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Understanding Valuation Reports | Part 1

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July 12, 2023

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Good property valuation reports must flow in a logical, sensible manner that is easily followed by the reader and should be based on a thorough understanding of the property market and the specific property being valued. The written report is the only tangible product delivered to the client; if it is not well written, the credibility of all of the work done, may be called into question.

Here are some essential elements that should be included in a comprehensive property valuation report:

  1. Purpose and Scope: The valuation report should clearly state the purpose of the valuation, whether it is for sales purposes, insurance, mortgage financing, or any other specific purpose. The scope of the valuation should also be defined, including the date of valuation and any limiting conditions.
  2. Property Details: Provide detailed information about the property, including its address, size, dimensions, and a description of the improvements (e.g., buildings, fixtures, amenities) on the property. Include photographs and relevant property plans or sketches if available.
  3. Market Analysis: Conduct a thorough analysis of the local property market, including recent sales data, market trends, and comparable properties (comps) in the area. This analysis helps establish the property’s value in relation to similar properties.
  4. Valuation Methods: Explain the valuation methods used to determine the property’s value. Common valuation methods include the sales comparison approach (comparing the property to recent sales of similar properties), the cost approach (estimating the replacement or reproduction cost of the property), and the income capitalization approach (based on the property’s income). The methodology should be appropriate for the property type and market conditions.
  5. Comparable Sales: If the sales comparison approach is used, the report should include a list of comparable sales in the area. These properties should be similar in terms of size, location, condition, and other relevant factors. The report should provide detailed information about each comparable property and explain how adjustments were made to reflect any differences.
  6. Income and Expense Analysis: If the income approach is used, particularly for commercial properties, the report should include an analysis of the property’s income potential and operating expenses. This may involve examining rental income, vacancy rates, operating costs, and capitalization rates.
  7. Assumptions and Limitations: Clearly state any assumptions made during the valuation process, such as market conditions, zoning regulations, or the availability of accurate data. Also, highlight any limitations or constraints that may have affected the valuation’s accuracy.
  8. Value Conclusion: Provide a clear and concise statement of the property’s estimated value based on the analysis conducted. The value conclusion should be supported by relevant data and reasoning from the valuation methods applied.
  9. Supporting Documentation: A good valuation report should include supporting documentation, such as photographs of the property, floor plans, maps, and relevant market data. This helps to provide transparency and credibility to the valuation process.
  10. Professional Qualifications: Include the qualifications and credentials of the valuer responsible for the report. This adds credibility to the valuation and demonstrates the expertise of the individuals involved.
  11. Supplementary Information: Include any additional information that may be relevant to the valuation, such as property history, legal restrictions, environmental considerations, or any other factors that could impact the property’s value.

There are many components to an effective valuation report; some are technical, some are stylistic, and the requirements may change from one report to another. In general, if you lead the reader step by step through your analysis, proceed in a logical way, do not assume the reader has the degree of technical knowledge possessed by a valuer, and anticipate responses to the likely questions that will arise in a reader’s mind. If you do this, you will produce a valuation report that will be every bit as thorough, thoughtful and convincing, as all the underlying work that led up to it.

Remember, a good property valuation report should be comprehensive, well-researched, transparent, and provide a clear and justified estimation of the property’s value.

Written by: Kobus Nel (Professional Valuer)

Please note: The opinions expressed within the content are solely the author’s and do not reflect the opinions and beliefs of the website or its affiliates.