Property Valuation Factors Quiz

Fair Value vs Market Value

• Fair Value and Market Value are distinct concepts in accounting, with Fair Value being a broader concept that considers the highest price an asset can fetch in the market, while Market Value is a more specific concept that reflects the price an asset would sell for in a competitive market.

Challenges in Valuing Unique Properties

• Valuers face challenges when dealing with unique or rarely traded properties, as there may be limited market data available, making it difficult to determine a reliable Market Value.

Deviations from True Market Value

• When market conditions deviate from true Market Value, valuers should take into account these discrepancies to arrive at a more accurate valuation.

Handling Scarce Market Data

• Valuers should exercise caution when dealing with scarce or less applicable market data, using alternative methods and assumptions to estimate Market Value.

Legal Definitions of Market Value

• Valuers must consider the specific legal definition of Market Value applying to their valuation, as it may differ from the generally accepted concept.

Information to be Clarified in Valuation Reports

• Valuation reports for financial reporting purposes should clarify the definition of Market Value used, the methodology employed, and any assumptions made.

What Market Value Reflects

• Market Value reflects the price an asset would sell for in a competitive market, assuming a willing buyer and seller, with all parties having equal bargaining power.

Real Estate Sales

• Real estate generally takes longer to sell compared to most goods and services due to its unique characteristics, such as location, size, and attributes.

Preference for Market Value

• 'Market Value' is preferred over 'Fair Market Value' in real estate valuation because it is a more specific and objective concept.

Highest and Best Use

• The concept of 'highest and best use' is crucial in determining a property's true Market Value, as it considers the most profitable use of the property.
• 'Highest and Best Use' requires consideration of the property's physical, functional, and economic characteristics to determine its most valuable use.

Objectivity of Market Value

• Market Value is considered an objective valuation because it is based on market data and reflects the price an asset would sell for in a competitive market.

Economic Factors Influencing Desirability

• Economic factors that influence the desirability of a property include supply and demand, location, accessibility, and amenities.

Assessing Utility

• Utility can be assessed for properties by considering their ability to satisfy the needs and wants of potential buyers or users.

Key Considerations in Valuation

• When valuing properties either individually or as part of a portfolio, a key consideration is the potential interactions and synergies between properties.

Special Value

• 'Special Value' refers to the value of a property that arises from its unique characteristics, location, or specific uses, distinct from its Market Value.
• It is essential to identify and report 'Special Value' separately from Market Value to provide a comprehensive picture of the property's value.

Individual and Group Contexts

• Considering individual and group contexts contributes to comprehensive property valuation by acknowledging the interdependencies and relationships between properties.

Test your knowledge on factors influencing property valuation including income-generating potential, market demand, sustainability, and individual vs. group property considerations.