VALUATION STANDARD 2 - VALUATION BASES OTHER THAN MARKET VALUE
Standard should be read in the context of the background material and
implementation guidance contained in General Valuation Concepts and
1.1The objectives of
International Valuation Standard 2 (IVS 2) are twofold: first, to
identify and explain bases of value other than Market Value and to
establish standards for their application; and second, to distinguish
them from Market Value.
Although the majority of professional valuations, particularly asset
valuations referred to in International Valuation Application 1 (IVA
1),Valuation for Financial Reporting, involve Market Value, there
are circumstances that call for bases other than Market Value. It
is essential that both the Valuer and users of valuations clearly
between Market Value and Non-Market Value based
valuations and the effects (if any) that differences between these
concepts may have on the applicability of the valuation.
The International Valuation Standards Committee (IVSC) seeks to avoid
incidences of international misunderstanding and/or misconceptions
within States concerning the use and application of nonmarket bases
of valuation. Valuers responsible for applying these Standards must
assure that proper bases are selected, using all reasonable means to
enhance the understanding of valuation users,
circumstances that might mislead the public, and reporting
objectively supported estimates.
This Standard presents and explains bases of valuation other than
Value in Use. The value a specific property has for a specific
use to a specific user and therefore non-market related. This value
type focuses on the value that specific property contributes to the
entity of which it is a part, without regard to the property’s
highest and best use or the monetary amount that might be
realised upon its sale. The accounting definition of Value in Use
is the present value of estimated future cash flows expected
to arise from the continuing use of an asset and from its
at the end of its useful life (see International Financial
Reporting Standard 5, Appendix A [IFRS 5, Appendix A]).
Value, or Worth. The value of property to a particular
investor, or a class of investors, for identified investment
objectives. This subjective concept relates specific property to a
specific investor, group of investors, or entity with identifiable
investment objectives and/or criteria. The investment value, or
worth, of a property asset may be higher or lower than the Market
Value of the property asset. The term investment value, or
worth, should not be confused with the Market Value of
an investment property. However, Market Value may reflect a
number of individual assessments of the investment value, or worth,
of the particular property asset. Investment value, or worth
is associated with Special Value (see para. 3.8 below).
Going Concern Value. The value of a business as a whole. The
concept involves valuation of a continuing entity from which
allocations, or apportionments, of overall going concern value may
be made to constituent parts as they contribute to the whole, but
the components in themselves constitutes a basis for Market Value.
Therefore, the concept of Going Concern Value can apply
only to a property that is a constituent part of a business or
Insurable Value. The value of property provided by definitions
contained in an insurance contract or policy.
Assessed, Rateable, or Taxable Value is a value that
based on definitions contained within applicable laws relating to the
assessment, rating, and/or taxation of property. Although some
jurisdictions may cite Market Value as the assessment basis,
methods used to estimate the value may produce results that differ
from Market Value as defined in
1.Therefore, assessed, rateable, or taxable value cannot
be considered to comply with Market Value as defined in IVS 1
unless explicitly indicated to the contrary.
Salvage Value. The value of a property, excluding land, as if
disposed of for the materials it contains, rather than for continued
use without special repairs or adaptation. It may be given as gross
or net of disposal costs and, in the latter case, may equate to net
realisable value. In any event, components included or excluded
should be identified.
3.7 Liquidation or
Forced Sale Value. The amount that may reasonably be received
from the sale of a property within a time frame too short to meet the
marketing time frame required by the Market Value definition.
In some States, forced sale value in particular may also
involve an unwilling seller and a buyer or buyers who buy with
knowledge of the disadvantage of the seller.
Special Value. A term relating to an extraordinary element of
value over and above Market Value.
value could arise, for example, by the physical, functional, or
economic association of a property with some other property such as
the adjoining property. It is an increment of value that could be
applicable to a particular owner or user or prospective owner or
user, of the property rather than to the market at large; that is,
special value is applicable only to a purchaser with a special
interest. Marriage value, the value increment resulting from
the merger of two or more interests
a property, represents a specific example of special value.
Special value could be associated with elements of going
concern value and with investment value, or worth.
Valuer must ensure that the criteria used to value such properties
are distinguished from those used to estimate Market Value, making
clear any special assumptions made.
