Asset Valuation

Asset appreciation over time can mean that property assets on the Company Balance Sheet are understated. Our expert Valuers can re-asses 'market value' enabling asset values to be re-stated and the Balance Sheet improved.

For specialist uses, such as hospitals depreciated cost assessment and the remaining life of the buildings is important and something our Valuers can advise on

The term asset valuation covers a wide range of situations but essentially covers situations where there is not a transaction happening, no buyer, no seller and no deemed disposal for tax or other purposes.

A valuation of a property for asset valuation purposes may be needed for any of the following reasons:

  • for the purposes of updating the value of buildings which are held as assets of a company
  • to determine the value of assets held by a family trust
  • to determine the asset value of a pension fund

Balance sheet valuations….

Asset and fund valuations essentially form part of the balance sheet value of a business and are a vital requirement for most commercial businesses and public sector bodies. To meet various legal obligations most companies and local authorities are obliged to re-value property assets on either a 3 or 5 yearly rolling programme. Under CIPFA rules, public sector organisations are also required to maintain a register of property assets and to represent these within their accounts.

Building held as assets by a company are often specifically adapted for the purpose and/or may have a limited market, therefore the Chartered Valuation Surveyor will need to consider the valuation method that is appropriate for the property being valued. Market valuations are usually carried out by reference to comparable transactions of similar properties except where comparable properties are few and far between. Where the property or buildings has a limited market, for example, a hospital or fire station the Valuer may take the depreciated replacement cost basis approach. Here the current cost of replacing an asset with its modern equivalent asset is assessed less deductions for deterioration and obsolescence.

Going concerns and/or buildings in use…..

Where the value of the trade is to be assessed then a profits basis method would apply, e.g., hotels. The profits basis of valuation will look at the impact and expertise of the owners, margins achieved and whether these are better than average for the location before selecting the multiplier to put on the net profit (after the Valuer has made various adjustments to the accounts), see section on goodwill valuations.

Portfolio valuations – usually require assets to be valued as investments

An investment valuation is the term used to refer to valuations of all classes of property which are held for investment purposes. In simple terms this means either assets that are not owner occupied (a house let out rather than lived in by the owner, or a commercial or mixed use property not used by the owner for his or her business purposes but let out).

When considering an investment valuation the Chartered Valuation Surveyor has to consider not only the value of comparable units vacant and to let, but also the yield, or investment multiplier that the investment market, private treaty deals and auction houses are achieving for the relevant property class. So the method is Rent x Yield = Value. It is the Chartered Valuation Surveyor’s job to assess whether the passing rent is the market rent, and if not, to look at when the market rent can be realised. This will either be at the next rent review that restores the rent to market value or at the end of the lease when the property can be re-let at market value. When choosing the yield to apply the Valuer will also need to consider the ‘covenant strength’ of the occupier to an investor and as a principle a ‘blue chip’ covenant such as a bank or plc will offer better surety of the rent being received than an independent trader.

The Royal Institution of Chartered Surveyors (RICS) represents the property profession in 146 countries, and regulates its ‘Chartered’ members. All valuations are subject to the RICS International Valuation Standards otherwise known as the ‘Red Book’.