MARKET VALUE

BASIS OF
VALUATION
 OBJECTIVES:
 To provide a common definition of market value.

 To explain the general criteria relating to this definition and

to its application in the valuation of property when the
purpose and intended use of the valuation calls for estimation
of market value.
 MARKET VALUE
 Is a representation of value in exchange, of the amount of a
property would bring of offered for sale in the (open) market at the
date of valuation under circumstances that meet the requirements
of the market value definition. To estimate market value, a valuer
must first determine highest and best use, or must probable use.

 Estimated through application of valuation methods and

procedures that reflect the nature of property and circumstances
under which given property would most likely trade in the market.

 The most common methods used to estimate market value include

the sales comparison approach, the income approach, including
discounted cash flow analysis and the cost approach.
 SCOPE
 IVS 1 applies to the market value of property, normally real
estate and related elements. It requires that the property under
consideration be viewed as if for sale on the market, in
contrast to being evaluated for some other purposes.
 DEFINITIONS OF
MARKET VALUE
Market value is defined for the purpose of these standards
as follows:

 Market Value is the estimated amount for which a property

should exchange on the date of valuation between a willing
buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted
knowledgeably, prudently, and without compulsion.

 The term property is used because the focus of these

standards is the valuation of property.
 “The estimated amount…” refers to a price expressed in
terms of money, payable for the property in arm’s length
market transaction.

 “… a property should exchange…” refers to the fact that

the value of a property is an estimated amount rather
than a predetermined amount.

 “…on the date of valuation…” requires that the

estimated market value is time specific as of given date.

 “…between a willing buyer…” refers to the one who is

being motivated, but not compelled to buy.
 “…a willing seller…” is neither an over-eager nor a forced seller,
prepared to sell at any price, nor one prepared to hold out for a
price not considered reasonable in the current market.

 “…in an arm’s length transaction…” is one between parties who

do not have a particular or special relationship that may make the
price level uncharacteristic of the market or inflated because of an
element of special value.

 “…after proper marketing…” means that the property would be

exposed to the market in the most appropriate manner to effect its
disposal at the best price reasonably obtainable in accordance with
the market value definition.
 “…wherein the parties had each acted knowledgeably and
prudently…” presumes that both the willing buyer and the willing
seller are reasonably informed about the nature and characteristics
of the property, its actual and potential uses, and the state of the
market as of the date of valuation.

 “…and without compulsion…” establishes that each party is

motivated to undertake the transaction, but neither is forced or
unduly coerced to complete it.
 Market Value is understood as the value of an asset estimated
without regard to cost of sale or purchase and without offset for
any associated taxes.

 Highest and Best Use (HABU) is the most probable use of a

property which is physically possible, appropriately justified,
legally permissible, financially feasible, and which results in the
highest value of the property being valued.
 RELATIONSHIP TO ACCOUNTING
STANDARDS

 Valuation for financial reporting, which is the focus of

International Valuation and Application (IVA 1), should be read in
conjunction with this standard.

 IVA 1, Valuation for Financial Reporting, provides guidance to

valuers, accountants, and the public regarding valuation standards
affecting accountancy.
 STATEMENT OF STANDARD
In performing and reporting a market value estimate the
valuer shall:

i. Completely and understandably set forth the valuation in

the manner that will not be misleading.

ii. Ensure that the estimate of market value is based on

market-derived data.

iii. Ensure that the estimate of market value is undertaken

using appropriate methods and techniques.
iv. Provide sufficient information to permit those who read
and rely on the report to fully understand its data,
reasoning, analysis and conclusions.

v. Comply with the requirements of IVS 3 in reporting the

valuation.
 DISCUSSION

 Market value is not dependent on actual transaction taking

place on the date of valuation.

 Theconcept of market value presumes a price negotiated in

an open and competitive market occasionally gives rise to the
use of the adjective open before the words market value.

