Valuation Reports

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s BPE 12503

VALUATION REPORTSBPE 12503

VALUATION REPORTS

SR DR. DAVID MARTIN JUANILFACULTY OF TECHNOLOGY

MANAGEMENT, BUSINESS & ENTREPRENEURSHIP

SR DR. DAVID MARTIN JUANILFACULTY OF TECHNOLOGY

MANAGEMENT, BUSINESS & ENTREPRENEURSHIP

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s • Introduction

• Need For Valuation Reports• Implications• Market Value• The Valuation Process• Valuation Standards• Valuation Reports• Overview• Suggestions For Improvement• Conclusion

CONTENTSCONTENTS

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s • The world today is flooded with

reports needed for every conceivable occasion.

• To many people, a report is a bunch of papers containing facts, figures, recommendations and opinions. It makes sense to some people; to others it does not.

• Therein lies the essence of a good report – it must make sense to those for whom it is written.

INTRODUCTIONINTRODUCTION

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s • Real Estate Valuation, i.e. to

determine and to report what a defined interest in an asset is likely to realise if sold on the open market.

• According to the Malaysian Valuation Standards (MVS), valuation is defined as:

The written opinion as to capital or rental value on any given basis in respect of an interest in property, with or without any assumptions or qualifications.

• Reasons for valuation

NEED FOR VALUATION REPORTS


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s • Clients need to know all information

regarding their assets, done through valuation reports, which are:

– A public presentation and summary of all facts collated from the inspection of the property,

– Information from the documents of title,

– Enquiries of the local authority,– Analysis of the transactions, and– Production of the valuation.



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s • Globalisation in property has resulted in

dramatic changes in the property industry, creating structural changes within the real estate market:i. Emergence of risks in real estate investments.ii. Profitability-oriented price valuationsiii. Reform of fundraising methods due to financial uncertainty from indirect finance by bank loans to direct finance using the securitisation of real estate.iv. Mass disposal of real estate arising from needs to dispose off bad debts.



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s • The globalisation of business and

real estate means that business is moving toward common accounting standards which in turn requires standardisation of practice relating to the valuation of commercial property.

• Create awareness within the valuation profession on needs for valuation standards.

• For any valuation to have validity it must produce an accurate estimate of the market price / value.

IMPLICATIONSIMPLICATIONS

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MARKET VALUEMARKET VALUE

• The Mallinson Report (1994) defines market values as:“an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of a valuation assuming:

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MARKET VALUEMARKET VALUE– Willing seller– That prior to the date of the valuation,

there had been a reasonable period for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale

– That the state of the market, level of values and other circumstance were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation

– That no account is taken of any additional bid by purchaser with a special interest and

– That both parties to the transaction acted knowledgeably, prudently and without compulsion.”

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s • The MSV defines market value as:

“The estimated amount for which a property 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.”

MARKET VALUEMARKET VALUE

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s • Valuers are engaged to estimate

the market value of property. The valuation process refers to the logical and analytical process by which a property valuer conducts a valuation.

• Conducting a valuation is a problem-solving exercise.

• The solution requires interpretation, in terms of money, of the influences of economic, sociological, legal and political forces on a specific real property, and stated in a valuation report.

THE VALUATION PROCESSTHE VALUATION PROCESS

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s • Producing valuation reports is

closely related to valuation standards. Valuers need some standards and guidelines in order to validate their valuation.

• The creation of valuation standards comes from the regulatory sector whether governmental or private, eg. BOVAEA, IVSC.

VALUATION STANDARDSVALUATION STANDARDS

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• The standards governing valuers in Malaysia is the Malaysian Valuation Standards (MSV) issued by the Board of Valuers, Appraisers and Estate Agents Malaysia.

• However, the standards only focus on what valuers should do rather than how they should do it, hence the need for valuers to produce good, quality reports according to the standards.

VALUATION STANDARDSVALUATION STANDARDS

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s • Valuation reports are produced

according to clients’ requirements and purpose of valuation.

• Thus, valuers must be constantly aware of contemporary developments in the real estate business. They must be able to provide diverse services and skills to respond to diverse needs.

VALUATION REPORTSVALUATION REPORTS

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s • According to the MSV, valuation

reports can be acted upon by the client or certain third parties without any reference to the valuer, and must be clear and not misleading.

• The valuation report must convey to the reader a clear understanding of the opinion expressed by the valuer, the basis of the valuation used and the assumptions and information on which it is based.


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s • In Malaysia, the minimum contents

of a valuation report are stipulated in Standard 9 of the MVS.

• Nevertheless, there will be some differences depending on the type of property valued and the purpose of valuation. For eg., a valuation for the Securities Commission would have more stringent requirements than the MVS.


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s According to the MVS (2006), the

valuation report should consist of:• Instruction to value• Interest to be valued• Purpose of valuation• Date of valuation• Inspection• Title particulars• Description of the property

…. Cont’d


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According to the MVS (2006), the valuation report should consist of:

• Tenancy/lease details• Planning details• Assumption• Method of valuation• Evidence of value• Opinion of value• Plans• Name and signature of valuers


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s For Securities Commission purposes a

valuation report shall contain but not limited to the following:

• Client and instructions• Purpose of valuation• Material date of valuation• Identification of the property• Inspection and referencing• Interest to be valued• Title details• Description of property• Experts’ reports• Neighbourhood• Planning provisions

…. Cont’d


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For Securities Commission purposes a valuation report shall contain but not limited to the following:

• Assumptions• Acquisition details• Basis of valuation• Method of valuation• Evidence of values• Property market condition/ industry

outlook• Opinion of value• Certification and authentication• Appendices


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s • In common practice, the preparation

of a valuation report should follow the valuation process which acts as a guide for valuers in generating quality valuation reports.

• The summary of the main contents in valuation reports are as follows:


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• Many valuers and appraisers in Malaysia have clearly understood standard valuation procedures which in turn are translated into their reports.

• However, as the real estate business is evolving, there is a demand from clients to endow with more presentable and informative reports.

OVERVIEWOVERVIEW

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s Newell (1999) highlighted four key

areas on quality valuation reports:1. critical role of detailed instructions for valuer2. greater emphasis needed on market dynamics/future performance3. too much generalisation and

unrealistic future projections4. lack of support for contentions with quality information

OVERVIEWOVERVIEW

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s Crosby et. al (1996) suggested the

need to include information on:◊ aspects of the economy and investment market that might impact short and longer-term trends;◊ aspects of property investment and

letting markets that may lead to changes to the structure of the

markets;◊ detailed information on appraisal

techniques, and supporting information including comparable property transactions

SUGGESTIONS FOR IMPROVEMENTSUGGESTIONS FOR IMPROVEMENT

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s Wyatt (2001) suggests the following

to improve valuation reports:• Provide the calculation itself, not just

the end value• Analyse competitor activity in market• Reduce descriptive content• Reflect the brief – any competent

manager sets out the requirements of the valuation at the outset, so any omissions in the report are due to poor instruction

…. Cont’d


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Wyatt (2001) suggests the following to improve valuation reports:

• Demonstrate a better understanding of building systems and their cost in use

• Reflect worth or comment on obsolescence rather than just fix a price.

• Improve accuracy• Include demographic information.


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• Valuation reports – key ingredient in the property investment decision-making process.

• More so in the context of the global financial crisis and the need to continue to improve all aspects of valuation standards and valuation reports.

• They form part of the integrity of and public confidence in the valuation profession.

CONCLUSIONCONCLUSION

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THANK YOUTHANK YOUTHANK YOUTHANK YOU

Documents

Valuation Reports