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Basis and Methods of Valuation used by Property Valuers

Basis of Valuation:


(a) Open Market Value

An opinion of the best price, at which the sale of an interest in property might be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming:-

  1. a willing seller,
  2. that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale.
  3. that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on date of valuation.
  4. that no account is taken of any additional bid by a prospective purchaser with a special interest;that both parties to the transaction had acted knowledgeably, prudently and without compulsion.


(b).  Estimated Realisation Price:

An opinion as to the amount of cash consideration before deduction of costs of sale which the Valuer considers, on the date of valuation, can reasonably be expected to be obtained on future completion of an unconditional sale of the interest in the subject property assuming: –

  1. a willing seller;
  2. that completion will take place on a future date specified by the valuer to allow reasonable period for proper marketing (having regard to the nature of the property and the state of the market);
  3. that no account is taken of any additional bid by a prospective purchaser with a special interest; and
  4. that both parties to the transaction will act knowledgeably, prudently and without compulsion.


 (c). Reinstatement Cost:

The Reinstatement Cost of a property refers to the cost of replacing or reinstating (as new) the property under appraisal at the date of valuation or that of a similar substitute property performing the same function or offering the same utility. The Reinstatement Cost of an asset would generally form the base of its insurance.


Below are the main methods of valuation used by property valuers:-

Methods of Valuations:

(a). Comparable Approach:

This is also referred to as the ‘Direct Capital Comparison Method’. By this method, the valuer equates the value of the property under appraisal to the value of a known comparable property whereby the latter’s value is taken to be the best price that can be obtained by the property being valued, with due allowance made for value affecting differences between the subject property and the comparable property such as condition, location, level and amount of services provided, accessibility, plot size, planning and zoning regulations, date of transaction, parties to the transaction, motive of sale and tenure and the unexpired term.

 (b).  Investment Approach:

This is based upon a percentage yield. An investor will be expecting rates of return that will differ according to the type and quality of investment. Given a known or estimated stream of net rental income, the end value is thus driven by the yield that is expected. The choice of yields is made by comparison with such other investments as bear the nearest relationship in such matters as the physical characteristics, use and degree of risk and life of the investment.

 (c) Contractors’ Approach:

The basic assumption is that cost of vacant land summed with the cost of erecting a building will yield the value of the developed property. This method is used to value properties that there is little general demand and which are rarely sold in the market e.g. public hospitals, schools, libraries, churches etc. Noteworthy to mention is that cost and value are hardly the same. In valuing old buildings allowance should be made for depreciation and obsolescence of the building.



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