2 Real property valuation Valuation is both a Science and an Art! Metode ValuasiTeori ValuasiTerori NilaiValuation is both a Science and an Art!
3 - on exchange, money, prices and value (Politics and Ethics) TEORI NILAIPlaton (427 – 347 BC)- division of labour (specialization) contributes 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)
4 TEORI NILAI Karl Marx (1818 – 1883) Hernando de Soto (1940 - ) - 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 ( )- 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)
5 The Swedish Hand-book Fastighetsvärdering (Real Estate Valuation): Teori NilaiBackground factors:The Swedish Hand-book Fastighetsvärdering (Real Estate Valuation):- Utility/Benefit - Scarcity - Need - Use/disposition rights - Transfer rights
6 Teori Nilai - Utility/Benefit - Scarcity - Desire Background factors: The Appraisal of Real Estate Part I, Chapter 2 page 19:- Utility/Benefit- Scarcity- Desire- Effective purchase power
7 Value theoryBackground factors - a summary:- Utility/Benefit Scarcity Desire/Need Effective purchase power Use/disposition rights Transfer rights
8 Teori Nilai - Utility/Benefit - Scarcity - Desire/Need - Effective purchasepower- Use/disposition rights - Transfer rightsThe first two factors are related to the supply side of economy and human behaviour, the two next to the demand side of economy and human behaviour
9 Teori Nilai Supply and demand Definition: The quantity of one thing (money) that can be obtained in exchange for another thing (property)The core of the value theory is:Desire/NeedUtility/benefitScarcityPurchasing power, using rights, transfer rightsSupply and demandNumber ofpropertiesSupplyDemandPrice
10 Teori Nilai A consequence of: Depends on people´s desires Valuation factors for real propertySocial ideals and standardsEconomic activities and trendsGovernment regulations and activitiesPhysical or environmental forcesLocation factorsDepends on people´s desiresDepends on future benefitsThe value can not be calculated, it can only be estimated
11 Real property valuation Valuation is both a Science and an Art!Valuation includes components and knowledge of:-mathematics-statistics-physical (land) planning-urban planning-rural planning/agriculture-building construction-sociology/human behaviour-common sense/feeling
12 Real property valuation Literature:HandoutsThe Appraisal of Real Estate: Part 1 FundamentalsChapter 2 The Nature of Value (pages 19 – 31)
13 Real property valuation Valuation MethodsValuation TheoryValue TheoryValuation is both a Science and an Art!
14 Teori Valuasi Aristoteles (322-284 BC) Adam Smith (1723-1790) - subjective utility valueAdam Smith ( )- utility value, exchange valueDavid Ricardo ( )Thomas Malthus ( )
15 Relation between subjective yield value and market valueSellerBuyerSeller´s yield valueBuyer´s yield valueArea for presumptive transaction
16 Teori Valuasi Classical scholars: Smith Ricardo Malthus Their basic theory was a sort of “price theory” where they empha- sized the influence of production costs on the value but where the demand factor was supressed.
17 Teori Valuasi Stanley Jevons (1835 - 1882) Leon Walras (1834 - 1910) The classical scholars could not suffi-ciently explain many valuation problems and the Neo-classical scholars appeared:Stanley Jevons ( )Leon Walras ( )Alfred Marshall ( )Ernst Laur ( )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
18 Teori ValuasiModern 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)
19 Teori Valuasi Market value The most probable price of a property on the open marketUsed in most casesNet income valueThe present value of future yearly net incomeUsed e.g. for - investment decisions - market simulationCost valueReplacement costs minus depreciationUsed e.g. for - insurance compensation - market simulation
21 Definition of market value (1) NumberoftransfersPriceMarket valueThe most probable price of the property on the open market
22 Definisi Nilai Pasar Some key elements: - “ asset” “ the estimated amount”“ a property should exchange”“ on date of valuation”“ between a willing buyer”“ a willing seller”“ in an arm´s-length transaction”“ after proper marketing”“ wherein the parties had each acted knowledgeably”“ and without compulsion”
23 Metode Valuasi Sales comparison approach Income capitalisation approachCost approachWhen searching for a market value, the income and cost methods aremarket simulating methods!
24 Sales comparison approach Identification and selection of real properties purchased in a comparable market areaObjects are made comparable......and adjusted according to purchase dates (price trends) or other differenciesMean price of the selected purchases = estimated market value
25 Information needed Information about the purchase Price Date of sale SellerBuyerInformation about the real propertyLand useLand areaBuilding: size, age, standard etc.Other special conditionsSeller: Mr EkBuyer: Mrs AlmDate:Price:etc.
26 Pendekatan Kapitalisasi Pendapatan SEK/USDRemainingvalueYearly netincome123etcnYearThe current value of future yearly net income and remaining value at the end of the calculation period
28 Information needed Information about the real property: Land use Land areaBuilding: size, age, standard etc.Yearly costs and incomesOther special conditions
29 Pendekatan Biaya Replacement costs 1 000 SEK/USDReplacementcostsDepreciation 3.5 %/yearCostvalueCost of landAge (years)10Replacement costsDepreciation 10 years 3,5 %Cost of landCost value
30 Informasi yg diperlukan General informationAverage replacement costsDepreciation - time and percentAverage value of landInformation about the real propertyLand useLand areaBuilding: size, age, standard etc.Other special conditions
31 Real property valuation Notice - a frequent mistake !EconomicsMathematics Statistics GISLand planningSociologyCommon senseOthers
32 Real property valuation Recommendation - a balanced and appetizing mix !EconomicsLand planning SociologyMathematics Statistics GISOthersCommon sense