Five Methodologies — The Right One Depends on the Property Type and the Valuation Purpose
A Government Approved Property Valuation is not based on a single formula. The appropriate methodology depends on the property type, market evidence, development potential, income profile and the statutory or commercial purpose for which the valuation is required.
Five Valuation Approaches for Different Property Situations
Each approach answers a different valuation question. The final methodology is selected according to the property's characteristics and the purpose of the valuation assignment.
Comparative Market Approach
The Comparative Market Approach (CMA) derives the property's FMV from actual registered sale transactions for comparable properties.
It is the primary methodology for residential property, where comparable transactions are generally most abundant, and may also be used as a cross-check for commercial and industrial property.
Comparable Selection
Recently registered transactions, generally within 12 months, are examined for properties in the same locality with similar type, age, size and specification.
Adjustment for Differences
Each comparable is adjusted for floor level, construction quality, area, parking, amenities and condition to make the evidence more comparable with the subject property.
FMV Range
Adjusted comparable prices converge on a range from which the valuer's professional judgment establishes the specific Fair Market Value (FMV).
Income Approach
The Income Approach is primary for commercial and rental-yielding property where value is directly influenced by the property's income-generating capability.
The methodology considers achievable rental income, vacancy, operating expenses and the appropriate capitalisation or discount rate.
Net Operating Income is capitalised using an appropriate rate to derive the property's capital value.
Future rental income and terminal value are projected and discounted at an appropriate yield.
Cost Approach / Depreciated Replacement Cost
The Cost Approach / DRC is primary for institutional and special-purpose properties where sufficient comparable market transactions may not exist.
The calculation combines the underlying land FMV with the replacement cost of the building and deductions for physical, functional and external obsolescence.
Government cost reference for residential, institutional and standard office buildings.
Structural condition assessment supports the physical depreciation component.
Commercial and industrial buildings may use current contractor rates.
Residual / Development Approach
The Residual Approach is applied where development potential is the primary driver of land value, particularly for large undeveloped plots and properties with significant redevelopment potential.
It considers the property's highest and best use rather than relying solely on its existing use.
Total value of the completed development based on permitted FSI and current market sale prices.
- Construction
- Professional Fees
- Approvals
- Finance
- Developer's Profit
Indicative maximum price a developer would pay for the land for the proposed development.
Land and Building Split
For developed properties, the Government Approved Valuer separates total property FMV into the land component and the building component.
The land component represents the FMV of the underlying land in its current state, while the building component is assessed using an appropriate DRC-based structure valuation.
Underlying land value in its current state, generally supported by market evidence.
Replacement cost adjusted for physical condition and relevant obsolescence.
Building depreciation is treated separately from land.
Land and building security interests may require separate consideration.
Supports Fair Value determination for land and building assets.
The Valuation Method Follows the Property and Its Purpose
The Right Methodology Begins With the Right Context.
Discuss your residential, commercial, industrial, institutional, agricultural, land or development valuation requirement with A2Z Valuers.