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Complex Land Valuation Methods in Current Times: A Comparative Study

This review compares the Comparison Approach and Residual Method for complex land valuation in current times. The Comparison Approach involves adjustments based on market data and is suited for typical properties, while the Residual Method is multidisciplinary and adaptable for various property types. The Case Study highlights the importance of considering different valuation approaches to maximize land value potential and make informed decisions.

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Complex Land Valuation Methods in Current Times: A Comparative Study

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  1. Complex Land Valuation in current times Short review of the methods

  2. Contents •Comparison Approach Overview •Data •Pros & Cons •Sources of uncertainty •Residual Method Overview •Data •Pros & Cons •Sources of uncertainty •Case study of complex valuation •Comparison Approach Available Data •Comparison Approach Outcome •Residual Method Data •Residual Method Outcome •Conclusions

  3. Comparison Approach •Is applicable for similar properties •Requires a functional market with data availability •Using adjustments to determine value •Data used: •Transactions with similar properties •Property listings •Market information (micro & macro economics) •Property specific data •Valuer’s experience Pros + - Cons •Direct measurement •Simple and straightforward •Easy to verify •Excellent for typical properties •Sensitive to the quality of information •Involves subjectivity •Not suitable for distinctive properties

  4. Comparison Approach (3) Sources of Uncertainty • subjectivity in estimating adjustments (location, physical features, etc) • incomplete/ wrong information • adjustments for non straight-forward features (development potential)

  5. Residual Method • Is applicable for complex properties • Multidisciplinary • Complex and requiring extensive experience •Data used: • Transactions with end-product properties • Construction market, Financing market, Consultancy market data • Market information (micro & macro economics) • Property specific data • Valuer’s experience • Flexible and adaptive to properties from simple to very complex • Multidisciplinary • Allows a more thorough view on the risk of a property Pros + - Cons • Complex and requiring experience • Verification is not straightforward • Allows manipulation • Too demanding to be used in simple cases

  6. Residual Method (3) Sources of Uncertainty • Development specific information (profit rate, financing rate, etc.) • Sensitivity to quick market movements • Future projection

  7. Case Study – Semi central development land plot

  8. Conclusions •Difference in approach could lead to deal-breaking situations • Residual method indicates the maximum achievable values if extremes values are used, otherwise indicates averages • Lender will always look into the pragmatic side of facts, developer will target best deal • A decision should be made looking carefully into both outcomes • Lenders/ Valuers should be aware of the pros and cons of each method before considering any of them • Land value reflects its potential, not the physical existence/ features • The potential of the land plot is not always properly revealed using direct comparison • The residual approach does not forecast the take up of the project, it is an assumption

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