The term value has two different meanings and sometimes expresses the utility of some particular objects, and sometimes the power of purchasing other goods which the possession of that object conveys. Economists relate it to utility but this is not of any practical use when determining actual values in the market (Isaac, 2002:5). Thus the value of the property is not exact and it is often adjusted according to the purpose for which it is used (Isaac, 2002:5)..Value can be called âvalue in useâ, on the other hand âvalue in exchangeâ (Woodhead, 2007 :2). Market price reflects the fluctuating circumstance of daily life, weather the instance of supply or demand, while the true value is sometimes more basic, permanent and stable. Price (Vp) is the actual observable exchange price in the open market where as Value (Vt) is an estimation of the price that would be achieved if the property were to be sold in the market, and Worth (Vs) is a specific investorâs (or occupies) perception of the capital sum that he would be prepared to pay (or accept) for the In the language of economics (French, 1996:2). Worth (Vs) can be considered as value in use, whereas Price (Vp) or Market Value (Vp) can be considered as value in exchange. Hence, explaining the concept of value in the real property market in an economic sense is the order of the day.
In the economic sense there are different values in the literature: Reservation Price or investment value: this is the maximum price a buyer would pay or minimum price a seller would accept on a property of interest ( French, 1996:4). The second type of value is the Exchange value: This is the most probable price that the property is realistically likely to sell at in the open market. Arriving at market value using this technique usually appeals to appraisers. The third one is the Liquidation Value: This is the price that a property is likely to sell for if sold in less than normal market condition, such as under distress auction for a limited time (French, 1996:4). It is a quick sale scenario, requiring tapping into thinner markets of ready buyers, which tends to result in lower prices.
Market Value: This is the highest price a willing buyer would pay to a willing seller, when both are fully informed and acting in freedom, without duress or unusual financing. Market value is also the present value of the property, and thus the following relationship hold: Market value = True value = Present value (Lawson, 2008:50 ). The concept recognizes that it is sometime difficult to separate real estate value from the value generated by its occupants. This is common for properties, such as hotels, hospitals, and some industrial properties. It is common that part of the value of a property may be derived from sources other than the original use to its highest and best use.
There are some factors which influences value: directional growth. In any estimate of value, attention should be given to âthe city directional growthâ as well as to âUrban Renewal Plans.â The city directional growth refers to the manner and direction in which the city tends to expand. Properties in the direction of growth or renewal in different sections of the city tend to increase in value, especially if the growth or renewal is steady and rapid.
The marketâs location is defined geographically with the site use defining the distinctive manner and method in which property interests are traded (Lawson, 2008:52). Location must not be described too generally, and is an effective value factor only when it is specifically related to the principle of highest and best use. Brokers often claim, â.
The formal recognition of ownership and transactions provided the Crown and later Governments to tax land holdings, referred to as Land Tax (Lawson, 2008:52). However as economies developed so did the community have need to transact interests in land. Hence an added increment of value, when several parcels of land are combined had undergone ownership to produce greater utility than when the parcels are under separate ownership.
In highly urbanized multiple residential and commercial areas plottage, or assemblage, makes it possible to gain that higher utility. An example of this would be a density bonus for the combining of residential lots. The width and depth of a parcel of land will often determine the possibilities and character of its use.
In the case of topography and character of soil, the bearing qualities of the soil may affect construction costs. Extensive foundations are usually necessary in soft earth. The type and condition of the topsoil affect the growth of grass, plants, shrubs and trees. Value may also be influenced by land contour and grades, drainage and view points. Apart from that, Utility includes the capacity to produce (French, 1996:5). This is an important factor which involves judgment as to the best use to which a given property may be put. Building restrictions and zoning ordinances affect utility
Changes in types and methods of construction, style of architecture, or interior arrangements for specific purposes may render a particular building out of date ( Lawson, 2008 :52). Changes in the uses of neighbouring property may also contribute to the obsolescence of a building. Careful appraisal will consider the potential for remodelling, refurbishing or other method to restore value. The principle of conformity, âA property is most likely to appreciate in value along with other, similar properties in the same neighbourhood work hand in hand with this factor (Kahr and Thomsett,2005:48). In the study and valuation of unimproved but potentially valuable industrial lands, it is often necessary to have the assistance of a competent engineer who is familiar with plant and tract layouts.
One important factor in estimating the value of agricultural land is the nature and long-term trend of costs and prices for the crop grown or intended to be grown (Lawson 2008:52). For example, if the property is to be used as a dairy farm the appraiser must consider: whether the soil is suitable for hay and grain; water supply for the cattle and crops; proximity to markets; climatic conditions; labour conditions, etc. Farm land valuation is highly specialized and often requires the assistance of soil and crop experts and appraisal specialists to evaluate irrigation systems and other equipment and machinery.
Theoretically, the value adduced to a property is a function of quality and quantity. The comparative Method is the most widely used method and even if one of the other four methods is used by a valuer he will still almost inevitably have recourse to comparison (Millington, 1988:70). Market or Sales comparative Approach: This exercise entails comparison of similar properties that have been recently in the open market transaction with the current subject property (Lawson, 2008: 70). This price mainly serves as a guide for the appraiser to take informed decision. Every property is unique, and any differences in properties influence the value adduced to the property under appraisal. The underlying theory of value of this approach is that the value of the real estate is based upon the views of the typical buyer and seller of such property, independent of cost, to create or wear and tear (Miller and Geltner, 2005). A efficient evaluator should obtain all the data and should ensure he has efficient filling as much information as can be obtained of each market transaction which is recorded ( Millington, 1988:71) However, this method is not constant.
Apart from that, an appraiser arrives at the market value by systematically estimating the cost of production. Estimation of the market value through this approach involves carrying on the following process: estimating the value of the site as though it is vacant; next, estimating the cost to produce the improvements; next, subtracting depreciation, and finally adding the site value at highest and best use. The underlying value theory here assumes that the âvalue of the property is inherent in the cost to create the property based on land acquisition and building costless wear and tear and depreciation (Miller and Geltner, 2005).
The income approach involves the appraiser estimating the market value by estimating the income that the property is expected to generate, then discounting the income stream to arrive at the present value. The techniques used to relate income expectations to market value estimates include gross income multiplier (GIM) analysis, net income capitalization (NIC), and discounted cash-flow analysis (DCF) (Lawson, 1988:9). Hence value depends on the quality and quantity of a property and could be evaluated using different approaches
In a nutshell, Value can be called âvalue in useâ, on the other hand âvalue in exchangeâ considering the factors that influence value : the location, utility, competition to mention but a few. The approaches used determining the quality and quantity of the property value in real market value.
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