Independent Valuations – Market Approach, Comparable Transactions Method & Summation/Depreciated Replacement Cost Approach Method
Residential is ‘broad’ in its type, age, location, buyers, etc. The role of a Certified Practising Valuer is to provide objective property advice to support your property decision. This is all a part of the home valuation process
As per the International Valuation Standard (IVS) 2017, our most utilised basis of value is ‘Market Value’. We utilise two house valuations Approaches and Methods which you can learn more about below.
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The market approach for house valuations provides an indication of value by comparing the asset with identical or comparable (that is similar) assets for which price information is available.
This approach for home valuations utilises market derived data on transactions to arrive at an indication of value. A variety of different comparable evidence, also known as units of comparison, form the basis of the comparison - for example: price per square metre.
The key steps in the comparable transactions method are:
(a) identify the units of comparison that are used by participants in the relevant market,
(b) house evaluator will identify the relevant comparable transactions and calculate the key valuation metrics for those transactions,
(c) perform a consistent comparative analysis of qualitative and quantitative similarities and differences between the comparable assets and the subject asset,
(d) make necessary adjustments, if any, to the property valuations metrics to reflect differences between the subject asset and the comparable assets,
(e) apply the adjusted property valuations metrics to the subject asset, and
(f) if multiple valuation metrics were used, reconcile the indications of value.
Adjustments for any material differences between the comparable transactions and the subject asset, include:
(a) material characteristics (age, size, specifications, etc),
(b) relevant restrictions on either the subject asset or the comparable assets,
(c) geographical location (location of the asset and/or location of where the asset is likely to be transacted/used) and the related economic and regulatory environments,
(d) unusual terms in the comparable transactions,
(e) differences related to marketability and control characteristics of the comparable and the subject asset, and
(f) ownership characteristics (eg, legal form of ownership, amount percentage held).
The house valuations approach provides an indication of value by calculating the current replacement or reproduction cost of an asset and making deductions for physical deterioration and all other relevant forms of obsolescence.
Usually replacement cost is adjusted for physical deterioration and all relevant forms of obsolescence. After such adjustments, this can be referred to as depreciated replacement cost. The key steps in the replacement cost method are:
(a) calculate all of the costs that would be incurred by a typical participant seeking to create or obtain an asset providing equivalent utility,
(b) determine whether there is any deprecation related to physical, functional and external obsolescence associated with the subject asset, and
(c) deduct total deprecation from the total costs to arrive at a value for the subject asset.
Together with vacant land sales and analysed house sales we derive our market value metrics.
To the assessed land value we add the depreciated value of the dwelling and any other improvements on the land, to the land value, to arrive at a total valuation figure under this method.
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