Podcast
Questions and Answers
At what levels are general economic data collected?
At what levels are general economic data collected?
What type of data is gathered and examined in the valuation process?
What type of data is gathered and examined in the valuation process?
Why is the concept of Highest and Best Use important in valuation?
Why is the concept of Highest and Best Use important in valuation?
How many valuation approaches are recognized in many countries?
How many valuation approaches are recognized in many countries?
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What principle is the basis for the valuation approaches?
What principle is the basis for the valuation approaches?
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What is the Sale Comparison or Market Data Approach based on?
What is the Sale Comparison or Market Data Approach based on?
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What does the Income Capitalization Approach perceive value as?
What does the Income Capitalization Approach perceive value as?
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What is the purpose of analyzing supply and demand data?
What is the purpose of analyzing supply and demand data?
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What is the most common approach used in the Philippines for machinery and equipment valuations?
What is the most common approach used in the Philippines for machinery and equipment valuations?
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Why is the Income Capitalization Approach not commonly used in the Philippines for valuing machinery and equipment?
Why is the Income Capitalization Approach not commonly used in the Philippines for valuing machinery and equipment?
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What is the primary basis for using the Depreciated Replacement Cost method in the Philippines?
What is the primary basis for using the Depreciated Replacement Cost method in the Philippines?
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How are plant machinery and equipment valued in the Philippines?
How are plant machinery and equipment valued in the Philippines?
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What is 'Value for Continued Use' equivalent to in the Philippines?
What is 'Value for Continued Use' equivalent to in the Philippines?
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Why are values not intended to represent the amount realized from piecemeal disposition of the property in the marketplace?
Why are values not intended to represent the amount realized from piecemeal disposition of the property in the marketplace?
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What does the Depreciated Replacement Cost method consider in its valuation conclusion?
What does the Depreciated Replacement Cost method consider in its valuation conclusion?
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What is the equivalent of 'Liquidation Value' in the Philippines?
What is the equivalent of 'Liquidation Value' in the Philippines?
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What is the primary objective of the Guidance Note (GN) in personal property valuations?
What is the primary objective of the Guidance Note (GN) in personal property valuations?
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What is the principle underlying the cost approach to valuation?
What is the principle underlying the cost approach to valuation?
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Which of the following is NOT a method of the income approach to intangible asset valuation?
Which of the following is NOT a method of the income approach to intangible asset valuation?
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What is the purpose of estimating cash receipts in the Discounted Cash Flow (DCF) method?
What is the purpose of estimating cash receipts in the Discounted Cash Flow (DCF) method?
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What is the basis of valuation commonly used in personal property valuations?
What is the basis of valuation commonly used in personal property valuations?
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What is the output of the (direct) capitalization of income method?
What is the output of the (direct) capitalization of income method?
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What is the consideration when applying different bases of valuation in personal property valuations?
What is the consideration when applying different bases of valuation in personal property valuations?
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What is the characteristic of the income approach to intangible asset valuation?
What is the characteristic of the income approach to intangible asset valuation?
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What is the basis of the Valuer's estimate in the Cost Approach?
What is the basis of the Valuer's estimate in the Cost Approach?
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What is the primary difference between replacement cost and reproduction cost?
What is the primary difference between replacement cost and reproduction cost?
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What is the ultimate goal of the valuation process?
What is the ultimate goal of the valuation process?
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What is the role of the Valuer in the valuation process?
What is the role of the Valuer in the valuation process?
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What is the importance of distinguishing between the value of a business entity and the valuation of its assets?
What is the importance of distinguishing between the value of a business entity and the valuation of its assets?
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What should the Valuer provide when requested?
What should the Valuer provide when requested?
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What is the primary difference between business valuation and real property valuation?
What is the primary difference between business valuation and real property valuation?
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What is the purpose of the Cost Approach in personal property valuation?
What is the purpose of the Cost Approach in personal property valuation?
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What is essential to understand when estimating the physical life of an asset?
What is essential to understand when estimating the physical life of an asset?
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What is the purpose of estimating functional obsolescence in asset valuation?
What is the purpose of estimating functional obsolescence in asset valuation?
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What is Discounted Cash Flow (DCF) Analysis used for?
What is Discounted Cash Flow (DCF) Analysis used for?
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What is the role of the discount rate in DCF Analysis?
What is the role of the discount rate in DCF Analysis?
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What is involved in DCF Analysis?
