Advanced Property Valuation

1

Running Head: ADVANCED PROPERTY VALUATION

Advanced Valuation

Name:

Institution:

2 ADVANCED PROPERTY VALUATION Property valuation or land valuation in Australia is defined as the process of attaching value to real property. In this case, the value is usually based on the property's value in the market. Valuations are necessary as compared to corporate stock as real estate transactions happen rather infrequently. In addition, each property is soundly different from another which is an element that does not affect the assets unlike corporate stock (Robert & Schweihs, 2004, 45). Further, all properties are different from each other especially on the basis of their location which forms a very important consideration in their value. This way, centralized auction settings cannot exist for the purposes of trading property assets like in trade corporate stock. The most common property valuation technique is the sales comparison approach. This approach in real estate appraisals is primarily based on the substitution principle. The approach goes on to assume that prudent individuals pay exact amounts for a given property irrespective of its cost while purchasing comparable substitute pieces of property. This approach pays much attention to typical buyers as they compare initial prices through seeking a purchase of properties that meet their respective wants and needs at the lowest costs. For the development of a sales comparison approach, the property assessor attempts to measure and interpret the actions of the stakeholders such as buyers, sellers, and investors involved in the marketplace (Razgaitis, 2009, 13). This property valuation technique distinguishes between the level of stickiness for physical capital among different sectors and among countries in achieving a level of the flexibility in financial capitalization which offers an immediate flow to a point at which expected returns remain highest. This distinction often leads to an integral difference between the amount of physical capital which is available at a time in producing goods and services against the capital valuation procedures as a result of making decisions relating to financial capital allocation.

3 ADVANCED PROPERTY VALUATION There is special emphasis on data collection methods as well as the valuation process. Here, data is collected on the basis of recent properties sales comparable to the subject under valuation which is also called comparables. This way, the sold properties are used in appraising and determining the property's value. The main sources of comparable information will include real estate publications, appraisers, public records, sellers, buyers, and real estate brokers or agents. The crucial details of every comparable sale can be described in most of the property’s valuation report. The fact that comparable sales are not necessarily identical to subject properties, subsequent adjustments are made on the basis of date of sale, amenities, location, style, site size and square footage (Macleary, 1998, 53). The lead idea is the simulation of the price which could be paid in the event that each of the comparable sales remains identical to the property in question. In the event that the comparable property appears to be more superior to the one in question, either in factor or aspect, downward adjustments are needed for such factors. Similarly, if the property under comparison is relatively inferior in an aspect to the subject, upward adjustments for those aspects are necessary. Based on this group’s analysis with reference to adjusted sales prices especially the comparable sales, the property assessor would select indicators of value which are subject property representative. There are a number of steps that are followed in a sales comparison approach. The first consideration is that there need for a thorough research on the market as a way of obtaining information that relates to sales as well as pending property sales which are fundamentally comparable to the property under review (Fisher & Martin, 1991, 78). The second aspect is to closely investigate market information as a way of determining whether or not they are correct and accurate facts. This is followed by a crucial determination of the relevant comparison units

4 ADVANCED PROPERTY VALUATION such as sales price for every square foot) as well as developing comparative analysis approaches for each. The forth step is to compare the subject property against comparable sales in accordance with the elements propped up for the comparison and adjustment as it is appropriate. The last step is to reconcile multiple value indicators which could result from adjusting comparable sales into unified value indication. Evidently, the global financial crisis has both had a huge impact on the global economy as well as shaken the investor confidence in various elements of economic management especially in Australia and other developed parts of world based on their respective economic models in place. Such a crisis continues to reveal major market inefficiencies. This is mostly noted in the housing aspects and their transmission to the existing financial systems (Johnson, Davies & Shapiro, 2000, 90). The impacts are also glaring to most of the state efficiencies which exacerbated and propagated the crisis Australia’s property development. T he events of the recent years have led to significant shifts in the thinking of individuals with respect to development economics. It is for such a reason that this paper intends to assess the issue based on several integral domains of that relate to development thinking. This will include the market-state balance, development financing, globalization, macroeconomic management, and public spending. On one dimension, the changes in global circumstances as well as new vulnerability awareness need to translate into various policy changes (Enever & Isaac, 2002, 34). This is mainly due to the fact that Australia continues to take steps that seek to reduce as well as buffer risks especially those generated in many developed countries. On a similar note, such a crisis needs to largely reinforce standard approaches to property valuation.

