What is a Valuation?
Valuations determine a property’s value based on certain assumptions.
Most valuations are related to market value. Understanding why particular valuations are needed is important, as valuations for one purpose may differ from valuations for another.
Valuations may be undertaken for many purposes including:
- Mortgage / Loan Security
- Inheritance Tax
- Capital Gains Tax
- Annual Tax on Enveloped Dwellings
- Valuations for Tax Accounting
- Property Development (Commercial Valuations of retail, office, industrial, and leisure property.
- Leasehold Enfranchisement
- Litigation / Estate Settlement / Matrimonial Settlement
Types of Valuations
In accordance with the Leasehold Reform Act, such valuations are necessary for leaseholders of flats and houses who wish to extend their leases or purchase freeholds.
The Valuer determines the premium required for an extension of a lease based on the assumptions set forth in the legislation.
In the case of a flat lease, the ground rent can be reduced to zero and the lease term can be extended by 90 years.
Valuations are typically made up of various different factors:
- The value of the ground rent income.
- The value of the reversion when the original lease terminates. • Significant (but not urgent) repairs and renewals.
- Generally, 50% of any increased value that results from extending a lease is referred to as “marriage value.”.
- Leaseholders may need to pay additional sums if they plan to purchase the freehold interest.
This is applicable when some leaseholders do not participate or where there is development value in addition to the value of the freehold.
An ‘Expert Witness’, that is, a Chartered Surveyor with extensive experience in valuation, is required when there is a disagreement over the value of the property.
In certain instances, the court will allow each party to appoint an Expert Witness to produce a Valuation Report and the two experts may negotiate. Eventually, they may give evidence in court.
There are many circumstances when a valuation is necessary in connection with taxation. Valuations are often required for Inheritance Tax, Capital Gains Tax, Pension Schemes, etc.
Government schemes such as Help to Buy enable people who meet certain criteria to take part in a shared ownership program.
When it comes time to sell your home or repay the government loan, you will need an independent appraisal.
An equity valuation is a general term used to describe many different methods and techniques used by investors in order to determine what the true value of a company’s stock is.
Often, it is viewed as the most essential factor in making a successful investment decision.
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If you have a question about valuations, please don’t hesitate to reach us.