What is involved in DCF Analysis?
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What is essential to have when estimating the value of an asset?
What is essential to have when estimating the value of an asset?
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What is the outcome of applying a discount rate in DCF Analysis?
What is the outcome of applying a discount rate in DCF Analysis?
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What is a type of analysis that DCF Analysis is part of?
What is a type of analysis that DCF Analysis is part of?
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The Income Capitalization Approach is commonly used in the Philippines for valuing machinery and equipment.
The Income Capitalization Approach is commonly used in the Philippines for valuing machinery and equipment.
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The Depreciated Replacement Cost method is a market-based methodology.
The Depreciated Replacement Cost method is a market-based methodology.
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Values derived from the Depreciated Replacement Cost method represent the amount that might be realized from piecemeal disposition of the property in the marketplace.
Values derived from the Depreciated Replacement Cost method represent the amount that might be realized from piecemeal disposition of the property in the marketplace.
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Plant machinery and equipment are valued separately in the Philippines.
Plant machinery and equipment are valued separately in the Philippines.
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The Depreciated Replacement Cost method considers the test of adequate profitability.
The Depreciated Replacement Cost method considers the test of adequate profitability.
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Valuation conclusions using the Depreciated Replacement Cost method are subject to market data evidence.
Valuation conclusions using the Depreciated Replacement Cost method are subject to market data evidence.
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In the Philippines, 'Value for Continued Use' is equivalent to 'Liquidation Value'.
In the Philippines, 'Value for Continued Use' is equivalent to 'Liquidation Value'.
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The Depreciated Replacement Cost method is the most common approach used in the Philippines for machinery and equipment valuations.
The Depreciated Replacement Cost method is the most common approach used in the Philippines for machinery and equipment valuations.
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The valuation of intangible assets is similar to the valuation of other types of assets.
The valuation of intangible assets is similar to the valuation of other types of assets.
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Intangible assets are only valued for acquisition and disposition purposes.
Intangible assets are only valued for acquisition and disposition purposes.
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The market approach to intangible asset valuation compares the subject to similar intangible assets or ownership interests that have been sold in the closed market.
The market approach to intangible asset valuation compares the subject to similar intangible assets or ownership interests that have been sold in the closed market.
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The valuer of intangible assets must rely solely on information provided by the client.
The valuer of intangible assets must rely solely on information provided by the client.
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The earnings capacity of an intangible asset is not a factor to be considered in its valuation.
The earnings capacity of an intangible asset is not a factor to be considered in its valuation.
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Intangible value is only contained in clearly differentiated assets.
Intangible value is only contained in clearly differentiated assets.
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Prior transactions in the ownership interest of the subject intangible assets are not relevant to its valuation.
Prior transactions in the ownership interest of the subject intangible assets are not relevant to its valuation.
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The rights and privileges granted to the owner of intangible assets are not relevant to its valuation.
The rights and privileges granted to the owner of intangible assets are not relevant to its valuation.
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The Cost Approach seeks to establish the cost of an alternative example or of a replica, or copy, of the original item, as near as possible to the original in terms of nature, quality, and age of materials but with modern construction methods.
The Cost Approach seeks to establish the cost of an alternative example or of a replica, or copy, of the original item, as near as possible to the original in terms of nature, quality, and age of materials but with modern construction methods.
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The Valuer should not provide the rationale and justification for the valuation methods used and for the weighting of the method relied on in reaching the value reconciliation.
The Valuer should not provide the rationale and justification for the valuation methods used and for the weighting of the method relied on in reaching the value reconciliation.
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The concepts, process, and method applied in the valuation of business are entirely different from those for other types of valuations.
The concepts, process, and method applied in the valuation of business are entirely different from those for other types of valuations.
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The Valuer uses judgement when determining the relative weight to be given to each of the value estimates during the valuation process.
The Valuer uses judgement when determining the relative weight to be given to each of the value estimates during the valuation process.
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Reproduction cost refers to one might expect to pay for an object of similar age, size, color, and condition.
Reproduction cost refers to one might expect to pay for an object of similar age, size, color, and condition.
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The selection of an approach, method, and procedures does not depend on the judgement of the valuer.
The selection of an approach, method, and procedures does not depend on the judgement of the valuer.
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The Valuer must not use judgement when determining the relative weight to be given to each of the value estimates during the valuation process.
The Valuer must not use judgement when determining the relative weight to be given to each of the value estimates during the valuation process.
