1. Bahan Kajian MK. Landuse Planning Valuation Methods Valuation Theory Value Theory Smno.pdip.ppsfpub.des2013

2. Real property valuation Valuation is both a Science and an Art! Valuation Methods Valuation Theory Value Theory

3. Value theory Platon (427 – 347 BC) - division of labour (specialization) contri- butes to higher efficiency (The State) Aristoteles (384 – 322 BC) - on exchange, money, prices and value (Politics and Ethics) Adam Smith (1723 – 1790) -distinction between Utility value and Exchange value (An inquiry into the nature and causes of the wealth of nations, 1776)

4. Value theory Karl Marx (1818 – 1883) connections to Aristoteles and the dis- tinction between utility value and ex- change value. The latter is a reflection of the labour which is spent on the specific commodity Marx claimed. (Das Kapital, 1867, 1885, 1894) Hernando de Soto (1940 - ) on the causes to wealth differences in the world and why capitalism triumphs in the west but fails everywhere else. (The Mystery of Capital, 2000)

5. Value theory Background factors: The Swedish Hand-book Fastighetsvärdering (Real Estate Valuation): - Utility/Benefit - Scarcity - Need - Use/disposition rights - Transfer rights

6. Background factors: - Utility/Benefit - Scarcity - Desire - Effective purchase power Value theory

7. Background factors : - Utility/Benefit - Scarcity - Desire/Need - Effective purchase power - Use/disposition rights - Transfer rights Value theory

8. - Utility/Benefit - Scarcity - Desire/Need - Effective purchase power - Use/disposition rights - Transfer rights The first two factors are related to the supply side of economy and human behaviour, the two next to the demand side of economy and human behaviour Value theory

9. Value Theory Definition: The quantity of one thing (money) that can be obtained in exchange for another thing (property) The core of the value theory is: –Desire/Need –Utility/benefit –Scarcity –Purchasing power, using rights, transfer rights Number of properties Price Supply Demand Supply and demand

10. A consequence of: –Valuation factors for real property –Social ideals and standards –Economic activities and trends –Government regulations and activities –Physical or environmental forces –Location factors Depends on people´s desires Depends on future benefits The value can not be calculated, it can only be estimated Value Theory

11. Real property valuation Valuation is both a Science and an Art! Valuation includes components and knowledge of: -mathematics -statistics -physical (land) planning - urban planning -rural planning/agriculture -building construction -sociology/human behaviour -common sense/feeling

12. Real property valuation Valuation is both a Science and an Art! Valuation Methods Valuation Theory Value Theory

13. Valuation theory Aristoteles (322-284 BC) -subjective utility value -Adam Smith (1723-1790) - utility value, exchange value David Ricardo (1772-1823) Thomas Malthus (1766-1834)

14. Relation between subjective yield value and market value Seller Buyer Seller´s yield value Buyer´s yield value Area for presumptive transaction

15. Classical scholars: -Smith -Ricardo -Malthus Their basic theory was a sort of “price theory” where they empha- sized the influence of production costs on the value but where the demand factor was supressed. Valuation theory

16. The classical scholars could not suffi- ciently explain many valuation problems and the Neo-classical scholars appeared: Stanley Jevons (1835 - 1882) Leon Walras (1834 - 1910) Alfred Marshall (1842 - 1924) Ernst Laur (1871 - 1964) The most prominent feature of their ideas were “The margin theory” (Margin utility, margin cost and margin income) The demand component was important for the value, not only the production cost Valuation theory

17. Modern economists with influence on value theory and valuation theory are: Frederic Babcock (The Valuation of Real Estate, 1932) Richard Ratcliff (Modern Real Estate Valuation, Theory and Application, 1968) Valuation theory

18. Market value –The most probable price of a property on the open market –Used in most cases Net income value –The present value of future yearly net income –Used e.g. for - investment decisions - market simulation Cost value –Replacement costs minus depreciation –Used e.g. for - insurance compensation - market simulation Valuation theory

19. Price = Value = Cost Valuation Method

20. Number of transfers Price Market value The most probable price of the property on the open market Definisi Nilai Pasar

21. Some key elements: 1.“ asset” 2.“ the estimated amount” 3.“ a property should exchange” 4.“ on date of valuation” 5.“ between a willing buyer” 6.“ a willing seller” 7.“ in an arm´s-length transaction” 8.“ after proper marketing” 9.“ wherein the parties had each acted knowledgeably” 10.“ and without compulsion” Definisi Nilai Pasar

22. Sales comparison approach Income capitalisation approach Cost approach When searching for a market value, the income and cost methods are market simulating methods! Valuation Method

23. 1.Identification and selection of real properties purchased in a comparable market area 2.Objects are made comparable... 3....and adjusted according to purchase dates (price trends) or other differencies 4.Mean price of the selected purchases = estimated market value Pendekatan Perbandingan Harga Jual

24. Informasi yg Diperlukan Information about the purchase –Price –Date of sale –Seller –Buyer Information about the real property –Land use –Land area –Building: size, age, standard etc. –Other special conditions

25. SEK/ USD Year1230.. etc n Remaining value Yearly net income The current value of future yearly net income and remaining value at the end of the calculation period Pendekatan Kapitalisasi Income

26. Empat methode: 1.Sales price / square meter 2.Sales price coefficient 3.Gross capitalisation factor 4.Net capitalisation percent Pendekatan Kapitalisasi Income

27. Information about the real property: –Land use –Land area –Building: size, age, standard etc. –Yearly costs and incomes –Other special conditions Informasi yg Diperlukan

28. SEK/ USD Age (years) 010 Depreciation 3.5 %/year Replacement costs Replacement costs 1 000 Depreciation 10 years 3,5 % - 350 Cost of land 200 Cost value 850 Cost of land Cost value Pendekatan Biaya

29. General information –Average replacement costs –Depreciation - time and percent –Average value of land Information about the real property –Land use –Land area –Building: size, age, standard etc. –Other special conditions Informasi yg Diperlukan

30. Notice - a frequent mistake ! Mathematics Statistics GIS Economics Common sense Others Land planning Sociology Real property valuation

31. Recommendation - a balanced and appetizing mix ! Mathematics Statistics GIS Economics Common sense Others Land planning Sociology