It has been said that the Comparison Method of Valuation is the best method. Do you agree with this statement? It has been said that the Comparison Method of Valuation is the best method. I personally agree to this statement but I believe there is no perfect valuation method. All methods have advantages and disadvantages. Valuers always prefer to use the comparative method for assessing market value or market rent, because it links directly to evidence of current market transactions.
The other methods: profits, residual, contractors and investment are used when the comparative method cannot be used with full confidence. The comparison method is used to value the main types of property for example houses shops offices and standard warehouses and factories. These are regularly sold or let in the market giving plenty of evidence to support an assessment of rental value or market value of similar properties. The comparison method can be used to calculate the market value of the property and the rental as well; all other methods can provide results for one or the other.
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So this method is mainly used because it provides solid evidence of the property’s value. All other methods can be manipulated by the valuer. This is the reason why the comparison method is the only acceptable method for court usage. When there is little or no evidence of comparable market transactions the valuer needs to stand in the shoes of the most likely purchaser or tenant to simulate their thinking and calculations they might carry out when assessing how much to pay for the property concerned. To perform a valuation with the comparison method: The valuer needs to be fully aware of the current economic conditions * The market should be stable * There should be plenty of evidence of recent sale in similar properties * In Size * Condition * Age * Area * Type As I notice today it is very hard to find comparable market transactions simply because there are very few transactions done. But even when we do find comparable date the market is so unstable that they aren’t reliable. The comparison method of valuation is also a basic component of each of the other methods.
It plays a vital role in the Investment method. In the first stage of the investment method we need to analyze property sale transactions to establish the relationship between rental income and the capital prices recently paid by investors. So we basically use the comparable data from the comparison method to find a yield or a multiplier which expresses the relationship between rent and capital. And finally we use this yield and the rental income of a property to calculate the current value.