1. Introduction 5
1.1 The general purpose of the book 5
1.2 Overview of issues covered 6
1.3 How the book can be used 7
2. The concept of market value 9
2.1 Introduction 9
2.2 Standard definition 9
2.3 Criteria for a good definition: clear, measurable, concise and relevant 10
2.4 Problem 1. "Estimated price" or "most probable price"? 11
2.5 Problem 2: Shall the definition refer to a competitive market? 12
2.6 Problem 3: Should the definition refer to prudent and knowledgeable actors? 12
2.7 Problem 4: Should the definition include a reference to willing seller and willing buyer? 14
2.8 Problem 5: Market value and turnover 15
2.9 Highest and best use 18
2.10 Conclusion 18
Exercises 19
3. Finding the market value: What is a valuation method and how should the methods be categorized? 20
3.1 Introduction and overview 20
3.2 The three classic valuation approaches/methods 20
3.3 A problem with the standard classifications 24
3.4 The information base of a valuation 26
3.5 A different way to classify valuation methods 29
3.6 Adjustment methods 32
3.7 Why are regression analysis (hedonic methods) seldom used in ordinary valuations? 33
3.8 What is really the cash-flow method? 35
3.9 Valuation of development properties and option aspects 38
3.10 Use of different methods in the valuation of a specific object: Concluding comments 40
Exercises 42
4. Uncertainty and bias in property valuations 44
4.1 Introduction 44
4.2 Valuation variance: Why do valuers disagree? 45
4.3 Valuation accuracy: Why do the observed price differ from the market value? 46
4.4 How confident is the valuer in the estimated market value? 48
4.5 How stable is the estimated market value? 49
4.6 Client influence and bias 51
4.7 Behavioural factors 52
4.8 Valuation smoothing 54
4.9 How self-selection can lead to "bias" 55
4.10 Possible policy recommendations 57
4.11 Concluding comments 58
Exercises 59
5. Valuation for lending purposes and long-term value concepts 60
5.1 Introduction 60
5.2 Two competing theories about predictability of property prices 61
5.3 Price bubbles on the real estate market 62
5.4 The leverage cycles and bank incentives 63
5.5 Use market value, make risk analysis and adjust the Loan-to-value ratio (LTV-ratio) 64
5.6 âLong-run valueâ as an alternative 67
5.7 Alternative value concept (1) Mortgage Lending Value 68
5.8 Alternative value concept (2) Worth or (normalized) investment value 70
5.9 Derivatives of market value 71
5.10 Cost based value concepts 73
5.11 Final comment: Can valuation methods and credit rules affect the property cycle? 73
Exercises 74
6. Valuation for financial reports and other accounting related issues 75
6.1 Introduction 75
6.2 The fair value concept 76
6.3 The fair value hierarchy, disclosure requirements and the risk for bias 78
6.4 Valuation of public sector properties 80
6.5 Property depreciation, refurbishments, and free cash flows to the property firm 81
6.6 Auditing and quality assurance of fair values in financial reporting 82
6.7 Concluding comments about fair values 83
Exercises 84
7. Property valuation and sustainable buildings 87
7.1 Introduction 87
7.2 What is a green/sustainable building â" on environmental certification system 87
7.3 How sustainability can affect property values 89
7.4 Valuation methods and sustainable buildings 91
7.5 The relation between values of "green" and "brown" buildings 92
7.6 Concluding comments 94
Exercises 94
8. Transparency issues 96
8.1 Transparent and rational markets 96
8.2 Transparent valuation reports 101
8.3 Concluding comments 103
Exercises 103
9. Valuation ethics, the role of the valuer and governance 104
9.1 The importance of valuation and basic ethical rules 104
9.2 The responsibility of valuers and valuation firms 104
9.3 Authorization/certification of valuers 107
9.4 Concluding comments 109
Exercises 110
10. Property valuation in the future 111
10.1 Technological development 111
10.2 Structural changes in society: Corona-pandemic as an example 113
10.3 Radical uncertainty and property valuation 114
Exercises 115
Appendix: Can the value of a property be divided into value of the parts? 117
Introduction 117
Dividing the value into land value and building value for homes and commercial buildings 117
Dividing the value into farmland and farm buildings 119
Dividing the value into property value and "business enterprise value" 120
Concluding comment 121
Exercises 121
References 122