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The value conclusion should not be based on value estimates from the valuation methods performed.
The value conclusion should not be based on value estimates from the valuation methods performed.
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The Valuation Properties process is unique to the Philippines and is not used in other countries.
The Valuation Properties process is unique to the Philippines and is not used in other countries.
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The definition of the assignment includes an identification of the real estate involved in the valuation and the intended use of valuation.
The definition of the assignment includes an identification of the real estate involved in the valuation and the intended use of valuation.
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The preliminary analysis and data collection and selection step is the final step in the valuation process.
The preliminary analysis and data collection and selection step is the final step in the valuation process.
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The date of the intended report is not included in the definition of the assignment.
The date of the intended report is not included in the definition of the assignment.
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The scope of the valuation is not included in the definition of the assignment.
The scope of the valuation is not included in the definition of the assignment.
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The valuation of lease interests is not a type of valuation guidance note.
The valuation of lease interests is not a type of valuation guidance note.
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The valuation of intangible assets does not include the rights and privileges granted to the owner of intangible assets.
The valuation of intangible assets does not include the rights and privileges granted to the owner of intangible assets.
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The business valuation is the same as the valuation of its assets.
The business valuation is the same as the valuation of its assets.
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The Depreciated Replacement Cost method is a market-based methodology.
The Depreciated Replacement Cost method is a market-based methodology.
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Functional obsolescence can be caused by changes in supply and demand.
Functional obsolescence can be caused by changes in supply and demand.
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External factors include the cost of operation of the asset.
External factors include the cost of operation of the asset.
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The Valuer estimates the cost of a modern equivalent asset at the relevant valuation date and then estimates depreciation.
The Valuer estimates the cost of a modern equivalent asset at the relevant valuation date and then estimates depreciation.
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Depreciation rates are always all-encompassing.
Depreciation rates are always all-encompassing.
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The application of optimization process accounts for many elements of physical deterioration.
The application of optimization process accounts for many elements of physical deterioration.
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The Valuer ensures that the key elements of a market transaction have been considered in the application of depreciated replacement cost.
The Valuer ensures that the key elements of a market transaction have been considered in the application of depreciated replacement cost.
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The Depreciated Replacement Cost method is based on the cost of reproducing a new asset with the same specifications as the original asset.
The Depreciated Replacement Cost method is based on the cost of reproducing a new asset with the same specifications as the original asset.
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In the Philippines, the sales comparison approach is often limited to individual free-standing machines such as ______ and generators.
In the Philippines, the sales comparison approach is often limited to individual free-standing machines such as ______ and generators.
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The ______ Capitalization Approach is not commonly used in the Philippines for valuing machinery and equipment.
The ______ Capitalization Approach is not commonly used in the Philippines for valuing machinery and equipment.
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The ______ Replacement Cost Approach is the most common method used in the Philippines for machinery and equipment valuations.
The ______ Replacement Cost Approach is the most common method used in the Philippines for machinery and equipment valuations.
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Plant machinery and equipment are valued as a whole, in-situ and as part of the business as a ______ concern.
Plant machinery and equipment are valued as a whole, in-situ and as part of the business as a ______ concern.
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The values derived from the Depreciated Replacement Cost method are not intended to represent the amount that might be realized from piecemeal disposition of the property in the ______place.
The values derived from the Depreciated Replacement Cost method are not intended to represent the amount that might be realized from piecemeal disposition of the property in the ______place.
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The Depreciated Replacement Cost method is recognized as a ______-based methodology.
The Depreciated Replacement Cost method is recognized as a ______-based methodology.
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'Value for Continued Use' in the Philippines assumes the property is in continued use for the purpose for which the property was designed and ______, or to which it is currently adapted.
'Value for Continued Use' in the Philippines assumes the property is in continued use for the purpose for which the property was designed and ______, or to which it is currently adapted.
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Plant, machinery and equipment valued as individual items for removal from their current location equates to '______' Value in the Philippines.
Plant, machinery and equipment valued as individual items for removal from their current location equates to '______' Value in the Philippines.
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Personal _______________ Valuers must frequently rely upon information received from a client or from a client’s representatives.
Personal _______________ Valuers must frequently rely upon information received from a client or from a client’s representatives.
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The sales comparison approach compares the subject property to similar properties and/or property ownership interests that have been _______________ in open markets.
The sales comparison approach compares the subject property to similar properties and/or property ownership interests that have been _______________ in open markets.
