Modern Methods of Valuation

554 Pages·2012·4.102 MB·English

by  Eric Shapiro, David Mackmin, Gary Sams

Eleventh
Edition
Eleventh Edition
PROPERTY VALUATION
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The new and improved eleventh edition of this essential valuation textbook reflects the changes
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The eleventh edition is fully up to date with the latest guidelines, statutes and case law, including t Eric Shapiro, David Mackmin and Gary Sams
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the implications of the latest RICS Red Book and the Localism Act. Its comprehensive coverage of h
the legal, economic and technical aspects of valuation make this book a core text for most university a o
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with current and relevant guidance on the preparation of valuations for statutory purposes. m
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Over the 28 chapters, the author team of experienced valuation experts presents detailed accounts n
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of the application of these principles to the everyday problems met in practice. This new edition a
continues to be of excellent value to both students and practitioners alike as it provides the reader n f
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with a clear understanding of the methods and techniques of valuation. V

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ERIC SHAPIRO is Director of Valuations at Chesterton Humberts, Chartered Surveyors. He has over a
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45 years’ experience in dealing with the management, valuation, sale and letting of residential and y u
commercial property. He is a co-author of Valuation: Principles into Practice. S
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DAVID MACKMIN BSc, MSc, FRICS is a chartered surveyor, Emeritus Professor of Real Estate at m t
Sheffield Hallam University, and Visiting Professor in Valuation at the Technische Universität Wien. s i
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He is the author and co-author of a number of valuation books, including Valuation and Sale of
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Residential Property and, with Professor Andrew Baum and Nick Nunnington, The Income Approach
to Property Valuation.
GARY SAMS is a consultant surveyor specialising in compulsory purchase and compensation.
He is a part-time lecturer at Reading University and visiting lecturer for the College of Estate
Management. He is Editor and joint author of Statutory Valuations, and Legal Editor for the Journal of
Property Valuation and Investment.
COVER IMAGES: © ISTOCKPHOTO
ISBN 978-0-08-097116-2
9 780080 971162
www.routledge.com
Modern Methods of Valuation
Thenewandimprovedeleventheditionofthisessentialvaluationtextbookreflects
thechangesinthepropertymarketsince2009,whilstpresentingthetriedandtested
study of the principles governing the valuation of land, houses and buildings of
thepreviouseditions.
Theeleventheditionisfullyuptodatewiththelatestguidelines,statutesand
caselaw,includingtheimplicationsofthelatestRICSRedBookandtheLocalism
Act. Its comprehensive coverage of the legal, economic and technical aspects
of valuation make this book a core text for most university and college real-
estate programmes, and it provides trainees (APC candidates) and practitioners
withcurrentandrelevantguidanceonthepreparationofvaluationsforstatutory
purposes.
Overthe28chapters,theauthorteamofexperiencedvaluationexpertspresents
detailedaccountsoftheapplicationoftheseprinciplestotheeverydayproblems
metinpractice.Thisneweditioncontinuestobeofexcellentvaluetobothstudents
andpractitionersalikeasitprovidesthereaderwithaclearunderstandingofthe
methodsandtechniquesofvaluation.
Eric Shapiro is Director of Valuations at Chesterton Humberts, Chartered
Surveyors. He has had over 45 years’ experience in dealing with the manage-
ment,valuation,saleandlettingofresidentialandcommercialproperty.Heisa
co-authorofValuation:PrinciplesintoPractice.
DavidMackmin BSc,MSc,FRICSisacharteredsurveyor,EmeritusProfessor
of Real Estate at , and Visiting Professor in Valuation
attheTechnischeUniversitätWien.Heistheauthorandco-authorofanumberof
valuationbo oks,includingValuationandSaleofResidentialProperty and,with
ProfessorAndrewBaumandNickNunnington,TheIncomeApproachtoProperty
Valuation.
Gary Sams is a consultant surveyor specialising in compulsory purchase and
compensation.Heisapart-timelectureratReadingUniversityandvisitinglecturer
fortheCollegeofEstateManagement.HeisEditorandjointauthorofStatutory
Valuations,andLegalEditorfortheJournalofPropertyValuationandInvestment.
http://avaxho.me/blogs/ChrisRedfield

