Reflecting Uncertainty in Valuations for Investment Purposes
Reflecting uncertainty in valuations for investment purposes
A brief guide for users of valuations
Nick Bywater MRICS
rics.org/valuation
This guide is prepared for the benefit of valuers and other users of valuations to provide a general understanding of the concept of uncertainty and the methods by which uncertainty, in valuations for investment purposes, may be identified and communicated with clarity. It is not intended to provide training in valuation techniques but rather to give valuation surveyors, and other users of valuations, a general understanding of the matters that need to be taken into account.
Reflecting uncertainty in valuations for investment purposes
Uncertainty is a feature of investment in real estate regardless of geographical location. Although this guide has been written from a UK perspective, with examples based on UK investments, the fundamental principles are universal. Uncertainty as a concept does not vary and this guide can be applied to investment properties in all markets around the world.
03 3
Reflecting uncertainty in valuations for investment purposes
Risk and return
Valuation methodology is largely focussed on estimation of Market Value, as defined by relevant international valuation standards. This definition is widely accepted and is founded on the principle that valuers are estimating the contract price that a willing buyer and seller would agree in an arm’s length transaction on the open market. The valuation techniques that are employed around the world vary both in overall approach and complexity but, ultimately, all seek to represent the price at which an investment would sell for at a particular moment in time. Thus Market Value is distinguished from Investment Value, or Worth, which represents the value of a property to a particular investor, or a class of investors, for identified investment objectives, which may not necessarily be representative of the market as a whole. In the UK, where the
A brief guide for users of valuations
Nick Bywater MRICS
rics.org/valuation
This guide is prepared for the benefit of valuers and other users of valuations to provide a general understanding of the concept of uncertainty and the methods by which uncertainty, in valuations for investment purposes, may be identified and communicated with clarity. It is not intended to provide training in valuation techniques but rather to give valuation surveyors, and other users of valuations, a general understanding of the matters that need to be taken into account.
Reflecting uncertainty in valuations for investment purposes
Uncertainty is a feature of investment in real estate regardless of geographical location. Although this guide has been written from a UK perspective, with examples based on UK investments, the fundamental principles are universal. Uncertainty as a concept does not vary and this guide can be applied to investment properties in all markets around the world.
03 3
Reflecting uncertainty in valuations for investment purposes
Risk and return
Valuation methodology is largely focussed on estimation of Market Value, as defined by relevant international valuation standards. This definition is widely accepted and is founded on the principle that valuers are estimating the contract price that a willing buyer and seller would agree in an arm’s length transaction on the open market. The valuation techniques that are employed around the world vary both in overall approach and complexity but, ultimately, all seek to represent the price at which an investment would sell for at a particular moment in time. Thus Market Value is distinguished from Investment Value, or Worth, which represents the value of a property to a particular investor, or a class of investors, for identified investment objectives, which may not necessarily be representative of the market as a whole. In the UK, where the