Land & Building Valuation

Land and Building Valuation is the professional process of estimating the value of a property by considering both the underlying land and the building or structures constructed on that land.

A property is not valued only on the basis of its size. Several factors such as location, accessibility, land use, construction quality, age of the building, physical condition, market demand and surrounding development can influence the final assessment.

Professional valuation can be useful for property purchase and sale decisions, financial planning, lending and mortgage purposes, accounting, taxation, insurance, investment analysis and other legitimate requirements.

Property valuation provides an informed basis for understanding the financial worth of land and buildings. A properly prepared valuation can help property owners, buyers, lenders, investors and other stakeholders make better decisions.

• To understand the estimated current value of a property.
• To support property purchase and sale decisions.
• To assist with secured lending and mortgage-related requirements.
• To support financial and investment planning.
• To assess property for accounting or asset management purposes.
• To assist in insurance and risk-related assessments where applicable.
• To support certain legal, taxation or settlement requirements.

The purpose of valuation is important because the appropriate methodology and assumptions can vary depending on why the valuation is being conducted.

Property value depends on a combination of physical, legal, economic and market-related factors. A professional valuation considers the characteristics that are relevant to the property and the purpose of the assignment.

Land valuation focuses on estimating the value of the underlying land without treating the building as the primary component of value.

The valuation professional may examine the location, neighborhood, plot characteristics, access, permitted use, development potential and comparable market evidence.

Important Land Valuation Considerations

• Location and surrounding development.
• Plot area and dimensions.
• Road frontage and access.
• Shape and usability of the plot.
• Permitted land use.
• Availability of infrastructure and utilities.
• Comparable properties and market evidence.
• Development potential and local demand.

Building valuation deals with the value attributable to the structures constructed on the land. The assessment generally considers the type of building, construction specifications, age, condition, useful life, depreciation and other relevant characteristics.

Factors Considered in Building Valuation

• Type and purpose of the building.
• Built-up area and floor configuration.
• Construction materials and specifications.
• Quality of finishes and installations.
• Age of the structure.
• Physical condition and maintenance.
• Functional utility of the building.
• Applicable depreciation considerations.
• Current construction cost indicators.

A newer building with good specifications and maintenance may have a different value profile from an older structure requiring significant repairs or modernization.

Different valuation methods may be appropriate depending on the type of property, available market evidence and purpose of the valuation.

A professional valuation generally follows a systematic process. The exact procedure may vary depending on the assignment and purpose.

The documents required can vary depending on the purpose of valuation and property type. Commonly requested information may include:

A professional property valuation report generally presents the information required to understand the basis of the valuation conclusion.

• Property identification and location details.
• Purpose and scope of valuation.
• Property description.
• Land and building details.
• Site inspection observations, where applicable.
• Relevant documents reviewed.
• Valuation methodology used.
• Market or technical considerations.
• Assumptions and limiting conditions.
• Final assessed value.

The format and level of detail can vary depending on the intended use of the report.

Land and building are different components of a property and may need to be analyzed separately during valuation.

Property valuation should be based on reliable information, appropriate methodology and careful analysis. Some common mistakes can reduce the reliability of an assessment.

• Comparing the property with unsuitable properties.
• Ignoring location and accessibility differences.
• Relying only on asking prices instead of relevant market evidence.
• Ignoring building age and physical condition.
• Not reviewing important property documents.
• Overlooking permitted land use or development restrictions.
• Using an unsuitable valuation method for the property type.
• Failing to clearly document assumptions and limitations.

Property value is not necessarily fixed forever. Market, economic, physical and infrastructure-related changes can affect the value of land and buildings.

Reasons for Change in Property Value

• New roads and infrastructure development.
• Changes in local demand and supply.
• Growth of commercial or residential areas.
• Changes in permitted land use or development potential.
• Changes in building condition.
• Renovation or modernization of the property.
• Economic and financial market conditions.
• Changes in surrounding neighborhood quality.

Therefore, an old valuation report should not automatically be treated as the current value of a property. A fresh valuation may be appropriate when current value is required.