Modern Methods of
Valuation
11th edition
Eric Shapiro, David Mackmin and
Gary Sams
Firsteditionpublished1943
byEGBooks
Thiseditionpublished2013
byRoutledge
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SimultaneouslypublishedintheUSAandCanada
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©2013EricShapiro,DavidMackminandGarySams
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BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
LibraryofCongressCataloging-in-PublicationData
Shapiro,EricF.
Modernmethodsofvaluation/EricShapiro,DavidMackminand
GarySams.–11thed.
p.cm.
Includesbibliographicalreferencesandindex.
Realproperty–Valuation–GreatBritain.2.Realproperty–Great
Britain.I.Mackmin,David.II.Sams,Gary,1951–III.Title.
HD1387.L32013
333.33’20941–dc23 2012013456
ISBN:978-0-415-53801-5(hbk)
ISBN:978-0-08-097116-2(pbk)
ISBN:978-0-08-097117-9(ebk)
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Contents
Foreword xxi
Prefacetotheeleventhedition xxii
Acknowledgements xxiv
Tableofcases xxv
Tableofstatutes xxix
Tableofstatutoryinstruments xxxii
Acronyms xxxiii
1 Principlesofvaluation 1
1. Thevaluer’srole 1
2. Thepropertymarket 2
3. Adefinitionofvalue 2
4. Valueandvaluation 4
5. Demand,supplyandprice 5
6. Demandforandsupplyoflandedproperty 6
7. Landedpropertyasaninvestment 10
2 Methodsofvaluation(valuationapproaches) 11
1. Introduction 11
2. Comparison 11
3. Principalmethodsofvaluation 12
(a) Themarketapproachorcomparativemethod 12
(b) Theincomeapproachorinvestmentmethod 12
(c) Theresidualapproachordevelopmentmethod 13
(d) Theprofitsapproach 14
(e) Thecostapproachorcontractor’smethod 14
(f) Conclusion 15
vi Contents
3 Propertyinland 16
1. Landlaw 16
2. Propertyrightsingeneral 16
3. Freeholds 17
(a) Registeredandunregisteredland 19
(b) Adversepossession 20
4. Leaseholds 20
(a) Buildingleases 22
(b) Occupationleases 23
(c) Leasesforlife 24
5. Licences 24
6. Commonlaw,equityandtrusts 25
7. Equitableinterestsincludingoptions 26
8. Co-ownership 27
9. Easementsandrelatedrights 28
10. Restrictivecovenants 29
11. Commonhold 31
12. Successiveinterestsinproperty 32
13. Transfersofinterestsinlandandsecurityinland 33
4 Themarketapproachorcomparativemethod 36
1. Introduction 36
(a) Location 36
(b) Physicalstate 36
(c) Tenure 37
(d) Purpose 37
(e) Time 37
2. Residentialproperty 38
3. Developmentland 39
5 Marketrent 41
1. Introduction 41
2. Rentandnetincome 41
3. Econom icfactorsaffectingrent 42
(a) Supplyanddemand 42
(b) Demandfactors 43
(c) Supplyfactors 46
4. Estimationofmarketrent 49
(a) Generally 49
(b) Basisoftherentactuallypaid 50
Contents vii
(c) Comparisonofrents 52
(d) Rentandleaseterms 53
5. Effectofcapitalimprovementsonmarketrent 55
6. Hierarchyofmarketevidence 56
6 Outgoings 57
1. Introduction 57
2. Repairs 58
(a) Generally 58
(b) Immediaterepairs 58
(c) Annualrepairs 58
(d) Conditionsoftenancy 60
(e) Futurerepairs 60
3. Sinkingfunds 61
4. Businessrates,waterservicesandcounciltaxes 61
5. Incometax 62
6. Insurances 62
(a) Fireinsurance 62
(b) Otherinsurances 63
7. Voids 63
8. Servicecharges 63
9. Management 65
10. Valueaddedtax 65
11. Outgoingsandrent 66
12. Currentissues 66
7 Yield 67
1. Introduction 67
(a) Nominalandactualoreffectiveratesofinterest 67
(b) Timingofpaymentsandyields 68
2. Principlesgoverningyieldsfrominvestments 69
3. Yieldsfromlandedpropertyinvestments 72
(a) Shops 73
(b) Offices 74

