Valuation Accuracy, Variation and Bias in the Context of Standards and Expectations by Neil Crosby

Synopsis

Valuation accuracy usually conjures up images of empirical studies of comparisons between sales and valuations and different valuations of the same properties, and a number of references to these studies are included in the paper. However, this paper concentrates on the institutional influences which impact on valuations and their accuracy. The overall aim of this paper is to examine the legal interpretation of valuation inaccuracy in the U.K. This might seem a bit parochial in the context of a World Valuation Congress. However, cases in may countries in the Commonwealth form precedents for each other and therefore decisions in, for example, the U.K. and Australasia, are drawn on by others in reaching decisions. The paper also reaches conclusions which have wider implications for all jurisdictions which have valuation disputes settled in courts, tribunals and any other quasi-judicial body.

Synopsis

The aim of this paper is to attempt to measure the effect of location on residential house prices and to endeavour to integrate spatial and aspatial data in terms of developing a hybrid predictive model. The research methodology investigates the traditional hedonic approach to modelling location using multiple regression techniques. Alternative approaches are considered which specifically model the spatial distribution of house prices with the objective of developing location adjustment factors. These approaches are based on the development of surface response techniques such as inverse distance weighting and universal kriging. The results generated from the surfaces created are then calibrated within MRA.

Synopsis

This paper reviews the literature which models lease covenants using option pricing techniques, probabilistic measures of risk and the contractual misalignment of incentives. These quantitative models, in conjunction with conventional discounting mathematics, offer ways to gauge the effects on rent of changes to many lease clauses. With the exception of discounted cash flow analysis to adjust rents for leasing incentives, none appears to be used in practice yet. The programme has been designed to bridge the gap between academic developments in this field and current practices in rental valuation. The programme works from rental values set on benchmark or standard lease conditions in that market and adjusts for different clauses. The programme displays all the stages in calculating the effects of each changed clause and operates entirely from parameters set by the user. Trials of this programme are described.

Synopsis

The increasing complexity of investment properties has necessitated the application of more advanced valuation and analysis techniques. Following the property cycle of the 1980/1990s, and the recommendation of several reporters, the DCF method has been promoted in Australia for certain income-producing properties. The Australian Property Institute disseminated an information paper in 1983 that discussed DCF and suggested a performance approach to its application. Following this, a practice standard was produced in 1996 that was highly prescriptive but which contained a number of confusing passages. With the benefit of hindsight, its publication was premature and it was withdrawn from circulation. A rewrite was commissioned and an exposure draft was circulated in early 1999. It has been prepared as a performance standard in which the valuer is called on to follow a method while disclosing the specifics. However, a number of considerations remain to be finalized, for example, the application of the term cash flow to net operating income, income after finance, and income after finance and tax. The preparation of standards is an evolutionary process and the present coverage of the DCF practice standard reflects the market in which it applies.

Synopsis

This paper backgrounds the recent changes to international financial reporting standards and some possible impacts on current valuation practices. Specifically, it debates issues surrounding the existing use principle and its ability to provide the required information for financial reporting. Also discussed is the role that interaction and debate between international bodies such as IVSC and IASC has in the resolution of such issues.

Synopsis

Behind the appearance of uniformity of the Valuation paradigm, there seem to be many sources of cognitive dissonance between the English + Australian stream and the North American + the rest of the World stream. Strangely enough, the dissonance seems to be of a linguistic nature: crucial expressions are used quite differently in both worlds and the difference in usage creates major ruptures in the practice and scope of property valuation. This paper concentrates on the methodological gap created in the application of the income method. It is argued that this gap goes far beyond the use/misuse of various expressions as it leads to serious misconceptions and misapplications of standard techniques and rates.