What types of value are determined during the valuation of the property?
a property valuation report should not contain information that is not used when conducting property valuation when determining intermediate and final results if it is not mandatory according to the requirements of federal valuation standards and valuation standards and rules established by the self-regulating organization whose member is the evaluator who prepared the report (principle of sufficiency).
On the basis of what standards is the property valuation made?
The following standards are applied when assessing the property of an enterprise:
Federal standard of assessment: “General notions of assessment, approaches and requirements for assessment (FSO No. 1)”, approved by Order No. 256 of the Ministry of Economic Development and Trade of the Russian Federation of July 20, 2007;
Federal standard of assessment “The purpose of the assessment and types of value (FSO №2)”, approved by Order No. 255 of the Ministry of Economic Development and Trade of the Russian Federation dated July 20, 2007;
Federal standard of assessment “Requirements for an assessment report (FSO №3)”, approved by Order No. 254 of the Ministry of Economic Development and Trade of the Russian Federation dated July 20, 2007;
International Valuation Standards of the International Valuation Standards Committee (IVSC).
What approaches are used in conducting property valuation?
According to FSO № 1, p. 20, the Appraiser is obliged to use cost, comparative and income approaches to the assessment or justify the rejection of the use of an approach when conducting an assessment of the property of an enterprise. Accordingly, during the valuation of the property, three main approaches are used (or a justification for refusing to use it): cost-based, comparative, and profitable. The possibility and feasibility of applying certain approaches to property valuation depends on the nature of the property being valued, as well as the availability and quality of the necessary background information.
Within each of the approaches, there is a set of valuation methods, that is, specific ways to evaluate property. According to FSO № 1, p. 20, the Appraiser has the right to independently determine the methods of property valuation in the framework of the application of each of the approaches.
The cost-based approach to property valuation is based on the assumption that a reasonable investor will not pay for this property an amount greater than that which would cost it to be reproduced or replaced. That is, the sum of the costs of creating an identical or similar property is an acceptable guideline in determining its value using the cost approach.
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A comparative approach to property valuation is based on the principle of substitution, the essence of which is that a rational investor (buyer) will not pay for the estimated property a sum greater than that which would cost the acquisition in the market of similar property with the same utility. That is, the prices paid in the market for similar or identical objects should reflect their market value.
The market value of the property, which is determined by a comparative approach, is calculated on the basis of data on recent transactions or sales proposals for objects similar to those evaluated. Therefore, the possibility of applying this approach is based on collecting and analyzing information on sales (offers) of similar or identical objects, in order to determine the value of adjustments to the values that affect the property valuation.
The income approach to property valuation is based on the idea that the value of the property depends on the amount of income that can be extracted by the owner from the fact that he owns it. The application of this approach analyzes the ability of the assessed property to generate a certain income, which is usually expressed in the form of operating income and income from its subsequent (possible) sale.
The value of the estimated property, calculated by the income approach, is based on the determination of the present value of the future net income from owning this property (taking into account the time factor).
Thus, during the appraisal of property, all three approaches are usually considered, and only the most appropriate ones are applied for appraising this property.
For more information about the approaches and methods used in the valuation of property, you can find out on the page – Property Valuation