PRINCIPLES OF VALUATION

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1 PRINCIPLES OF VALUATION AMCHAM 20 th November 2018

2 Who am I and why am I giving this talk? Chartered Surveyor Real Estate degree 2 years working experience APC examination Qualified member of Royal Institution of Chartered Surveyors (RICS) Registered RICS Valuer SPS overview Award winning consultancy Valuations throughout 187 locations in Myanmar Regulated Firm by RICS

3 Why is this person ruining your plans? Chartered Surveyors are members of the Royal Institution of Chartered Surveyors (RICS) instructed to assess market value of an asset, for example: 1. when you re looking to buy a property 2. when refinancing a property in your portfolio 3. Or perhaps when you are selling a property and the buyer produces a property valuation lower than you had hoped etc. There is a fundamental difference between worth and market value often resulting in client disappointment when market value is reported. Market value is described in the RICS Red Book (the valuation Bible) as: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. i.e. a typical market investor Worth is defined as: The value of an asset to a particular owner or prospective owner for individual investment or operational objectives. i.e. an owner with specific attachment to the property

4 Methods of Valuation There are five methods of property valuation that are generally recognised globally. 1. Comparative method Comparing the property with similar properties. For most residential investors this may be the only method you will experience. 2. Investment method Uses discounted cash flow techniques to establish value through the income producing nature of the asset. This method is often used in commercial valuations. 3. Residual method This is used to establish the valuation of development sites. Uses the cost of developing the land and the final gross development value to assign a value for the land. 4. Profits method Used more as a valuation for a business premises, such as hotels and cinemas. 5. Replacement cost method This is generally reserved for buildings with little comparable evidence, such as churches, schools, etc. The cost of the land and the cost to rebuild the structure are the basis of the valuation.

5 Difference between Desktop and full valuation Your Professional Property Desktop Valuation: Research done from the valuer s desk Reliance on client supplied information No site-inspection No measurement Minimum requirements under RICS Red Book Lower cost Good for in-house reporting, understanding sales or purchase price quickly etc Full Valuation: Full on-site research into the local area Full comparables search in the local area Reliance on client supplied information but checked while on-site Full site inspection Measurement of the building Full requirements under RICS Red Book Higher cost Necessary for financial reporting, auditing, lending, joint venture negotiation etc as more accurate and reliable.

6 Valuation is not an exact science it s an art form No 2 valuers will come to the same conclusion Variable opinions and methodologies Your Professional Property Need to be a diplomate as inherent conflict e.g. lenders want lower valuations, sellers want higher valuations etc.. Important to operate with integrity and professionalism use a trustworthy brand with RICS or similar credentials.

7 THANK YOU