Pricing to market. Property valuation revisited: the hierarchy of valuation approaches, methods and models
| DOI | https://doi.org/10.1108/JPIF-05-2018-0033 |
| Pages | 391-396 |
| Date | 26 July 2018 |
| Published date | 26 July 2018 |
| Author | Nick French,Laura Gabrielli |
| Subject Matter | Property valuation & finance,Property management & built environment,Real estate & property |
Pricing to market
Property valuation revisited: the hierarchy of
valuation approaches, methods and models
Nick French
School of the Built Environment, Oxford Brookes University, Oxford, UK, and
Laura Gabrielli
Department of Architecture, University of Ferrara, Ferrara, Italy
Abstract
Purpose –Since the global financial economic crisis hit the world markets in 2007/2008, the role of property
valuation has been under greater and greater scrutiny. The process of valuation and its quality assurance has
been addressed by the higher prominence of the International Valuation Standards Council (IVSC). This is a
significant initiative worldwide. However, there has been little written on the appropriate use of valuation
approaches and methods in market valuations.Thereisnowahierarchyofvaluation definitions. In order, there
are valuation approaches, valuation methods and, as a subset of the methods, techniques or models. The purpose
of this paper is to look at the importance of identifying the appropriate approach to be adopted in market
valuations and the methods, techniques and models that should be applied to determine market value.
Design/methodology/approach –This practice briefing is an overview of the valuation approaches,
methods and models available to the valuer and comments on the appropriateness of valuation each in
assessing market value.
Findings –This paper reviews the IVSC-recognised approaches and prompts the valuer to be careful with
the semantics involved so that they are better placed to provide an unambiguous service to their clients.
Practical implications –The role of the valuer in practice is to identify the appropriate approach for the
valuation of the subject property, choose the right method and then apply the correct mathematical model for
the valuation task in hand.
Originality/value –This provides guidance on how valuations can be presented to the client in accordance
with the International Valuation Standards.
Keywords Property valuation
Paper type General review
1. Introduction
It’s simply to say that managers and investors alike must understand that numbers are the
beginning, not the end, of valuation. (Warren Buffett, 1982)
The role of the valuer is to use the most appropriate valuation approach to determine market
value, an estimate of price in the market place. In undertaking this task, depending upon
their international location, they will be required to follow a set of standards to ensure
quality in the valuation. In most mature markets, the agreed and principal standards are
those published by the International Valuation Standards Council (IVSC)[1] and the
International Valuation Standards (IVS, 2017)[2].
This briefing looks at a possible hierarchy of definitions in the IVS and proffers a
hierarchy for undertaking any property valuation[3]. In order, there are valuation
approaches, valuation methods and, as a subset of the methods, techniques or models.
In fairness, many valuers and commentators use the terms interchangeably and, indeed, the
IVS, whilst clear on “Approaches”, does blur the lines when talking about “Methods”and
“Models”particularly as the use of these words is not consistent between sections (e.g. the
section on “Business Interests”uses the terms differently to the section on “Real Property
Interests”). But it is suggested that by adopting a distinct semantic demarcation, it will aid
the valuer and the user of valuations in understanding the valuation. But, before, discussing
this in more depth, it is useful to revisit the bases of valuation as defined in the IVS.
Journal of Property Investment &
Finance
Vol. 36 No. 4, 2018
pp. 391-396
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-05-2018-0033
Received 9 May 2018
Accepted 9 May 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
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Property
valuation
revisited
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