Terminologies
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1Market Value
is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
2Market Rent
is defined as the estimated amount for which a property, or space within a property, should lease on the date of valuation between a willing lessor and a willing lessee on appropriate terms in an arm’s-length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Whenever Market Rent is provided, the “appropriate lease terms” which it reflects should also be stated.” (GN 2,3.1.10.1)
3Fee Simple
as used herein is defined as an absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.
4Property
when considered as physical component, refers to a single site or unit and/or its similar collective equivalent, as in group of titled lots, row of townhouses, contiguous or separate parcels, condominium units, and the like.
5Reproduction Cost (New)
is defined as the amount necessary to reproduce and/or replace the property in accordance with current market prices for materials, labor, manufactured equipment, contractor’s overhead, profit and fees and all other attendant costs associated with its acquisition and installation in place but without provision for overtime or bonuses for labor and premium for materials.
6Replacement Cost (New)
is defined as the cost of replacing an asset with an equally satisfactory substitute asset. Normally derived from the current acquisition cost of a similar asset, new or used, or of an equivalent productive capacity or service potential.
7Business Valuation
is the act or process of arriving at an opinion or estimated of the value of a business or entity or an interest therein.
Valuation Methodology
The Appraisal Process attempts to estimate a market value for the property utilizing all the available approaches to value. The three approaches normally considered are the Cost Approach, the Market Data Approach and the Income Approach. The indication of Market Value can be developed through each of these approaches.
1The Market Data Approach
The transaction approach considers prices recently paid for similar assets in the open market, with adjustments made to the indicated market prices to reflect condition and utility of the appraised assets relative to the market comparative.
2The Cost Approach
The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current prices for similar assets including costs of labour, transport, installation, commissioning and consultants' fees. Adjustment is then made for accrued depreciation which encompasses condition, utility, age, wear and tear, functional and economic obsolescence.
3The Income Approach
The income approach considers the present worth of the future economic benefits of ownership. This approach is generally applied to an aggregation of assets which consists of all the assets of a business enterprise including working capital and tangible and intangible assets or to assets where the revenues and costs can be readily identified.
4General
In all situations, all approaches to value must be considered, as one or more may be applicable to the subject assets. In some situations, elements of the three approaches may be combined to reach a value conclusion.