Bahan Kajian MK. Landuse Planning

Valuation Methods

Valuation Theory

Value Theory

Smno.pdip.ppsfpub.des2013

Real property valuation

Valuation is both aScience and an Art!

Valuation Methods

Valuation Theory

Value Theory

Value theory

Platon (427 – 347 BC)- division of labour (specialization) contri- butes to higher efficiency (The State)

Aristoteles (384 – 322 BC)- on exchange, money, prices and value (Politics and Ethics)

Adam Smith (1723 – 1790)- distinction between Utility value and

Exchange value (An inquiry into the nature and causes of the wealth of nations, 1776)

Value theory

Karl Marx (1818 – 1883)connections to Aristoteles and the dis- tinction between utility value and ex-

change value. The latter is a reflection of the labour which is spent on the specific

commodity Marx claimed. (Das Kapital, 1867, 1885, 1894)

Hernando de Soto (1940 - ) on the causes to wealth differences in

the world and why capitalism triumphs in the west but fails everywhere else.

(The Mystery of Capital, 2000)

Value theory

Background factors:The Swedish Hand-book

Fastighetsvärdering (RealEstate Valuation):

- Utility/Benefit- Scarcity- Need- Use/disposition rights- Transfer rights

Background factors:

- Utility/Benefit - Scarcity - Desire - Effective purchase power

Value theory

Background factors :

- Utility/Benefit - Scarcity - Desire/Need - Effective purchase power - Use/disposition rights - Transfer rights

Value theory

- Utility/Benefit- Scarcity- Desire/Need- Effective purchase power

- Use/disposition rights- Transfer rights

The first two factors are related to thesupply side of economy and human

behaviour, the two next to the demand side of economy and human behaviour

Value theory

• A consequence of:– Valuation factors for real property– Social ideals and standards– Economic activities and trends– Government regulations and

activities– Physical or environmental forces– Location factors

• Depends on people´s desires

• Depends on future benefits

• The value can not be calculated,it can only be estimated

Value Theory

Real property valuation

Valuation is both a Science and an Art!

Valuation includes componentsand knowledge of:

-mathematics-statistics-physical (land) planning

-urban planning

-rural planning/agriculture

-building construction-sociology/human behaviour-common sense/feeling

Real property valuation

Valuation is both aScience and an Art!

Valuation Methods

Valuation Theory

Value Theory

Valuation theoryAristoteles (322-284 BC) - subjective utility value- Adam Smith (1723-1790)- utility value, exchange value

David Ricardo (1772-1823)Thomas Malthus (1766-1834)

Relation between subjective yield valueand market value

Seller Buyer

Seller´s yield value

Buyer´s yield value

Area for presumptive transaction

Classical scholars:-Smith-Ricardo-Malthus

Their basic theory was a sort of“price theory” where they empha-sized the influence of productioncosts on the value but where thedemand factor was supressed.

Valuation theory

The classical scholars could not suffi-ciently explain many valuation problems

and the Neo-classical scholars appeared:

Stanley Jevons (1835 - 1882)Leon Walras (1834 - 1910)Alfred Marshall (1842 - 1924)Ernst Laur (1871 - 1964)

The most prominent feature of their ideas were “The margin theory”(Margin utility, margin cost and margin income)The demand component was important for the value, not only the production cost

Valuation theory

Modern economists with influence on value theory and

valuation theory are:

Frederic Babcock(The Valuation of Real Estate, 1932)

Richard Ratcliff(Modern Real Estate Valuation, Theory and

Application, 1968)

Valuation theory

• Market value– The most probable price of a

property on the open market– Used in most cases

• Net income value– The present value of future yearly

net income – Used e.g. for

- investment decisions- market simulation

• Cost value– Replacement costs minus

depreciation– Used e.g. for

- insurance compensation - market simulation

Valuation theory

Price = Value = Cost

Valuation Method

Numberof

transfers

Price

Market value

The most probable price of the

property on the open market

Definisi Nilai Pasar

Some key elements:

1. “ asset”2. “ the estimated amount”3. “ a property should exchange”4. “ on date of valuation”5. “ between a willing buyer”6. “ a willing seller”7. “ in an arm´s-length

transaction”8. “ after proper marketing”9. “ wherein the parties had each

acted knowledgeably”10.“ and without compulsion”

Definisi Nilai Pasar

• Sales comparison approach

• Income capitalisation approach

• Cost approach

When searching for a market value,the income and cost methods are

market simulating methods!

Valuation Method

1. Identification and selection of real properties purchased in a comparable market area

2. Objects are made comparable...

3. ...and adjusted according to purchase dates (price trends) or other differencies

4. Mean price of the selected purchases = estimated market value

Pendekatan Perbandingan Harga Jual

Informasi yg Diperlukan

• Information about the purchase– Price– Date of sale– Seller– Buyer

• Information about the real property– Land use– Land area– Building: size, age, standard etc.– Other special conditions

SEK/USD

Year1 2 30 . . . .etc n

Remainingvalue

Yearly netincome

The current value of future yearlynet income and remaining value atthe end of the calculation period

Pendekatan Kapitalisasi Income

Empat methode:

1. Sales price / square meter

2. Sales price coefficient

3. Gross capitalisation factor

4. Net capitalisation percent

Pendekatan Kapitalisasi Income

• Information about the real property:– Land use– Land area– Building: size, age, standard etc.– Yearly costs and incomes– Other special conditions

Informasi yg Diperlukan

SEK/USD

Age (years)0 10

Depreciation 3.5 %/year

Replacementcosts

Replacement costs 1 000Depreciation 10 years 3,5 % - 350Cost of land 200

Cost value 850

Cost of land Costvalue

Pendekatan Biaya

• General information –Average replacement costs–Depreciation - time and

percent–Average value of land

• Information about the real property–Land use–Land area–Building: size, age, standard

etc.–Other special conditions

Informasi yg Diperlukan

Notice - a frequent

mistake !

Mathematics Statistics

GIS

Economics

Common sense

Others

Land planningSociology

Real property valuation

Real property valuation

Recommendation - a balanced and appetizing mix !

Mathematics Statistics GIS

Economics

Common sense

Others

Landplanning

Sociology