Join me as I discuss current issues and innovations relating to finance and property and how these may affect you, the property investor and developer.
Each episode features a special guest, we have a casual discussion in my guest’s field of expertise while enjoying one of my favourite pastimes, which is Gourmet French cooking at home in my kitchen.
Episode 2 - August 2021
Special Guest Dean Galanos, Senior Valuer at Property Logic Valuers and Property Consultants
Topic of Interest The Art and Science of Property Valuation
Who it may affect Property Investors and Property Developers
This episode’s dish Coq au Vin (Rooster in Red Wine)
TOPIC OVERVIEW
While the work of a quantity surveyor is more or less a precise science, Property Valuation is conceivably a combination of both art and science.
Property valuation is an assessment of the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently, and without compulsion.
This definition (the International Asset Valuation Standards Committee), connotes that the work of a valuer as a science is based on the quantitative and objective measurement of the subject property and a precise examination and empirical comparison with the market; as an art, there is also an element of subjective and qualitative judgement and expert opinion gained through personal experience. Hence valuations of the same property by different valuers are by reason apt to result in diverging valuation ‘estimates’.
What are the proportions of “art” and of “science” that valuer relies on to prepare a valuation report as the basis of a commercial investment decision?
Is too much “science”, with the implied absence of the human elements of judgement and of commercial common sense, detrimental to an accurate and realistic valuation outcome?
Is too much “art”, which may be misconstrued as a ‘shooting from the hip’ or unprofessional, imprecise, or even reckless in approach, a danger that may yield a fanciful and unfounded result?
Property valuations are carried out utilising a number of primary and secondary empirical methods depending on the use, type, and nature of the property; the end result may be skewed to a degree by the personal inclination of the individual valuer, some being more conservative than others.
The valuation of a property, for any investment decision or commercial transaction of one type or other is a fundamental assessment and decision criteria in that commercial purpose, be it a credit decision to advance credit at a prescribed percentage exposure vs. valuation, a decision to acquire or divest a property, a cost:benefit assessment of litigation, the calculation of Ad Valorem duty in a transfer, or the pricing of credit risk (interest rate and fees). A valuation must be independent of the parties involved and impartial.
In this episode of In JP’s Kitchen, the subject of Property Valuation is explored with explanation of the different types of property valuation methods that may be used, the different uses of property, and other considerations including market conditions that may affect a property’s value.