The International Valuations Standard Council (2011) defines Market Value as follows:
"the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."
Closely related to Market Value are the following definitions of value:
Fair value – "the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties."
Investment value – "the value of an asset to the owner or a prospective owner for individual investment or operational objectives."
Several approaches are available for the determination of all of the above Value types:
"the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."
Closely related to Market Value are the following definitions of value:
Fair value – "the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties."
Investment value – "the value of an asset to the owner or a prospective owner for individual investment or operational objectives."
Several approaches are available for the determination of all of the above Value types:
The Market ApproachThis approach provides an indication of value by comparing the subject asset with identical or similar assets for which price information are available.
This approach is most suitable for the valuation of residential property and vacant land. This approach is also the basis for the other approaches. |
The Income ApproachThis approach provides an indication of value by converting future cash flows to a single current capital value.
This approach is more suitable for the valuation of income producing properties. The following methods resort under the income approach:
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The Cost ApproachThis approach provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction.
This approach is however the approach of last resort as it is the least favoured by the South African courts. It is however useful as a "control indicator" of value when specialised properties which does not transact regularly are valued or in cases where there exist no market demand. The method employed under the Cost Approach is the Depreciated New Replacement Cost Method. |