Property Dictionary

A brief definition of some of the more common terms used in property valuation:

Current Market Value (or Market Value) definition:-

  • Is the estimated amount for which a property should exchange in the open market 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 (it is not replacement cost.) Market value implies that the highest and best use of the property is taken into account.

Highest and Best Use definition:-

  • Is the most probably 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.

Replacement Cost (Insurance Value):-

  • Is the current cost of replacing an asset with its modern equivalent. It envisions constructing a structure of comparable utility, employing the design and materials that are currently used in the market. A rate per square meter for improvements is selected and multiplied by the building area, and the sum total is rounded off to arrive at a replacement cost value. Should the definition contained in an insurance contract or policy differs from this, or if there are specific provisions, this valuation will be amended accordingly. No such clause has been provided for this report.

Depreciated Replacement Cost:-

  • Is the current cost of reproduction or replacement of an asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. A depreciated rate per square meter for improvements is selected and multiplied by the building area, and the sum total is rounded off to arrive at a depreciated replacement cost value.

Capitalised Value:-

  • Is the reasonably calculated expected future nett income flow of an investment property discounted to its present value, when capitalised at the prevailing rate sought by prudent investors, representing the estimated capitalised value of the property at that time.

 

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