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Factors to be considered by the Personal Property Valuer include the nature of the property and history of its _______________.
Factors to be considered by the Personal Property Valuer include the nature of the property and history of its _______________.
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The economic outlook that may affect the subject property, including _______________ outlook and government policy, are considered.
The economic outlook that may affect the subject property, including _______________ outlook and government policy, are considered.
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The condition and outlook of a market specific to the trade of personal properties that may affect the subject property are considered.
The condition and outlook of a market specific to the trade of personal properties that may affect the subject property are considered.
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The two most common sources of data used in the comparison approach are published _______________ results and transactions reported by firms regularly engaged in the trade of similar properties.
The two most common sources of data used in the comparison approach are published _______________ results and transactions reported by firms regularly engaged in the trade of similar properties.
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The sales comparison approach compares the subject property to similar properties and/or property ownership interests that have been _______________ in open markets.
The sales comparison approach compares the subject property to similar properties and/or property ownership interests that have been _______________ in open markets.
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The Valuer shall take _______________ to assure that all data sources relied upon are reliable and appropriate to the valuation undertaking.
The Valuer shall take _______________ to assure that all data sources relied upon are reliable and appropriate to the valuation undertaking.
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Valuers are expected to ______________________ correctly apply those recognized methods and techniques that are necessary to comply with this Guidance.
Valuers are expected to ______________________ correctly apply those recognized methods and techniques that are necessary to comply with this Guidance.
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When valuing property subject to some hazardous or toxic substance that adversely influences property value, the Valuer should apply those ______________________ necessary to adequately reflect any such value losses.
When valuing property subject to some hazardous or toxic substance that adversely influences property value, the Valuer should apply those ______________________ necessary to adequately reflect any such value losses.
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In Market Value engagement, it is the valuer’s responsibility to reflect the market effect of the particular ______________________ or circumstance.
In Market Value engagement, it is the valuer’s responsibility to reflect the market effect of the particular ______________________ or circumstance.
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The Cost Approach for Financial Reporting – ______________________.
The Cost Approach for Financial Reporting – ______________________.
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DRC is an application of the cost approach that may be used in arriving at the value of specialized assets for ______________________ purposes.
DRC is an application of the cost approach that may be used in arriving at the value of specialized assets for ______________________ purposes.
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The current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of ______________________ and optimization.
The current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of ______________________ and optimization.
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The purpose of this Guidance Note (GN) is to assist user and prepares of Valuation Reports in the interpretation of the meaning and application of Depreciated Replacement Cost (DRC) for ______________________ purposes.
The purpose of this Guidance Note (GN) is to assist user and prepares of Valuation Reports in the interpretation of the meaning and application of Depreciated Replacement Cost (DRC) for ______________________ purposes.
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DRC may be the more applicable approach when comparable sales data is insufficient but sufficient market data exists concerning ______________________ and accrued depreciation.
DRC may be the more applicable approach when comparable sales data is insufficient but sufficient market data exists concerning ______________________ and accrued depreciation.
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The Depreciated Replacement Cost (DRC) is commonly known as ______________________
The Depreciated Replacement Cost (DRC) is commonly known as ______________________
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Depreciation rates may ______________________ or analyzed separately for physical deterioration, functional obsolescence, and external obsolescence
Depreciation rates may ______________________ or analyzed separately for physical deterioration, functional obsolescence, and external obsolescence
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These include an understanding of the asset, its function and its ______;
These include an understanding of the asset, its function and its ______;
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Functional obsolescence can be caused by advances in ______________________ that result in new assets being capable of a more efficient delivery of goods and services
Functional obsolescence can be caused by advances in ______________________ that result in new assets being capable of a more efficient delivery of goods and services
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External factors that affect the value of assets include change in ______________________ conditions, which affect the supply and demand for goods and services produced by the assets
External factors that affect the value of assets include change in ______________________ conditions, which affect the supply and demand for goods and services produced by the assets
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Knowledge of changes in references, technical innovations, and/or market standard that may affect the asset is used to estimate ______;
Knowledge of changes in references, technical innovations, and/or market standard that may affect the asset is used to estimate ______;
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Discounted Cash Flow (DCF) Analysis is a financial modeling technique based on explicit assumptions regarding the prospective ______ and expenses of a property or business;
Discounted Cash Flow (DCF) Analysis is a financial modeling technique based on explicit assumptions regarding the prospective ______ and expenses of a property or business;
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In the application of depreciated replacement cost, the Valuer shall ensure that the key elements of a ______________________ transaction have been considered
In the application of depreciated replacement cost, the Valuer shall ensure that the key elements of a ______________________ transaction have been considered
