bias in the previous study is addressed, which examines only the equity valuations in the tax court.

Details

Review of Accounting and Finance, vol. 5 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 February 1985

ANDREW BAUM and YU SHI MING

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same…

Abstract

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same approach to the valuation of leaseholds, and falls into two parts. Part 1 examines conventional leasehold valuations and the criticisms that may be made, concluding that both dual rate and single rate conventional valuations should be abandoned except in limited circumstances. Part 2 identifies three alternative modern approaches — real value, rational model and DCF — and compares their use in three general variations of leasehold valuation. The results are compared, and recommendations for their use are made. Finally an overview of the application of modern approaches to investment property valuation is presented.

Details

Journal of Valuation, vol. 3 no. 2
Type: Research Article
ISSN: 0263-7480

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Article
Publication date: 22 December 2020

Laura Gabrielli and Nick French

Valuation is the process of determining Market Value. Property valuation, as with the valuation of all assets, is an estimation of price in the market. It is value in…

Abstract

Purpose

Valuation is the process of determining Market Value. Property valuation, as with the valuation of all assets, is an estimation of price in the market. It is value in exchange. The valuer role is to determine the appropriate approach, the method and use the right model to achieve this aim as best as possible. It is a combination of analysing the market and determining the critical variables for the valuation method/model. The method is separate from the valuation process which should be followed (according to the International Valuation Standards Council Valuation Standards) regardless the valuation method chosen. There are valuation approaches, valuation methods and, as a subset of the methods, techniques or models.

Design/methodology/approach

This practice briefing is an overview of the Valuation Methods and Models available to the valuer and comments on the appropriateness of valuation each in assessing Market Value for specific property types.

Findings

This briefing is a review of the valuation methods and models and models that can be applied to determine market value.

Practical implications

The role of the valuer in practice is to identify the method of valuation and then apply the correct mathematical model for the valuation task in hand.

Originality/value

This provides guidance on how valuations can be presented to the client in accordance with the International Valuation Standards.

Details

Journal of Property Investment & Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 August 1995

Terry Boyd

The approaches used by valuers in assessing the market value ofinvestment property are explained with reference to a survey ofpractising valuers in Australia. The survey…

Abstract

The approaches used by valuers in assessing the market value of investment property are explained with reference to a survey of practising valuers in Australia. The survey examined the profile of the valuers, their interpretation of market value in a volatile market and details of the valuation methodology used for urban investment property. Identifies the cross‐tabulations between valuation qualifications, experience and methodology. The need for greater market research and a specialist group of valuers with sound cash flow analysis skills to undertake major urban investment valuation are proposed.

Details

Journal of Property Valuation and Investment, vol. 13 no. 3
Type: Research Article
ISSN: 0960-2712

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Article
Publication date: 29 September 2020

Brano Glumac and François Des Rosiers

The current state-of-the-art recognises three traditional valuation approaches. The current division is not sufficient to explain systematically all features that drive…

Abstract

Purpose

The current state-of-the-art recognises three traditional valuation approaches. The current division is not sufficient to explain systematically all features that drive the development and usage of automated valuation models.

Design/methodology/approach

This practice briefing reviews existing valuation approaches, their pros and cons and more critical other automated valuation aspects or features; both based on a literature review.

Findings

This paper discusses and lists the six critical aspects or features, besides the valuation approaches.

Practical implications

This paper reveals the list of aspects or features that are important to consider when designing an automated valuation model.

Originality/value

This practice briefing discusses the inclusion of a multitude of aspects when considering an automated valuation model design.

Details

Journal of Property Investment & Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-578X

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Abstract

Details

Advances in Accounting Education Teaching and Curriculum Innovations
Type: Book
ISBN: 978-0-76231-035-7

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Book part
Publication date: 2 August 2016

Michael Blake

This chapter addresses the general process of determining the value of a particular company, with additional detail on how valuation processes might be adapted to produce…

Abstract

This chapter addresses the general process of determining the value of a particular company, with additional detail on how valuation processes might be adapted to produce credible value conclusions of emerging technology ventures. There are three primary approaches to business valuation. There is the income approach, which indicates that value is a product of expected future cash flows – cash flows that are discounted to equate them to dollars in-hand (present value). There is the market approach, which attempts to draw conclusions of value based on the market prices of similar companies in the public and/or private markets. Finally, there is the asset approach, which indicates that the value of a company is equal to the sum of the values of its net assets. Specific adjustments are appropriate with respect to each of these approaches where the value of an emerging technology company is concerned. Professional valuation standards require that all of these approaches be considered in the valuation, even if the available information does not permit their credible application. Often, multiple approaches and techniques can be applied. The results of applying multiple techniques often do not overlap, and it is the analyst’s very important task to reconcile differing valuation results, or to decide which result or results should be discarded.

Details

Technological Innovation: Generating Economic Results
Type: Book
ISBN: 978-1-78635-238-5

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