Valuation Methodology

Why get a property valuation?

“There can be many reasons for needing a professional property valuation. Some universal purposes include: Collateral / Mortgage Lending, Allocation of Purchase / Selling Price, Bankruptcy, Expropriation and Land Reform, Dissolution of Corporation / Marriage, Insurance / Proof of Loss & Legal Disputes, Income Financials, Property & Deceased Estate Tax.”

Our promise to you!

“To ensure our clients receive transparent, unbiased, clear and concise property valuation reports and to foster public confidence in the Property Valuation Profession. We are committed to upholding the highest ethical standards as a Property Valuation firm by conducting our business with unwavering honesty and integrity. We strive on acting discreetly and maintaining confidentiality.”

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Sales/ Direct Comparison Approach

A Sales Comparison Approach to value, considers the sales of similar or substitute properties and related market data and establishes a value estimate by comparing the information. What the valuer is looking for is a sale of a property which is similar, not identical. This method has been held as the most reliable and accepted by South African courts.

Income Capitalization Approach

The Income Capitalisation Approach is a comparative approach to value that considers income and expense data relating to the property being valued and estimates value through a capitalisation process. This method is applied when income generating capabilities is present and is considered by the market as forming the primary basis for value. The capital value refers to the value attributed to the right of an annual income stream. This approach entails the research and analysis of transaction prices of similar or comparably substituting properties, rental rates, expense ratios, yields, capitalisation rates, tenant covenants, and risk. In essence this approach entails an income stream from which expenses are deducted and the net income is capitalised. This method is therefore a combination of income and expense data, though valued by processes of comparison.

Cost Approach

The Cost Approach calculates the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. This method is also known as the depreciated replacement cost (DRC) method and is appropriate when little to no market evidence is available and the property does not transact readily in the market. A specialised property is a type of property that is rarely sold in the market due to the uniqueness of its specialised nature, design, configuration, size, and/or location. The approach entails the measurement of the improvements (buildings, site works) to which the appropriate construction costs are applied, resulting in the new replacement (or reproduction) cost. A depreciation factor (being composed of three factors namely physical deterioration, functional obsolescence, and external or economical obsolescence) is applied to the replacement values in order to arrive at the present day value for the improvements. The market value of the land as if unimproved is then to be determined and added to this depreciated amount with the total amount reflecting the market value for the property.

Residual Approach

The Residual Approach refers to the estimated amount that an entity would currently obtain from the disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. This method is widely used by developers to determine the value or bid amount for a tract of land with development potential. This approach is therefore applicable where a valuation is to be conducted for undeveloped land, or where redevelopment of an obsolescent piece of land demands it. The first step is to estimate the value of the development as complete. Then an allowance for development costs, professional fees, advertising and marketing costs, developer’s profit and risk is deducted from the completed value. What is left after the deductions results in the residual value.

Profits Approach

The Profits Approach is also referred to as the accounting method. This approach states that the rental amounts and capital values of assets are usually influenced by the potential to generate profit. Therefore, profits can be used as a basis to determine the value of a property. An estimation of the gross annual income or turnover is made from which cost of sales and operating expenses are deducted. The net balance is then divided into a rent and profit split. The rental split is capitalised at an appropriate capitalisation factor. In addition, the goodwill is to be ascertained at a market related multiplier with the market value represented by the total of these two amounts. The second approach takes the estimated net profit only, divides it into a rental and profit split, and capitalises the rental amount in order to determine the value of the business “lock, stock and barrel”.

 

Replacement Cost/ Insurance Property Valuations:

We also provide replacement cost/ Insurance valuations for residential complexes, residential houses, industrial and commercial buildings. In terms of sectional title developments, the body corporate is required to obtain insurance coverage for the built sections and common property, ensuring that the replacement value is adequate. 

The standard valuation process involves assessing and quantifying all common property and registered sections, considering the quality of workmanship and finishes observed in a sample unit. The registered section sizes are provided in the approved participation quota schedule, authorized by the Surveyor-General. The valuer also refers to the approved sectional plans to determine which structures and areas are the responsibility of the body corporate. 

 

 

Deceased Estate Property Valuations:

Jon has been appointed by the Minister of Justice as a Sworn Appraiser. The Master may insist that the assets of the estate be valued by a sworn appraiser, and for that the sworn appraiser is entitled to a fee, which is calculated according to a sliding scale. 

The appraiser is also entitled to levy travel charges, which are also calculated on a scale determined from time to time. A sworn appraiser is a person appointed by the Master specifically for the valuation of assets in an estate. Among other things, the appraiser must have a good knowledge of property values in the area in which he is appointed. The appraisal must be done as at date of death and a REV 246 form must be completed.