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In estimating the physical deterioration of the actual asset resulting from ______________________ and tear over time, including any lack of maintenance
In estimating the physical deterioration of the actual asset resulting from ______________________ and tear over time, including any lack of maintenance
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In DCF Analysis, an appropriate, market-derived ______ is applied to establish an indication of the present value of the income stream;
In DCF Analysis, an appropriate, market-derived ______ is applied to establish an indication of the present value of the income stream;
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External factors that affect the value of assets also include the cost and reasonable availability of ______________________, utilities, and labor
External factors that affect the value of assets also include the cost and reasonable availability of ______________________, utilities, and labor
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The rate in DCF Analysis reflects both the return on the invested capital and the return of the original ______;
The rate in DCF Analysis reflects both the return on the invested capital and the return of the original ______;
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The Valuer estimates the cost of a modern equivalent asset at the relevant ______________________ date
The Valuer estimates the cost of a modern equivalent asset at the relevant ______________________ date
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DCF Analysis is one of the accepted methodologies within the ______ approach to valuation;
DCF Analysis is one of the accepted methodologies within the ______ approach to valuation;
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DCF Analysis is applied in valuations of real property, business and ______ assets;
DCF Analysis is applied in valuations of real property, business and ______ assets;
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The ultimate goal of the valuation process is to determine the ______ of the asset;
The ultimate goal of the valuation process is to determine the ______ of the asset;
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Match the following types of properties with their corresponding valuation methods:
Match the following types of properties with their corresponding valuation methods:
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Match the following concepts with their corresponding uses in valuation:
Match the following concepts with their corresponding uses in valuation:
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Match the following valuation approaches with their corresponding underlying principles:
Match the following valuation approaches with their corresponding underlying principles:
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Match the following concepts with their corresponding application in valuation:
Match the following concepts with their corresponding application in valuation:
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Match the following valuation methods with their corresponding types of properties:
Match the following valuation methods with their corresponding types of properties:
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Match the following concepts with their corresponding roles in valuation:
Match the following concepts with their corresponding roles in valuation:
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Match the following concepts with their corresponding importance in valuation:
Match the following concepts with their corresponding importance in valuation:
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Match the following concepts with their corresponding applications in agriculture:
Match the following concepts with their corresponding applications in agriculture:
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Match the following valuation methods with their corresponding benefits:
Match the following valuation methods with their corresponding benefits:
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Match the following concepts with their corresponding importance in business valuation:
Match the following concepts with their corresponding importance in business valuation:
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Study Notes
General Overview of Valuation
- Valuation data can be collected at various levels, including neighborhood, city, regional, national, and international levels
- Factors influencing value include social, economic, government, and environmental factors
Property-Specific Data
- Property-specific data is collected to better understand the specific property being valued and comparable properties
- Data is gathered on supply and demand characteristics of the most probable market for the property
Highest and Best Use (HABU)
- HABU is used to determine the optimal use of a property
- Physical similarities between properties do not necessarily mean similar uses
- HABU is a foundation for determining market value
Valuation Approaches
- Three valuation approaches are recognized in the valuation process:
- Sale Comparison or Market Data Approach
- Income Capitalization Approach
- Cost Approach (Depreciated Replacement Cost)
Sale Comparison or Market Data Approach
- Recognizes that property prices are determined by the market
- Market value can be calculated from a study of market prices for competing properties
Income Capitalization Approach
- Based on the principle that value is created by the expectation of future benefits (income stream)
- Not commonly used in the Philippines due to lack of direct sales evidence
Cost Approach (Depreciated Replacement Cost)
- Used in the Philippines for valuing machinery and equipment
- Recognized as a market-based methodology since the publication of IVS 7th edition (2005)
Valuation of Plant, Machinery, and Equipment
- Valued as a whole, in-situ, and as part of the business as a going concern
- Equates to Value for Continued Use in the Philippines
- Can also be valued as individual items for removal, equating to Liquidation Value
Income Capitalization Approach to Intangible Asset Valuation
- Estimates the value of an intangible asset by calculating the present value of anticipated benefits
- Two common methods: direct capitalization of income and discounted cash flow analysis (DCF)
Cost Approach to Intangible Asset Valuation
- Also known as the adjusted asset approach
- Estimates the cost of replacing an asset, including developer's profit
- Must be performed using knowledge possessed of the valuation date
Personal Property Valuation
- Objective is to improve the consistency and quality of personal property valuations
- Valuations are commonly performed on a Market Value basis, applying PVS 1
- Other bases of valuation may be used, applying PVS 2, with proper disclosure and explanation
Business Valuation
- Concepts, process, and methods applied are the same as those for other types of valuations
- Care must be taken to distinguish between the value of a business entity, trade-related property, and various possible applications of business or going concern considerations
Discounted Cash Flow (DCF) Analysis
- A financial modeling technique applied in valuations of real property, business, and intangible assets
- Involves projecting periodic cash flows and applying a market-derived discount rate to establish the present value of the income stream
Philippine Valuation Standards
- The valuation process is based on Generally Accepted Valuation Principles and is applied in many countries.
