BPE 12503

Valuation Reports

VALUATION REPORTS

SR DR. DAVID MARTIN JUANIL

FACULTY OF TECHNOLOGY
MANAGEMENT, BUSINESS &
ENTREPRENEURSHIP
 CONTENTS
• Introduction
Valuation Reports

• Need For Valuation Reports

• Implications
• Market Value
• The Valuation Process
• Valuation Standards
• Valuation Reports
• Overview
• Suggestions For Improvement
• Conclusion
 INTRODUCTION

• The world today is flooded with

Valuation Reports

reports needed for every

conceivable occasion.
• To many people, a report is a bunch
of papers containing facts, figures,
recommendations and opinions. It
makes sense to some people; to
others it does not.
• Therein lies the essence of a good
report – it must make sense to
those for whom it is written.
 NEED FOR VALUATION
REPORTS
• Real Estate Valuation, i.e. to
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determine and to report what a

defined interest in an asset is likely
to realise if sold on the open
market.
• According to the Malaysian
Valuation Standards (MVS),
valuation is defined as:
The written opinion as to capital
or rental value on any given basis
in respect of an interest in
property, with or without any
assumptions or qualifications.
• Reasons for valuation
 NEED FOR VALUATION
•
REPORTS
Clients need to know all information
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regarding their assets, done through

valuation reports, which are:
– A public presentation and summary of all
facts collated from the inspection of the
property,
– Information from the documents of title,
– Enquiries of the local authority,
– Analysis of the transactions, and
– Production of the valuation.
 NEED FOR VALUATION
REPORTS
• Globalisation in property has resulted in
dramatic changes in the property industry,
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creating structural changes within the real

estate market:
i. Emergence of risks in real estate
investments.
ii. Profitability-oriented price valuations
iii. Reform of fundraising methods due to
financial uncertainty from indirect finance
by bank loans to direct finance using the
securitisation of real estate.
iv. Mass disposal of real estate arising from
needs to dispose off bad debts.
 IMPLICATIONS
• The globalisation of business and
real estate means that business is
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moving toward common accounting

standards which in turn requires
standardisation of practice relating
to the valuation of commercial
property.
• Create awareness within the
valuation profession on needs for
valuation standards.
• For any valuation to have validity it
must produce an accurate estimate
of the market price / value.
 MARKET VALUE
• The Mallinson Report (1994) defines
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market values as:

“an opinion of the best price at
which the sale of an interest in
property would have been
completed unconditionally for cash
consideration on the date of a
valuation assuming:
 MARKET VALUE
– Willing seller
– That prior to the date of the valuation, there had
been a reasonable period for the proper
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marketing of the interest, for the agreement of

price and terms and for the completion of the
sale
– That the state of the market, level of values and
other circumstance were, on any earlier assumed
date of exchange of contracts, the same as on
the date of valuation
– That no account is taken of any additional bid by
purchaser with a special interest and
– That both parties to the transaction acted
knowledgeably, prudently and without
compulsion.”
 MARKET VALUE

• The MSV defines market value as:

Valuation Reports

“The estimated amount for which a

property should exchange on the
date of valuation between a willing
buyer and a willing seller in an
arm’s-length transaction after
proper marketing wherein the
parties had each acted
knowledgeably, prudently and
without compulsion.”
 THE VALUATION PROCESS
• Valuers are engaged to estimate the
market value of property. The
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valuation process refers to the

logical and analytical process by
which a property valuer conducts a
valuation.
• Conducting a valuation is a
problem-solving exercise.
• The solution requires interpretation,
in terms of money, of the influences
of economic, sociological, legal and
political forces on a specific real
property, and stated in a valuation
report.
 VALUATION STANDARDS

• Producing valuation reports is

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closely related to valuation

standards. Valuers need some
standards and guidelines in order
to validate their valuation.
• The creation of valuation standards
comes from the regulatory sector
whether governmental or private,
eg. BOVAEA, IVSC.
 VALUATION STANDARDS

• The standards governing valuers in

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Malaysia is the Malaysian Valuation

