Property Valuation: Valuation Models And Valuation Reports

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The role of the valuer has always been to reflect prices in the market but since the RICS Independent Review of Real Estate Investment Valuations was published in January 2022, there has been much discussion on the use and appropriateness of valuation models.

The Valuation Process encompasses many facets from regulation and standards, through the content of the report and then the use of the appropriate valuation Approach, Method and Model. Historically, many markets have been dominated by the analysis of capital values to determine the Net Initial Yield (NIY) to feed into the use of a capitalisation multiplier (the All Risk Yield – ARY) in the implicit valuation. And this is fine as simple capitalisation models are the bedrock of many financial markets. But, as the use of spreadsheets and bespoke packages has increased, it has been possible for investors in certain property types (shopping centres, student housing, Private Rented Sector (PRS), multiple let offices, etc) to start analysing their portfolios and potential purchases using explicit discounted cash flow models. In such cases, using the old adage “value and you analyse”, it makes sense that the property valuation profession start to adopt similar models as their principal valuation model for such assets.

This talk, through a number of case studies, will look at the appropriate use of explicit models and highlight the significant inputs and comparable evidence.

Nick French, Real Estate Valuation Theurgy, Property Education