- The process involves:
- Definition of the assignment: identifying the real estate involved, property rights, intended use, and limitations.
- Preliminary analysis and data collection: understanding the general market and subject property.
- Selection of valuation approaches: Cost Approach, Income Capitalization Approach, and Depreciated Replacement Cost Approach.
Real Property Valuation
- The valuation process is the same as for other types of valuations.
- The Cost Approach is commonly used for machinery and equipment valuations in the Philippines.
- The Depreciated Replacement Cost Approach is regarded as a market-based method in the absence of direct market evidence.
Valuation of Plant, Machinery, and Equipment
- Valuation is typically carried out using the Depreciated Replacement Cost Approach.
- Plant, machinery, and equipment are valued as a whole, in-situ, and as part of the business as a going concern.
- The value conclusion is subject to the test of adequate profitability.
Valuation of Intangible Assets
- The concepts, process, and methods applied are the same as those for other types of valuations.
- Intangible assets include rights, privileges, or conditions that attach to ownership interest.
- Factors to be considered include:
- Earnings capacity
- Remaining economic life and/or legal life of the intangible assets
- The nature and history of the intangible assets
- Economic outlook
- Prior transactions in ownership interest
- Intangible asset valuation approaches include:
- Market (sales comparison) approach
- Cost Approach
Personal Property Valuation
- Valuation is performed using the Cost Approach.
- The Valuer estimates the reproduction or replacement cost of the subject property or asset.
- Replacement cost refers to the cost of an object of similar age, size, color, and condition.
- Reproduction cost refers to the cost of a facsimile or exact copy of the original item.
Business Valuation
- The concepts, process, and methods applied are the same as those for other types of valuations.
- Care should be taken to distinguish between the value of a business entity, the valuation of assets owned by such entity, and various possible applications of business or going concern considerations.
Depreciated Replacement Cost (DRC)
- DRC is commonly known as Reproduction Cost New Less Depreciated (RCNLD).
- In the absence of sufficient direct market evidence, DRC is regarded as an acceptable method of arriving at the value of specialized assets.
- The Valuer estimates the cost of a modern equivalent asset at the relevant valuation date and estimates depreciation by comparing the modern equivalent asset with the asset being valued.
- Depreciation rates may be all-encompassing or analyzed separately for physical deterioration, functional obsolescence, and external obsolescence.
Valuation of Machinery and Equipment in the Philippines
- The sales comparison approach is often limited to individual free-standing machines, motor vehicles, and lathes and generators due to the lack of direct sales evidence.
- The Income Capitalization Approach is not commonly used in the Philippines for valuing machinery and equipment.
- The Cost Approach, specifically the Depreciated Replacement Cost (DRC) method, is the most widely used method for valuing machinery and equipment in the Philippines.
Depreciated Replacement Cost (DRC) Method
- DRC is a market-based methodology that determines the current cost of replacing an asset with its modern equivalent, minus depreciation for physical deterioration, functional obsolescence, and external obsolescence.
- DRC is commonly known as Reproduction Cost New Less Depreciated (RCNLD).
- In the absence of sufficient direct market evidence, DRC is regarded as an acceptable method of arriving at the value of specialized assets.
- The Valuer estimates the cost of a modern equivalent asset and then estimates depreciation by comparing the modern equivalent asset with the asset being valued.
Depreciation
- Depreciation rates may be all-encompassing or analyzed separately for physical deterioration, functional obsolescence, and external obsolescence.
