Property Valuation in the UK Implicit vs Explicit Investment Models

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Contents

The International Valuation Standards Council (IVSC) recognises three main approaches to valuation: the income, cost and market approach (IVS, 2017).  All approaches to valuation are attempting to estimate Market Value (MV); the price of the property in the market on the date of the valuation. Within these approaches are different methods (Investment, cost, residual, accounts and comparison) according to the property type and the nature of the property interest. In the case of the investment method, the valuer is determining the present value of the future cash flow and this can be done using implicit or explicit models.  As valuation is such an important aspect of the industry, great emphasis is placed on the valuer by both the lenders and the borrowers to ensure that the valuation is correct.  A model that captures the market opinion of price as best as possible is therefore to be preferred. This briefing is looking at the Investment valuation method only and within this method, the preferred technique, in the UK, has been the implicit model.

Learning Objectives

On completion of this video you should have:

• An understanding of distinction between approaches, methods and models
• An understanding of adopting the correct model for each valuation
• An understanding of the role of the All Risks Yield in an implicit valuation
• An understanding of Discounted Cash Flow as a model of valuation
• An understanding of the advantages and disadvantages of both implicit and explicit valuation models

Speaker

NICK FRENCH

Nick is a recognised expert in the area of property valuation and appraisal. Previously, he has worked at various universities in the UK, Europe and the USA teaching extensively in the areas of valuation, investment and corporate real estate on BSc, MSc and MBA programmes.

In 2018, Nick set up Real Estate Valuation Theurgy, a vehicle that allows him to continue writing papers, presenting conference papers and undertaking in-house training for the real estate profession at home and abroad. His research interests concentrate upon the interface of property legislation and regulation and its impact on value and valuation models. In recent years, he has won the RICS Prize for the Best Paper in Valuation and the Appraisal and the Appraisal Journal Prize for the Best Paper in Appraisal at European Real Estate Society Conferences. In 2018, he was awarded a “Lifetime Achievement Award” by the International Real Estate Society.

Nick is the Editor of the Journal of Property Investment & Finance, the award winning academic international journal of the real estate industry. He also writes regularly for, the Journal of Property Investment & Finance, the Property Chronicle, the European Journal of Real Estate Research, the Journal of Corporate Real Estate and other professional and academic journals.

He is a member of the Royal Institution of Chartered Surveyors (RICS) and has regularly served on various committees such as the UK Valuation Board and the Corporate Real Estate Strategy Group. He was previously a member of the Professional Board of the International Valuation Standards Council (IVSC).