Standards (MSV) issued by the
Board of Valuers, Appraisers and
Estate Agents Malaysia.
• However, the standards only focus
on what valuers should do rather
than how they should do it, hence
the need for valuers to produce
good, quality reports according to
the standards.
 VALUATION REPORTS
• Valuation reports are produced
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according to clients’ requirements

and purpose of valuation.
• Thus, valuers must be constantly
aware of contemporary
developments in the real estate
business. They must be able to
provide diverse services and skills
to respond to diverse needs.
 VALUATION REPORTS
• According to the MSV, valuation
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reports can be acted upon by the

client or certain third parties
without any reference to the
valuer, and must be clear and not
misleading.
• The valuation report must convey
to the reader a clear understanding
of the opinion expressed by the
valuer, the basis of the valuation
used and the assumptions and
information on which it is based.
 VALUATION REPORTS
• In Malaysia, the minimum contents
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of a valuation report are stipulated

in Standard 9 of the MVS.
• Nevertheless, there will be some
differences depending on the type
of property valued and the purpose
of valuation. For eg., a valuation
for the Securities Commission
would have more stringent
requirements than the MVS.
 VALUATION REPORTS

According to the MVS (2006), the

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valuation report should consist of:

• Instruction to value
• Interest to be valued
• Purpose of valuation
• Date of valuation
• Inspection
• Title particulars
• Description of the property
…. Cont’d
 VALUATION REPORTS

Cont’d….
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According to the MVS (2006), the

valuation report should consist of:
• Tenancy/lease details
• Planning details
• Assumption
• Method of valuation
• Evidence of value
• Opinion of value
• Plans
• Name and signature of valuers
 VALUATION REPORTS

For Securities Commission purposes a valuation

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report shall contain but not limited to the

following:
• Client and instructions
• Purpose of valuation
• Material date of valuation
• Identification of the property
• Inspection and referencing
• Interest to be valued
• Title details
• Description of property
• Experts’ reports
• Neighbourhood
• Planning provisions
…. Cont’d
 VALUATION REPORTS

Cont’d…
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For Securities Commission purposes a

valuation report shall contain but not
limited to the following:
• Assumptions
• Acquisition details
• Basis of valuation
• Method of valuation
• Evidence of values
• Property market condition/ industry outlook
• Opinion of value
• Certification and authentication
• Appendices
 VALUATION REPORTS

• In common practice, the preparation

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of a valuation report should follow

the valuation process which acts as a
guide for valuers in generating
quality valuation reports.
• The summary of the main contents in
valuation reports are as follows:
 OVERVIEW

• Many valuers and appraisers in

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Malaysia have clearly understood

standard valuation procedures
which in turn are translated into
their reports.
• However, as the real estate
business is evolving, there is a
demand from clients to endow with
more presentable and informative
reports.
 OVERVIEW

Newell (1999) highlighted four key

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areas on quality valuation reports:

1. critical role of detailed
instructions for valuer
2. greater emphasis needed on
market dynamics/future
performance
3. too much generalisation and
unrealistic future
projections
4. lack of support for contentions
with quality information
 SUGGESTIONS FOR IMPROVEMENT

Crosby et. al (1996) suggested the

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need to include information on:

◊ aspects of the economy and
investment market that might
impact short and longer-term
trends;
◊ aspects of property investment and
letting markets that may lead to
changes to the structure of the
markets;
◊ detailed information on appraisal
techniques, and supporting information
including comparable property
transactions
 SUGGESTIONS FOR IMPROVEMENT

Wyatt (2001) suggests the following

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to improve valuation reports:

• Provide the calculation itself, not just
the end value
• Analyse competitor activity in market
• Reduce descriptive content
• Reflect the brief – any competent
manager sets out the requirements of
the valuation at the outset, so any
omissions in the report are due to
poor instruction
…. Cont’d
 SUGGESTIONS FOR IMPROVEMENT

Cont’d ….
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Wyatt (2001) suggests the following

to improve valuation reports:
• Demonstrate a better understanding
of building systems and their cost in
use
• Reflect worth or comment on
obsolescence rather than just fix a
price.
• Improve accuracy
• Include demographic information.
 CONCLUSION

• Valuation reports – key ingredient

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in the property investment

decision-making process.
• More so in the context of the global
financial crisis and the need to
continue to improve all aspects of
valuation standards and valuation
reports.
• They form part of the integrity of
and public confidence in the
valuation profession.
Valuation Reports

THANK YOU