Mortgage Lending Value. The value of the property as
determined by the Valuer making a prudent assessment of the future
marketability of the property by taking into account long-term
sustainable aspects of the property, the normal and local market
conditions, and the current use and
alternative appropriate uses of the property.
elements may not be taken into account in the assessment of mortgage
lending value. The mortgage lending value shall be documented in a
transparent and clear manner.
Lending Value is defined in European Union Directive 89/647/ECC
as amended by Directive 98/32/EC. These directives are concerned with
banking regulation and establish minimum solvency ratios for lenders
involved in lending backed by property security.
lending value is one of a number of risk analysis techniques,
which may be used to calculate the risk weighting that may be
attached to mortgaged security held by a bank in accordance with the
directives. This is a long-term risk assessment technique and is not
a suitable basis for establishing value at a given point in time. In
this way, it differs fundamentally from other bases in these
expressions of value more specific to plant and equipment, and/or
special situations, are defined in Guidance Note 3 (GN 3) ,Valuation of
Plant and Equipment.
Relationship to Accounting Standards
Valuation Application 1,Valuation for Financial Reporting, should be
read in conjunction with this Standard.
4.2 For most purposes,
valuations under IFRSs require the reporting of Fair Value. IVA 1
provides that this requirement is usually met by the Valuer reporting
the Market Value of the asset.
4.3 There are some
instances, however, where nonmarket bases are required by IFRSs. These
include establishing the Value in Use of an asset under IAS 36, or in
some cases assessment of the Residual Value for depreciation purposes
under IAS 16, both of which values are specific to the entity. IVA 1
discusses these in greater detail.
Statement of Standard
perform valuations that comply with these Standards and Generally
Accepted Valuation Principles (GAVP), it is mandatory that Valuers
adhere to all sections of the IVS Code of Conduct pertaining to
Ethics, Competence, Disclosure, and Reporting (sections 4, 5, 6, and
In performing and reporting a Non-Market Value estimate,
the Valuer shall:
completely and understandably set forth the valuation in a manner
that will not be misleading;
ensure that the estimate of value is based on data and
circumstances appropriate to the assignment;
ensure that the estimate of value is undertaken using appropriate
methods and techniques;
provide sufficient information to permit those who read and rely
on the report to fully understand its data, reasoning, analyses, and
5.1.5 comply with the
requirements of International Valuation Standard 3 in reporting the
the Valuer shall:
define the value being estimated and state the purpose and
intended use of the valuation, the effective date of valuation, and
the date of the report;
distinguish that the valuation reported is not a Market;Value
estimate if the estimate is made on a basis other than Market
clearly identify and describe the property and property rights or
interests being valued;
describe the scope/extent of the work undertaken and the extent
to which the property was inspected;
state any assumptions and limiting conditions upon which the
valuation is based;
fully and completely explain the valuation bases/approaches
applied and the reasons for their applications and conclusions; and
include a signed Compliance Statement (Certification of Value)
attesting to the Valuer’s objectivity, professional contributions,
non-bias, non-contingency of professional fees or other compensation,
as well as Standards’ applicability, and other disclosures.
Although the concept, use, and application of non-market bases of
value may be appropriate under certain circumstances, the Valuer
shall ensure that if such value is to be found and reported, it will
not reasonably be construed as a representation of Market Value.
Value in use (see para. 3.1) is a Non-Market Value
measured from the perspective of a particular user. Value in
use is sometimes referred to as ‘value to a particular user or
owner.’ Value in exchange (see IVS 1, para. 1.2 et seq) is
the value recognised by a market in which exchange of asset ownership
hypothetically, or notionally, takes place. The IVSC definition of
Market Value appropriate for financial reporting is based on
the principle of value in exchange, not value in use.
The expressions value in use and value in exchange can
lead to misunderstanding without explanation. They should be avoided
when confusion might result.
Properties may be valued on bases other than Market Value or
may exchange hands at prices that do not reflect Market Value as
defined. Such alternative bases may either be reflections of the
economic utility or functions of a property other than its
marketability, or of unusual and non-market conditions. Examples
include value in use; investment value, or worth; going concern
value; insurable value; assessed, or rateable, value; special value;
liquidation, or forced sale, value; and salvage value (see
3.0 et seq, above).