 Periodof rapid changes in market condition are typified by

rapidly changing prices. Condition that is commonly referred
as disequilibrium.
 Presumes that a transaction of property will be freely and
adequately exposed on a market for a reasonable period of
time and with reasonable publicity.

Accordingly the valuer shall:

 Define the value being estimated and and state the purpose
and intended use of the valuation, effective date of the
valuation and the date of report.

 Clearly identify and describe the property and property rights

or interests being valued.

 Describe the scope/extent of the work undertaken and to the

extent to which the property is inspected.
 State any assumptions and limiting conditions upon which
the valuation is based.

i. Fully and completely explain the valuation

bases/approaches applied and the reasons for their
applications and conclusions.

ii. Include a signed compliance statement attesting to the

valuers’ objectivity, professional contributions, non-bias,
non-contingency of professional fees or other
compensation, as well as standards applicability & other
disclosures.
 Revenue producing properties held as long-term investments
by a property company, pension property, trust, or similar
type of owner are typically valued on the basis of individual
asset disposal pursuant to an orderly plan.

 Allvaluations should refer to the purpose and intended use

of valuation.

 In
exceptional circumstances, market value may be
expressed as a negative amount.
 DISCLOSURE REQUIREMENTS
1) Valuation reports must not be misleading.

2) In making market value estimates, the valuer shall clearly

identify the effective date of valuation, the purpose and
intended use of the valuation, and other criteria that are
relevant and appropriate to ensure adequate and reasonable
interpretation of the valuer’s findings, opinions, and
conclusions.
3) If such alternative values are estimated and
reported, they should not be construed as
representing market value.

4) When valuations are made by an internal valuer,

there shall be a specific disclosure in the valuation
report or certificate of existence and nature of any
such relationships.
 TOPIC IV:

BASES OTHER
THAN MARKET
VALUE
Objectives:

 to identify, explain and distinguish bases of value

other than Market Value

 to establish standards for their application

 DEPARTURE PROVISIONS

In following this standard any departures must be in

accordance with directions provided in IVS 3, Valuation
Reporting.
 Market Value is the most appropriate basis of value for aside
range of application. However, alternative valuation bases
may be appropriate in specific circumstances. It is essential
that both the valuer and users of valuations clearly
understand the distinction between the two.

 The concept of Market Value is based on specific, identified

assumptions that are set out in IVS1. Other bases of valuation
require the application of different assumptions, which if not
clearly identified, may result in misinterpretation of the
valuation.
 SCOPE

This standard defines and discusses the application

of valuation bases other than Market Value for
purposes other than financial reporting.
 DEFINITIONS
 Basis of Value. A statement of the fundamental measurement
principles of a valuation on a specified date.

 FairValue. The amount for which an asset could be

exchanged between knowledgeable, willing parties in an
arms- length transaction.

 Investment Value or Worth. The value of property to a

particular investor, or a class of investor for identified
investment or operational objectives.
 Special Purchaser. A purchaser to whom a particular asset
has Special Value because of advantages arising from its
ownership that would not be available to general purchases
in the market.

 Special Value. An amount the Market Value that reflects

particular attributes of an asset that are only of value to a
Special Purchaser.

 Synergistic Value. An additional element of value created

by the combination of two or more interests where the value
of the combined interest is worth more than the sum of the
original interests.
 RELATIONSHIP TO ACCOUNTING
STANDARDS

 For most purposes, valuations under IFRS require

the use of fair value. This is a specific application of
fair Value that many require more restrictive
assumptions that are required in general use.

 InternationalValuation Application 1, Valuation for

Financial Reporting, discusses the specific valuation
requirements under accounting standard.
 STATEMENT OF STANDARD

 Toperforms valuations that comply with these

Standards and Generally Accepted Valuation
Principles (GAVP), It is mandatory that Values
adhere to all sections of the Code of Conduct
pertaining to Ethics, Competence , Disclosure and
Reporting.
 When carrying out a valuation under this Standard the
Valuer shall ensure that:

 The estimate of value is based on data and circumstances

appropriate to the valuation

 The estimate of value is undertaken using appropriate

methods and technique

 The valuation is developed on the basis of sufficient

information to support the analyses and conclusion therein.
 In reporting an estimate of value under this standard the Value
shall:

 Comply with all the requirements of International Valuation

Standard 3, Valuation Reporting.

