Valuation
Real estate surveyors are independent professionals whose role is to determine - with total impartiality and absolute precision - the value of real estate, businesses and companies. Knowledge of the real estate market provides a reference to establish the sale value or rental value of a given property.
As part of their role, valuers carry out investigations to research, inspect and draw conclusions from economic, technical, accounting, legal and fiscal matters relating to the valued property. This information is used determine the property's value even if it is located in a restricted and specific market.
The valuation reports provided to clients are drawn up in accordance with a model defined by the Royal Institution of Chartered Surveyors, and based on various meetings, visits and inspections.
Professional Third Party Liability Insurance: All valuers must be covered by third party liability from an insurance company, all the more important given that valuers are held legally liable for a period of 30 years. This type of insurance covers third party liability and professional third party liability.
The principles of valuation:
- Types of value:
There are two categories of value in terms of land and buildings:- Market values (sale value and rental value)
- Replacement values (net or gross cost of replacement)
Sale value: the sale value corresponds to the price at which a property or property right could reasonably be sold by private treaty at the time of the valuation.
Rental value: this represents the annual financial return for the use of a property under lease. The value corresponds to the market rent that should be obtained from a property under the standard clauses and conditions of a lease for the category of property in a given region.
The market rental value may include the impact of any capital amount or payment on the previous tenant (lease right), or owner (key money, entry fee, compensation for changing business activity, etc...). Rental value is expressed excluding the lease right or VAT, and excluding rental charges or any other type of charge passed onto the lessee.
Gross replacement value: this is the cost of purchasing land and constructing identical or similar buildings, plus non-recoverable tax, charges, taxes and fees.
Net replacement value: this is the gross cost of replacement less depreciation for dilapidation and obsolescence.
- Valuation methods: there are four key methods for valuing property
- Comparable sales method (or market method): this consists of determining the value of a property based on sales of similar properties within a reasonably recent period of time. Standard comparison criteria include the type of property, condition and location.
- Income approach: this consists of capitalising an annual income - a rent, rental value, gross income or net income - or converting it to a current value, to calculate a sale value. This method is based on the rate of return from potential or actual net operating income.
- Cost approach: this consists of calculating the cost price of replacing a property, deducting depreciation where appropriate. Seldom used to calculate market value, this approach is more frequently used for highly-specialised properties or to determine the utility or operating value.
- “Professional” methods: for certain specialised properties such as hotels, clinics, cinemas and theatres, the industry has set forth methods and standards used to determine the sale or rental value of the premises or the business itself.