Going concern value expresses the value ascribed to an
established business, not to any of its constituent parts. The value
allocated, or apportioned, to individual assets making up a part of
the going concern is based on their contribution to the whole,
commonly referred to as their value in use when related to a
specific business and its owner. It is not market related (see para.
It would only be coincidental if a property’s value in use were
equal to its Market Value. A property’s value in use
would tend to be higher than Market Value if the operating
entity were capable of employing it in a more useful and profitable
manner than a typical producer of the same product
or service. On the other hand, value in use could be lower
than Market Value under conditions where the entity was not
employing an asset to its maximum capacity and efficiency.
in Use could also be higher than Market Value if the
entity possessed special production rights, extraordinary contracts,
unique patents and licenses, certain expertise, special goodwill, and
other intangible assets, which would not be transferable to another
Special value may accrue to a property by reason of a unique
location, a temporary situation under exceptional market conditions,
or a premium payable by a purchaser having a special interest. (see
para. 3.8, above). Marriage value, the value increment
resulting from the merger of two or more interests in a property,
represents a specific example
of special value. Such elements of special value may
reported separately from Market Value as defined in these
Standards. Special value should not be incorporated into a
statement of Market Value because such a procedure would be
misleading and, by default, would signify that such incremental
element of value is not special.
A forced sale involves a price which arises from disposition under
extraordinary or atypical circumstances, usually reflecting an
inadequate marketing period without reasonable exposure, and
sometimes reflecting the condition of an unwilling seller and/or
disposal under compulsion or duress. For these reasons, the price
associated with a forced, or distress(ed), sale, called forced
sale value (see para. 3.7, above), is not Market Value.
price paid in a forced, or distress(ed), sale is a matter of fact. It
is generally not easy for a Valuer to predict because of the nature
and extent of subjective and conjectural assumptions that must be
made in formulating such an opinion. A forced sale value or
price may also be known as a liquidation price.
Salvage value (see para. 3.6) is ordinarily used to express
the current price expected for property, other than land, that has
reached the end of its useful life expectancy in terms of its
original purpose and function. At that point the asset is valued for
disposal as salvage rather than for its originally intended purpose.
In this context, salvage value is also known in accountancy
terminology as the net realisable amount for an asset with no further
use to an entity (see para. 3.6, above).
Salvage value does not imply that a property has no further
useful life or utility. Property sold for salvage could be rebuilt,
converted to a similar or different use, or may provide spare parts
for other properties that are still serviceable. At the other
extreme, salvage value may represent scrap value, or
the value for recycling.
Valuation Reports must not be misleading.
conducted for the purpose of estimating and reporting a Non-Market
Value shall meet the requirements of section 5 above. For
Non-Market Value based valuations, it is required in
accordance with the Code of Conduct that the purpose and intended use
of the valuations be clearly reported, and that full disclosure be
made of the basis for the valuation
estimate, its applicability, and its limitations.
7.2 Each Valuation
Report prepared on a basis other than Market Value shall
contain a Statement of Contingent and Limiting Conditions or similar
disclosure. Notwithstanding this provision, the Valuer shall not use
the Statement of Contingent and Limiting Conditions to justify
unreasonable departure from these Standards.
In performing a valuation on a basis other than Market Value, the
Valuer shall not make assumptions that are unreasonable in the light
of facts ascertainable at the effective date of valuation. All
assumptions shall be disclosed in all reports.
Each Valuation Report prepared on a basis other than Market Value
shall contain a signed Valuer’s Certification of
Value/Compliance Statement, or a certificate attesting to the
Valuer’s compliance with the guidelines outlined in the IVSC Code
of Conduct, section 7.1, and IVS 1, para. 126.96.36.199. In particular,
distinction should be drawn between Market Value and any other
defined value that is analysed.
7.5 If a valuation by
an Internal Valuer is made, i.e. one who is in the employ of either the
entity that owns the assets or the accounting firm responsible for
preparing the entity’s financial records and/or reports, there shall be
a specific disclosure in the Valuation Report or Valuation Certificate
of the existence and nature of any such relationships.
Other reporting shall be
consistent with these Standards.
In following this Standard
any departures must be in accordance with directions provided in IVS 3,
This International Valuation Standard became effective 31 January