Property valuation in the UK: market value and net of costs
| Pages | 233-236 |
| DOI | https://doi.org/10.1108/JPIF-03-2019-099 |
| Published date | 27 February 2019 |
| Date | 27 February 2019 |
| Author | Nick French |
| Subject Matter | Real estate & property,Property valuation & finance |
EDUCATION BRIEFING
Property valuation in the UK:
market value and net of costs
Nick French
Real Estate Valuation Theurgy, Berkshire, UK
Abstract
Purpose –The purpose of thispaper is to comment upon the relatively straightforward but often contentious
practice of allowingfor costs on the capital value derived bythe investment model of property valuation.
Design/methodology/approach –This education briefing is an explanation of the discounting process to
allow for costs used in practice.
Findings –Although, the deduction of cost is a simple use of algebra, often valuers (and, in particular,
students) fail to make the allowance correctly.
Practical implications –The processof allowing for cost is a simpleheuristic based on market averagesfor
variousindividual costs such as agents’feesand legal fees (includingVAT) and property taxation(stamp duty).
Originality/value –This is a review of existing models.
Keywords Property valuation, Market value, Capital value
Paper type Editorial
Most bases of value represent the estimated exchange price of an asset without regard to the seller’s
costs of sale or the buyer’s costs of purchase and without adjustment for any taxes payable by
either party as a direct result of the transaction. (International Valuation Standards (IVS) 210.1)
Introduction
All valuation approaches[1] are attempting to estimate market value (MV ), the price of the
property in the market on the date of the valuation. MV is defined as:
The estimated amount for which an asset or liability should exchange on the valuation date
betweenawillingbuyerandawillingsellerinanarm’s len gth transaction af ter proper
marketing and wher e the parties had eac h acted knowledgeab ly, prudently and wit hout
compulsion. (IVS 30 , 2017)
It is a price definition. The International Standards go on to say that:
Most bases of value represent the estimated exchange price of an asset without regard to the seller’s
costs of sale or the buyer’s costs of purchase and without adjustment for any taxes payable by
either party as a direct result of the transaction. (IVS 210.1, 2017)
This paper looks at the adjustment to the calculated capital value (by the investment
method) to determine MV (before costs).
Costs of purchase
In the UK, when an investor purchases an investment property, they incur various costs.
These are:
(1) agents’fees;
(2) legal dees;
(3) VAT on the above; and
(4) Stamp Duty Land Tax (SDLT) (property transfer tax)[2].
Journal of Property Investment &
Finance
Vol. 37 No. 2, 2019
pp. 233-236
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-03-2019-099
Received 5 December 2018
Accepted 5 December 2018
233
Property
valuation in
the UK
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