VALUATION METHODS

QUIZ
DEC. 5, 2023

1. How do you determine the Highest and Best Use of a certain property?
 Highest and best use (HABU) identifies the most profitable use among potential uses to
which the property can be put, and is, therefore, market-driven. Determining the HABU
value of a certain property depends on many factors. For example, land has two different
methods of being valued namely: the sales comparison technique, and the subdivision
development technique. The former involves a direct comparison of the subject property
with similar land properties in the market, the latter involves projecting the subdivision of
the land into a series of lots, developing incomes and expenses associated with the process,
and discounting the resulting net incomes into an indication of value.

2. How do we make use of comparable data in the valuation process?

 Comparable Data relate to properties that have characteristics similar to those of the
property being valued. In any analysis of comparable data, the properties from which the
comparable data are collected must have characteristics similar to the property being
valued. Comparable data should always be used with care, and numerous adjustments may
need to be made if necessary.

3. Differentiate real estate from real property.

 Real estate is a broader term that encompasses land, improvements (buildings or
structures), and the natural resources on or under the land. Real property refers to the legal
rights associated with owning real estate. It is a legal concept that includes the rights
associated with land and anything attached to it, while real estate is a broader term that
encompasses the physical property and the legal rights.

4. How do we make use of comparison in valuation transactions?

 Comparison is a significant element in valuation transactions. Market-based valuation
approaches include Sales Comparison Approach, Cost Approach, and Income Capitalization
Approach. The sales Comparison Approach considers the sale of similar or substitute
properties and related market data and establishes a value estimate by processes involving
comparison. The Cost Approach considers the possibility that, as an alternative to the
purchase of a given property, one could acquire a modern equivalent asset that would
provide equal utility. The Income Capitalization Approach considers income and expense
data relating to the property being valued and estimates value through a capitalization
process.

5. Give the difference between valuation and valuation report.

 Valuation is the broader process of determining value, while a valuation report is the
specific documentation that communicates the details of that process. The report is crucial
for stakeholders, such as business owners, investors, regulators, or legal entities, who need
to understand how the valuation was conducted and the reasoning behind the determined
value.