 Define the basis or bases of value used and state the purpose
and intended use of the valuation, the effective date of
valuation and the date of the report.

 Clearly identify and describe the property and property rights

and interest valued and the scope of work undertaken to
develop the valuation conclusion.

 Specify all assumptions and limiting conditions upon which the

valuation is based
 Clearlydistinguish the assumptions that are different from or
additional to those underlying an estimate of Market Value

 Fullyexplain the valuation approaches and procedures that

have been applied and the reasoning that supports the
analyses, opinions and conclusions in the report

 Include a statement that the valuation has been performed in

accordance with IVS’s, disclose any departure from the
specific requirements of the IVS’s and provide an
explanation for such departure.
 DISCUSSION
A Basic of Valuation is not a statement of the method used,
nor a description of the state of an asset or assets when
exchange. It describes the fundamental measurement principles
of the valuation.

Market Value is the most commonly required basis and is

defined and discussed in IVS1. This Standard defines and
discusses other valuation bases. These full into three principal
categories:
1) The first category reflects the benefits that an entity
enjoys from ownership of an asset. The value is specific
to that entity. Investment Value , or Worth, fall into this
category.

2) The second category represents price that would be

reasonably agreed between two specific parties for the
exchange of an asset. This category includes Fair
Value ,Special Value and Synergistic Value l.

3) The third category is value determined in accordance

with a definition set out in a statute or a contract.
 The application of Fair Value under accounting standards is discussed in
IVA1. In accounting standards, Fair Values is normally equated to Market
Value.

 Fair Value is a broader concept than Market Value. Although in many cases
the price that is fair between two parties will equate to that obtainable in the
general market, there will be cases where the assessment of fair Value will
involve taking into account matters that have to be disregarded in the
assessment of Market Value.

 Special Value can arise where an asset has attributes that make it more
attractive to a particular buyer, or to a limited category of buyers, than to the
general body of buyers in a market.

 Synergistic Value can be a type of special Value that specifically arises from
the combination of two or more assets to create a new asset that has a higher
value than the sum of the individual assets.
 A Basis of Valuation should not be confused with
assumptions that may also be required to clarify the
application of the basis to a specific situation.

 Going Concern Value. This describes a situation where an

entire business is transferred as an operational entity.

 Liquidation Value. This describes a situation where a group

of assets employed together in a business are offered for a
sale separately, usually following a closure of business.

 SalvageValue. This describes the value of an asset that has

reached the end of its economic life for the purpose of was
made.
 The term forced sale is often used in circumstances where a
seller is under compulsion to sell and/or a proper making
period is not available.

 The third category of valuation bases comprises those set by

statute, regulation or contract. Statutory bases are often
prescribed for taxation purposes.

 AllValuations will involve different assumptions, which

must clearly identified by the Valuer and reported with
valuation.
 DISCLOSURE REQUIREMENTS
 Valuation Reports must not misleading. All valuations shall
meet the requirements of Section 5. The code of conduct
requires that the purpose and intended use of any valuation
be clearly reported, and that full disclosure be made for the
basis for the valuation estimate, its applicability and its
limitations.

 Ifa valuation by an Internal Valuer is made, there shall be a

specific disclosure in the Valuation Report of the existence
and nature of any such relationship.
 Ifa Valuer is involve in valuation assignment in a
capacity other than as Valuer, the Valuer should
disclose the specific role taken in each assignment.

 The Valuer shall disclose the regulatory framework

and any departure required from the standards to
comply with local legislations, regulation or custom.
 DEPARTURE PROVISIONS

In the following this standard any departure must

be in accordance with the directions provided in IVS
3, Valuation Reporting.
THANK
YOU AND
GOD
BLESS!