(c) Factoriesandwarehouses 74
(d) Residentialproperties 75
(e) Groundrents 76
4. Changesininterestrates 77
viii Contents
8 Investmentmathematicsasitappliestoproperty
valuation 79
1. Introduction 79
2. Amountof£1(A£1) 80
3. Presentvalueof£1(PV£1) 81
4. Amountof£1perannum(A£1pa) 86
5. Annualsinkingfund(ASF) 87
6. PVof£1perannum(PV£1pa)or
Years’Purchase(YP) 89
9 Incomeapproachorinvestmentmethod 95
1. Valuationoffreeholdinterests 95
(a) FreeholdletatMR 96
(b) FreeholdletatbelowMR 101
(c) FreeholdletatmorethanMR 107
2. Valuationofleaseholdinterests 109
(a) Provisionforlossofcapital 111
(b) YPdualrate 112
(c) Capitalreplacementandinflation 114
(d) Thepositionoftheowner/occupier 114
(e) Annualsinkingfundandtax 114
(f) Dualrateadjustedforincometax 116
(g) LeaseholdinterestwhereincomeislessthanMR 119
3. Synergisticvalue,sometimesknownasmarriage
value 121
4. Freeholdinterestwhereabuildinghasaterminablelife 122
5. Premiums 125
6. Surrendersandrenewalsofleases 128
7. TraditionalvaluationtechniquesandDCF 133
10 Discountedcashflow 135
1. Generally 135
2. Netpresentvalue 136
(a) T hediscountrate 136
(b) Rateofgrowth 137
(c) Cashflowperiod(seeguidancenote) 138
3. Internalrateofreturn(IRR) 140
4. ComparisonofNPVwithIRRapproaches 142
5. ApplicationofDCFandinvestmentvalue(worth) 143
Contents ix
11 Residualapproachordevelopmentmethodofvaluation 146
1. Introduction 146
2. Proceedsofsale 146
3. Costsofsale 147
4. Costsofdevelopment 148
(a) Costofbuilding 148
(b) Miscellaneousitems 148
(c) Costsoffinance 148
5. Developmentprofits 150
6. Surplusforland 150
12 Developmentsinvaluationapproaches 155
1. Introduction 155
2. Relationshipofrentinarrearsandinadvance 156
3. Taxationofincomes 158
4. Valuationoffreeholdinterests 162
(a) Natureandfunctionofyields 162
(b) Equatedyields 163
(c) Effectsofinflation 166
(d) Valuationofvaryingincomes 166
5. Leaseholdinterests 168
(a) Replacementofcapital 169
(b) Replacementofcapitalinrealterms 172
(c) ASFatlowratesofreturn 174
(d) WhyusedualrateYP? 174
(e) Valuationofvariableincomes 176
(f) Theeffectoftax 177
(g) Thedoublesinkingfundmethod 178
(h) Summary 179
6. Valuinginperiodsofmarketinstability–valuation
certainty 180
7. Valuingsustainability 183
8. Conclusion 184
9. Furtherreading 185

13 Somepracticalpoints 186
1. Thevaluationprocess 186
2. Theanalysisofrentsandprices 189
3. Specialpurchasersorbuyers 191
4. RICSvaluation–professionalstandards,globalandUK 192