SPECIALISED PROPERTIES

As part of the valuation standard specialised properties consist of 4 elements:
Unique buildings are usually rare buildings usually with some historical significance. Highly specialised buildings are buildings that have been “purpose built” for a particular use and include a number of government buildings.

RESEARCH VALUATION INFORMATION FOR UNIQUE OR HIGHLY SPECIALISED PROPERTY

The valuation of highly specialised property is earmarked by a dearth of comparable sales. In the light of limited or no comparable market information, analogous sources of comparable information are identified and investigated from which inferences on value of the subject property might be drawn.

That is, non market evidence may have to be used. This can include the cost approach if the valuer is satisfied that the improvements represent the highest and best use of the land. For example, replacement cost new may be used for the valuation of a new or near new public building such as a fire station, civic hall or a school. However, the starting qualification must be satisfied; that the building represents the highest and best use of the site. Whether or not the building is viable can often be determined by its use, For example, a viable school would have nearly full capacity of students.

Collected data provides information on trends and possible future scenarios that might affect the value of the subject property. For example, changing demographics may affect the value of the school such as an aging population which would mean that there will be fewer children in the area to attend the school in the future.

Suitable data collected from similar but different markets to the subject property enables suitable simulation methods of analysis to be applied. This is the application of hypothetical development to the subject site based on costs and expected incomes from comparable land uses in other localities.

Research and consultation with appropriate professionals clarifies complicated and uncertain developments in social, economic, technical, environmental and other factors likely to influence future scenarios and related qualifications.

EXAMPLE

The viability of a school case would require expert input from demographers, educationalists and town planners. This does not necessarily mean direct input into the subject site but rather general research by the Valuer of articles, statistics and books to ascertain the important variables that affect the value of the subject building.

CONDUCT VALUATION ANALYSIS FOR UNIQUE AND HIGHLY SPECIALISED PROPERTY

Confirmation of the application of the valuation from the client's instructions enables the most appropriate alternative forms of analysis to be selected for the purpose. The client's instructions may have to be clarified to carry out a non market valuation. If the client recognises the inherent problems caused by a lack of sale evidence then he/she may modify the instructions to enable the valuer to carry out the valuation without sale evidence. If this does happen, the valuer needs to have a clear understanding of the assumptions in the instructions.

Appropriate forms of non routine analysis are selected or developed to match the circumstances of the valuation problem. The nature of the valuation problem determines the appropriate method of analysis.

EXAMPLE

Opportunity cost can be used to value recreational parkland in the middle of an urban area. This is because the local authority would have to buy residential land to recreate such a park today. Therefore, it is reasonable to assume (using opportunity cost) that the park's value is the same as that for otherwise equivalent, residential land.

In cases where there is a lack of empirical data and normative approaches are used, assumptions made are critically scrutinised, verified for appropriateness and recorded to ensure that the analysis is not biased to the valuer's own perceptions and preferences. This means that the valuer must be objective throughout the analysis. The aim is to find market value and that is the value according to market consensus. Therefore, it is what the market thinks about the property and not the valuer's subjective opinion.

Records of the reasoning and steps involved in the selection and implementation of the analysis approach used enable replication of the approach and/or testing of its validity. Non market valuations are more likely to be contentious than market valuations. Therefore, it is imperative that the valuer keeps a full record of his/her reasons in the valuation.

DETERMINE VALUATION FIGURE FOR UNIQUE OR HIGHLY SPECIALISED PROPERTY

Determination of the value of subject property uses the selected analysis approach in accordance with assignment requirements. Having decided on the correct non market method, this is then used to determine the market value of the subject property.

Sufficient alternative methods of analysis are used to check the value of the subject property. As with all valuations, non market valuations require a check or secondary valuation to support the primary valuation.

EXAMPLE

If the cost method is used as the primary method of valuation, it can be checked with, for example, the capitalisation of the expected net rental value.

Assumptions made in the course of the analysis must be reasonable in light of the available data. The check valuation should show up any unreasonable assumption. For example, if the building using the cost method is not the highest and best use, it will attract a low or even nil, rental value.

The valuation can be based on past experience of valuations of similar properties. This means that the valuer must be consistent in his/her analysis of non market properties. Inconsistency could even be brought up in evidence against the valuer if the valuation goes to appeal. The valuation must be based on a critical consideration of the evidence from analyses and experience based judgments.

Limitations of the data and the analysis approaches used, together with other qualifications on the valuation figure should be accurately recorded for inclusion in the valuation report.

See functional and economic obsolescence

PREPARE VALUATION REPORT FOR UNIQUE OR HIGHLY SPECIALISED PROPERTY

The valuer should make sure that the valuation report is in accordance with assignment requirements. The report will be longer than that for example, a house as the valuer will have to explain and define specialist terminology applicable to the subject building and spend some time detailing the qualifications and assumptions in the valuation. This is important as the user of the report, for example a lender, may have little idea about the specialised use.

As mentioned above the report should include strong riders or qualifications that the valuation is subject to the existing specialised use being a viable use.

See valuation of non standard plant & equipment

See specialised valuation questions









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