- Physical deterioration results from wear and tear over time, including lack of maintenance.
- Functional obsolescence can be caused by advances in technology, resulting in new assets being capable of more efficient delivery of goods and services.
- External obsolescence results from external influences, including changes in economic conditions, supply and demand for goods and services, and cost of operation.
Valuation of Personal Property
- Personal property valuation may be performed using the Sales Comparison Approach, which compares the subject property to similar properties and/or property ownership interests that have been sold/offered in open markets.
- The Cost Approach may also be used for personal property valuation, including the Depreciated Replacement Cost method.
- Valuers must consider factors such as right privileges, or conditions that attach to the ownership of the subject property, the nature of the property and its history, previous sales or transfers, economic outlook, and market conditions.
Discounted Cash Flow (DCF) Analysis
- DCF Analysis is a financial modeling technique based on explicit assumptions regarding the prospective income and expenses of a property or business.
- It is applied in valuations of real property, business, and intangible assets, as well as in investment analysis and as an accounting procedure to estimate value in use.
- DCF Analysis involves the projection of a series of periodic cash flows, and an appropriate, market-derived discount rate is applied to establish an indication of the present value of the income stream associated with the property or business.
Economic Data Collection
- Economic data is collected at various levels: neighborhood, city, regional, national, and international.
- Data collection involves examining social, economic, government, and environmental factors to understand the property's value.
Property-Specific Data
- Property-specific data is gathered and examined to better understand the property being valued and comparable properties.
- Supply and demand data is analyzed to develop an inventory of properties that compete with the subject property for market share.
Highest and Best Use (HABU)
- The concept of HABU is used to determine the optimal use of a property, which is essential for determining its market value.
- HABU considers the physical similarities and differences between parcels of real estate and their potential uses.
Valuation Approaches
- Three approaches are commonly used in the valuation process: Sale Comparison or Market Data Approach, Income Capitalization Approach, and Cost Approach.
- Each approach is based on the Principle of Substitution, which states that the lowest-priced option attracts the greatest demand and widest distribution.
Sale Comparison or Market Data Approach
- This approach recognizes that property prices are determined by the market.
- Market value is calculated by studying market prices for properties that compete with one another for market share.
Income Capitalization Approach
- This approach perceives value as created by the expectation of future benefits (income stream).
- Valuation of Intangible Assets considers the rights, privileges, and conditions attached to the ownership interest, remaining economic life, earnings capacity, and economic outlook.
Valuation of Intangible Assets
- Intangible assets include the rights and privileges granted to the owner.
- Valuation approaches include the Market Approach, which compares the subject to similar intangible assets or ownership interests.
Intangible Asset Valuation Approaches
- Market Approach: compares the subject to similar intangible assets or ownership interests.
- The two most common sources of data used in the Market Approach are markets in which ownership interests of similar intangible assets are traded and prior transactions in the ownership of the subject intangible assets.
Personal Property Valuation
- Valuation is performed using the Cost Approach, which estimates the reproduction or replacement cost of the subject property or asset.
- The value conclusion is based on value estimates from the valuation methods performed.
Business Valuation
- The concepts, process, and methods applied in business valuation are similar to those for other types of valuations.
- Factors to be considered in business valuation include the rights, privileges, or conditions attached to the ownership interest, nature and history of the business, economic outlook, and asset, liabilities, and dividend-paying capacity.
Income Capitalization Approach to Business Valuation
- The income capitalization approach estimates the value of a business by calculating the present value of anticipated benefits.
- The two most common income approach methods are Capitalization of Income and Discounted Cash Flow Analysis.
Asset-Based Business Valuation Approach
- This approach is founded on the principle of substitution, where an asset is worth no more than it would cost to replace all of its constituent parts.
Discounted Cash Flow (DCF) Analysis
- DCF analysis is used to estimate the value of operating real properties, development properties, and businesses.
- The approach involves estimating periodic cash flows, discounting them, and calculating the present value.
Valuation of Agricultural Properties
- Reliable valuation of agricultural land is essential for ensuring the availability of capital, promoting productive use, and maintaining confidence in capital markets.
- The valuer must have a sound knowledge and understanding of the physical and economic elements that affect the productive capacity of agricultural lands and the value of commodities produced.
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This quiz covers the basics of real estate valuation, including the levels of data collection and factors influencing value. It also explores property-specific data and its importance in understanding the market.