5 ADVANCED PROPERTY VALUATION Agreements on property development which have emerged over the recent years aims to attain private sector-driven increment as well as seeing the facilitating role for Australia as a way of promoting the engagement with global economies in a way that advances developments, experimentation, and values pragmatism as well as evidence-based policymaking (Baum, Nunnington & Mackmin, 2012). The property owners seek to put to an end the success period in which their payments rise in a dramatic way as the house prices remain static or even begin to decline. In Australia and other states, in the event that an owner could wish to default or sell, they are still held liable in the shortfall which the bank or respective lending institutions are able to recover. On the other hand, this would appear as if the main cases of the property purchasers are able to just render back the value of their property when it falls below a market value line. This later becomes more of a vicious circle in the event that most of the properties are dumped into the market exerting greater pressure (downward) on property prices (Whipple, 2006, 67). The derivatives used in the Australian property market are financial instruments applied in the protection against various risks. Some of the examples of the criteria in which the aspects are put into application are that in the event that an individual wishes to purchase a new piece of property, the derivatives are formed to comprehensively insure them against the risks of defaulting it. For similar ways, the derivatives can be used as a way of protecting against defaults for such a subprime market. Relevantly, if a mortgagee walks away, the responsibility falls back to the derivative’s holder. The derivatives in this case are often on sold and bundled up into bigger packages in some cases. Financial institutions which invest in them feel that they face lower risk levels as they are based on underlying assets in real estates. Markets that grow in the trade of the packages of such derivatives have a wider scope of organizations involved. Unfortunately, claims are made against them as the liability is often passed through a chain of

6 ADVANCED PROPERTY VALUATION individuals making delays because distrust as well as resistance in extending credit between national boundaries and often organizations (Blackledge, 2009, 89). The fact that credit continues to dry up and financial strains faced by the institutions affect the accessibility of credit for the commercial ventures is due to the inconsistencies in the global economy. In addition, the solvency of most banks as well as other financial institutions threatens the previously trusted names to either going bankrupt or falling into unnecessary takeovers and government bale-outs to stay afloat. The Australian government is taking dramatic stimulus approaches towards boosting the sagging economies. Such actions include large interest rate shifts as well as taking over toxic debts to spend on tax cuts, infrastructure projects, cash bonuses as well as directly investing in financial institutions and various businesses. In case the current crisis after the dotcom crash was initially triggered by the injection of billions of dollars into the economy, the question would relate to the long term implications of injecting most of the country’s economic resources at the economy now (Havard, 2002, 78). The Australian government, through taking such a dramatic action, will reiterate making people more nervous and cautious which will further depress spending. The governments will have a way of providing a financial stimulus as well as provide the necessary and appropriate controls for both financial institutions and speculators in helping boost investor confidence in absence of the mistakes.

7 ADVANCED PROPERTY VALUATION

References Baum A., Nunnington N., Mackmin D., 2012. The Income Approach to Property Valuation. Sydney: CRC Press Blackledge M., 2009. Introduction to Property Valuation. Sydney: Taylor & Francis Enever N., Isaac D., 2002. The Valuation of Property Investments. Sydney: Taylor & Francis Fisher J., Martin R., 1991. Income Property Appraisal. Sydney: Dearborn Real Estate Havard T., 2002. Investment Property Valuation Today. Sydney: Taylor & Francis Johnson T., Davies K., Shapiro E., 2000. Modern Methods of Valuation of Land, Houses and Buildings. Sydney: Taylor & Francis Macleary A., 1998. Property Investment Theory. Sydney: Taylor & Francis Razgaitis R., 2009. Valuation and Dealmaking of Technology-Based Intellectual Property: Principles, Methods and Tools. Sydney: John Wiley & Sons Robert R., Schweihs R., 2004. The Handbook Of Business Valuation And Intellectual Property Analysis. Sydney: McGraw-Hill Professional Whipple R., 2006. Property Valuation and Analysis. Sydney: Thomson Reuters Australia,

8 ADVANCED PROPERTY VALUATION Limited