Basics of Real Estate Valuations

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A Valuation is an estimate of the price an asset would sell for without actually selling the asset. Valuers, through their experience and knowledge of how the market actually operates, provide an understanding of how buyers and sellers would conduct an actual transaction. There are numerous reasons for conducting a valuation – most people interact with valuers for secured lending, to purchase the property or for statutory requirements such as audits and so forth. In addition, valuation provides a fixed point of value at a specific time.

As the market evolves and becomes more mature, an increasing number of market players are present to offer a variety of services to meet the demand to make an informed investment decision.  Whether you’re about to purchase a property, need to know its value for accounting purposes, want to apply for a new loan and need to use property as a guarantee, or you want to consider the exit strategy for the real estate you own, this is when valuers and their expertise are required. Nowadays there are plenty of valuation companies all over the MENA region, mostly having their headquarters in Dubai or Abu Dhabi but quickly expanding their presence in other Middle Eastern countries such as Qatar, Kingdom of Saudi Arabia, Bahrain, Kuwait and others.

In order to understand what valuers do plus what is the extent of their scope and the expertise, some of the key terms and questions will now be elaborated.

What the real estate is?
The real estate as “Land and all things that are a natural part of the land (e.g. trees, minerals) and things that have been attached to the land (e.g. buildings and site improvements) and all permanent building attachments (e.g. mechanical and electrical plant providing services to a building), that are both below and above the ground.”*

What is the difference between the market value and the fair value?
Market value is  the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

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 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, such as any element of special value arising because of the combination of the interests.

For purposes other than use in financial statements, fair value can be distinguished from market value. Fair value requires the assessment of the price that is fair between two identified parties taking into account the respective advantages or disadvantages that each will gain from the transaction. It is commonly applied in judicial contexts. In contrast, market value requires any advantages that would not be available to market participants generally to be disregarded.**

What types of property classes can be valued?
The valuer can perform the valuation of all the property classes: residential, office, retail, hotels and hospitality, industrial & logistics (including agricultural, farms, biological assets, factories, warehouses, labor camps and depots), land, plant and machinery and specialist properties.

What is Royal Institution of Chartered Surveyors (RICS)?
The Royal Institution of Chartered Surveyors (RICS) is a professional body that accredits professionals within the land, property and construction sectors worldwide.

Founded in 1868, RICS is now a worldwide organisation with over 118,000 members who have a wide range of specialisms. As well as promoting the profession, RICS protects consumers by maintaining the highest standard of professional practice and ethics among its members.

RICS has three levels of professional membership: associate (AssocRICS), member (MRICS) and fellow (FRICS). Chartered surveyors are MRICS or FRICS members. Associate members do not have chartered status, but there are several progression routes for AssocRICS members to become MRICS members.

 

* IVSC
** RICS Vauations – Professional Standards

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