Property valuation reports are tailored to the property that is being valued. That means that a valuation report for a commercial property would be different to that of a house.
Here is what you need to know about the contents of a commercial property valuation report and how it is completed.
The standards to be followed
First up are the regulated standards to be followed when conducting a valuation. Experienced commercial valuers in Adelaide are well-versed in the relevant standards that are to be complied with in a variety of circumstances. As valuation reports may be required under a variety of circumstances, a valuer must be able to identify and follow the correct standards demanded of the situation.
For the majority of reports, the standards of the International Valuation Standards Council (IVSC) are complied with. These are recognised by over 200 countries across the globe including Australia, Singapore, Brazil, the United Kingdom, and the United States of America.
Reports from certified commercial valuers also follow the Australia and New Zealand Valuation and Property Standards (ANZVPS) and the guidance of the Australian Property Institute (API). Depending on the valuer and their firm, other regulations may be observed including that of the Royal Institution of Chartered Surveyors (RICS).
Valuation methods of a commercial property
The methods of a commercial property valuation report vary according to the outcome to be achieved from the report, the type of value to be determined or its purpose. The most common valuation method that is used is the direct comparison approach. This involves an in-depth investigation into the property market and uses the recent sales of comparable commercial properties to determine market value. The direct comparison approach can be used for such things as:
- Tax determination
- Buying, investing, renting, or selling property
- Securing a mortgage from a lender
- Litigation
- Business acquisitions
- And more.
While this is the most common method, it is not the only method commercial valuers can employ. Depending on the requirements of the report, a commercial valuation may be conducted using:
- The Income approach: A capitalisation method that uses the Net Operating Income of the property to calculate value. This figure excludes any interest and taxes.
- The Building replacement cost method: A comprehensive investigation and calculation of the total cost of replacing a building completely. This includes the cost of labour, site clearing and materials. These methods may be used alone or combined to better serve the needs of the report. The method/s used are disclosed with a distinction on which is the primary method and secondary.
Types of commercial valuation reports
Commercial property valuation reports are custom-made. As such, no report presents the exact same information as another. In most cases, the value reported would vary according to the methods and qualifications of the valuer. The designated purpose of the report is a major factor in its format and requirements.
Custom reports may be made for:
- Litigation
- Taxation
- Hypothetical developments
- Compensation
- Building insurance
- Unit entitlements
- And more
For legal purposes, there are two formats of commercial property valuations that may be made. These are long form reports and short forms. Other than the length and level of detail, the main difference between the two reports is that the long form report is for court use or other lawful purpose and the short form is for non-court use, including mediation.
Details found in a long-form commercial valuation report
Below are the details and information that you may find in a long form commercial valuation report. The same information can be found in a short form only in a more concise manner.
A summary
Following a title page of key information, valuation reports start with an executive summary. This includes the purpose of the report, certificate of title details owner, zoning, the date of the valuation and the value determined
Land/lot information
Details of the land include such things as access to the property, its size, use, topography, soils, and available services. Location is also a key detail included in the report including the property’s distance from the CBD.
Details of the main structure
The characteristics of the property including its ancillary improvements are detailed in the report. A valuer writes a description of the structure providing the exact area the structure occupies on the land.
Sales evidence and market analysis
When using the direct comparison approach, a market summary, and the sales information of up to 6 comparable properties are included for transparency. As this is a core element of calculating value, how a commercial valuer came to their conclusion can be seen.
Risk analysis
A brief SWOT analysis is completed by the valuer. This means that the commercial valuer would have considered the property’s Strengths, Weaknesses, Opportunities and Threats when completing their valuation.
Environmental considerations
Here, a valuer discloses the potential environmental hazards present on site. Where there is none, they declare that they have not seen any evidence of such hazards as asbestos insulation or hazardous waste storage.
Assumptions, considerations, and limitations
If there have been any assumptions made, special considerations or limitations affecting the accuracy of the report, then the valuer discloses it as such.
The importance of a qualified and experienced commercial valuer
The quality of your commercial valuation report relies heavily on the valuer. It is important to confirm the commercial valuer has the necessary qualifications and experience to perform the specific report you are after. Reports that have not been completed properly may lead to huge financial and legal consequences. If you want the service of an accredited commercial valuer in Adelaide, contact our team today.